<PAGE>
As filed with the Securities and Exchange Commission on March 21, 2000
Registration No. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________________
LIFEF/X, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
Nevada 7370 84-1385529
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
153 Needham Street, Building N1
Newton, Massachusetts 02164
(617) 551-5849
(Address and Telephone Number of Principal Executive Offices)
__________________
8 Cambridge Center
Cambridge, Massachusetts 02459
(617) 551-5849
(Former name or former address, if changed since last report)
__________________
Lucille S. Salhany
153 Needham Street, Building N1
(617) 551-5849
(Name, Address, and Telephone Number of Agent For Service of Process)
___________________
Copies of all communications to:
MICHELE E. BEUERLEIN, ESQ.
Loeb & Loeb LLP
1000 Wilshire Boulevard, Suite 1800
Los Angeles, California 90017
Telephone: (213) 688-3400
Facsimile: (213) 688-3460
___________________________
Approximate Date of Proposed Sale to the Public:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
================================================================================================================
Title of Each Class of Amount to be Proposed Proposed Amount of
Securities to be Registered Registered Maximum Maximum Registration
Offering Price Aggregate Fee
Per Share(1) Offering
Price(1)
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<S> <C> <C> <C> <C>
17,510,053 (1) $28 $490,281,484 $129,434.32
Common Stock, par value $.001 per Shares
share
================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act of 1933, as amended ("Securities Act")
based on the average of the high and low sale prices on the OTC Bulletin
Board for the Registrant's Common Stock on March 14, 2000.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay our effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act or until the Registration Statement shall become effective on
such date as the Securities and Exchange Commission ("Commission"), acting
pursuant to said Section 8(a), may determine.
<PAGE>
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED MARCH 21, 2000
17,510,053 Shares
LIFEF/X, INC.
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<CAPTION>
Common Stock
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The Company: Trading Market:
<S> <C>
. Lifef/x, Inc. . Our Common Stock is quoted on the
153 Needham Street, Building N1 OTC Bulletin Board under the symbol
Newton, Massachusetts 02164 "LEFX". The last reported sale price
Telephone: (617) 551-5849 of our Common Stock reported on the
OTC Bulletin Board on March 15, 2000
was $27.50 per share.
The Offering:
. The Common Stock in this offering
is being sold by certain of our
security holders.
. We will not receive any proceeds
from the sale of the Common Stock in
this offering.
</TABLE>
================================================================================
This investment involves risk. See "Risk Factors" beginning on page 5.
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the Securities or determined that this
Prospectus is complete or accurate. Any representation to the contrary is a
criminal offense.
- --------------------------------------------------------------------------------
The date of this Prospectus is March 21, 2000
<PAGE>
_____________________
TABLE OF CONTENTS
Page
Prospectus Summary...................................................... 1
Risk Factors............................................................ 5
Forward-looking Statements.............................................. 11
Market Price for the Common Stock....................................... 12
Dividend Policy......................................................... 12
Capitalization.......................................................... 13
Management's Discussion and Analysis
or Plan of Operation................................................... 14
Business................................................................ 19
Management.............................................................. 25
Security Ownership of Certain Beneficial
Owners and Management................................................. 32
Certain Relationships and Related Transactions.......................... 34
Description of Securities............................................... 35
Plan of Distribution.................................................... 38
Selling Securityholders................................................. 39
Shares Eligible for Future Sale......................................... 41
Legal Matters........................................................... 41
Experts................................................................. 41
Changes in Registrant's Certifying Accountants.......................... 41
Additional Information.................................................. 42
Index to Consolidated Financial Statements ............................ F-1
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all the information that you
should consider before investing in our securities. You should read this entire
prospectus carefully, including the "Risk Factors" section and our Consolidated
Financial Statements and related notes. Unless the context requires otherwise,
"we," "us," "our" and similar terms, as well as references to "LifeF/X" refer to
Lifef/x, Inc. and our subsidiary, Lifef/x Networks, Inc. All references herein
to industry, financial and statistical information are based on trade articles,
industry reports and other sources that we believe to be reliable but that we
have not independently verified.
Our Company
Our LifeF/X technology enables computers to animate digital human faces
extremely realistically. Our goal is to become the leading provider of branded
photo-realistic 3D digital human animation products and services that enhance
digital communication across a multitude of media platforms, including the
Internet. Computers will use our LifeF/X technology to produce photo-realistic
3D digital animated human faces from ordinary photographs. Because the
instruction sets for animating the 3D digital human faces are very small, we
believe we can achieve real-time animations over the Internet utilizing modems
as slow as 28.8kbps. LifeF/X is presently engaged in research and development
with respect to its LifeF/X technology and has received no related revenue to
date. Accordingly, LifeF/X is referred to in this prospectus and the
accompanying financial statements as a development stage company.
LifeF/X sold its non-LifeF/X assets, which consisted of film title and
special effects services, on March 20, 2000. The sale included a transfer of
all liabilities associated with the discontinued operation, including all debt.
As a result, LifeF/X is presently debt-free, other than accounts payable and
accrued expenses. In addition, Safeguard Scientifics, Inc. has fully
indemnified LifeF/X against all liabilities associated with the discontinued
operation. See note 3 to the accompanying financial statements. Historically,
our revenues have been solely related to our discontinued operation.
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 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 our core business, we intend
to explore other applications for the LifeF/X technology, including, without
limitation, applications in the theatrical motion picture industry.
Our Business Plan for LifeF/X
Our initial strategy is to achieve the rapid and widespread distribution of
our system to enable personalized interactive communication in Internet-related
business-to-business (B2B) and business-to-consumer (B2C) activities and other
computer-based applications. We anticipate distributing our system initially
for use in e-mail communication and instant messaging, enabling the sender to
replace written text with messages spoken by first a generic photo-realistic 3D
digital animated face, and later the sender's photo-realistic 3D digital
animated face, converted from the sender's analog or digital photograph. E-mail
is the most widely adopted Internet application, ranging from a personal
messaging
1
<PAGE>
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.
The volume of instant messaging is fast approaching that of e-mail, making it a
second universal means of online communication. E-mail and instant messaging
have increased in volume and improved in functionality, and these trends are
expected to continue. The LifeF/X technology provides significant additional
value, as it will permit individuals to send e-mails and instant messages
embedded with animation commands. These commands, through our proprietary
software, will direct photo-realistic 3D models already loaded on the
recipient's computer (having been downloaded earlier) to read the e-mail or
instant message to the recipient.
As the Web continues to evolve, many businesses and content providers will
seek to enrich and differentiate their Web sites using interactive audio, video
and other multi-media content. We believe that a substantial opportunity exists
to provide software solutions and content aggregation and delivery services
which will deliver compelling, interactive, animated content through photo-
realistic 3D digital models in real time over bandwidths as slow as 28.8kbps.
We envision Web sites utilizing photo-realistic 3D digital human models as:
. individual sales help
. guides
. corporate spokespersons
. teachers
. entertainers
. game characters
. personal avatars
. advertising personalities
to extend the functionality of traditional applications for:
. e-commerce
. e-mail
. instant messaging
. chatrooms
. training
. product support
. human resources
2
<PAGE>
. supply chain software
. Internet Service Providers (ISP's)
. Application Service Providers (ASP's)
. distance learning
. bill presentment
. and PC gaming, among others.
We believe the LifeF/X technology enables this paradigm shift by providing
a platform-independent infrastructure standard that would provide the ultimate
in differentiated, personalized communications, regardless of the application.
Secondary Offering
All of the common stock in this offering is being sold by certain of our
securityholders.
Risk Factors
An investment in our securities involves a high degree of risk. You should
carefully consider all the information in this prospectus. In particular, you
should evaluate the specific risk factors set forth under "Risk Factors,"
beginning on page 5, for a discussion of certain risks involved with an
investment in our securities.
Corporate Information
We were incorporated as Fin Sports U.S.A., Inc. (Fin Sports),
in Nevada, on June 18, 1987. In conjunction with a merger transaction with
Pacific Title/Mirage, Inc. (Pac Title/Mirage) completed on December 14, 1999, as
more fully described later in this prospectus, we changed our name to Lifef/x,
Inc. Our corporate offices are located at 153 Needham Street, Building N1,
Newton, Massachusetts 02164. Our telephone number at that location is (617) 551-
5849. The URL for our web site is http://www.lifefx.com.
3
<PAGE>
Summary Financial Information
(In Thousands, except Share and Per Share Data)
The following table sets forth summary financial data of LifeF/X that is derived
from our financial statements. Because Pac Title/Mirage was the acquirer for
accounting purposes, the financial statements presented below and elsewhere
herein are therefore those of Pac Title/Mirage, not Fin Sports. The data should
be read in conjunction with "Management's Discussion and Analysis or Plan of
Operation" and the Consolidated Financial Statements and related notes and other
financial information included herein.
The weighted average shares do not include any common stock equivalents because
such inclusion would be anti-dilutive. See the Consolidated Financial
Statements and related notes appearing elsewhere in the this prospectus for the
determination of shares used in computing basic and diluted net loss per share.
<TABLE>
<CAPTION>
Years Ended
December 31,
- ------------------------------------------------------------------------------------------------------------
1997(1) 1998 1999
------------------ ------------------ ---------------------
<S> <C> <C> <C>
Statement of Operations Data:
Revenue $ - $ - $ -
Loss from continuing operations ($658) ($1,444) ($14,065)
Loss on discontinued operation ($370) ($4,061) ($18,552)
Net loss ($1,028) ($5,505) ($32,617)
Net loss per common share on a
basic and diluted basis:
Continuing operations ($1.88) ($4.12) ($11.08)
Discontinued operation ($1.06) ($11.60) ($14.61)
-------- -------- ---------
($2.94) ($15.72) ($25.69)
======== ======== =========
Weighted average common shares outstanding 350,107 350,107 1,269,824
======= ======= =========
Balance Sheet Data As of December 31,
-------------------
1997 1998 1999
----------------- ------------------- -----------------------
Working capital (deficiency) $ 110 ($4,571) $ 6,559
Total assets $7,686 $ 8,144 $21,473
Total liabilities $ 713 $ 6,671 $10,820
Shareholders' equity $6,972 $ 1,473 $10,653
- ------------------------------
</TABLE>
(1) For the period from our inception on June 1, 1997 through December 31, 1997.
4
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment in LifeF/X. The risks and uncertainties described below are not the
only ones facing LifeF/X 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. If any of the following risks actually occurs,
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.
We have not yet completed or released any product based upon our LifeF/X
- ------------------------------------------------------------------------
technology and may be unable to complete a commercially viable product.
- ----------------------------------------------------------------------
All products we intend to introduce are currently in the research and
development or planning phases. We might find it more difficult or complicated
to complete development of these products than we now believe, resulting in
delays or greater costs than we expect, or that we cannot make the products at a
commercially viable price. Early stage ventures like LifeF/X have a high
failure rate.
We must develop or acquire text-to-speech software to complete our first
product offerings, and may be unable to do so economically. Our technical
personnel have much more experience with the imaging parts of our planned
products than text-to-speech.
Our business would be seriously impaired if our rights in the LifeF/X technology
- --------------------------------------------------------------------------------
are compromised in any way.
- --------------------------
We have one patent issued, one patent allowed but not yet issued and one
patent 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 portion of the LifeF/X technology from Auckland
UniServices Limited (UniServices). UniServices has not patented the source code
for the LifeF/X technology. 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 to 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 (which could occur if we fail to
make development fee payments or we disclose the LifeF/X technology to third
parties without authorization) would result in serious harm to our business,
financial position and results of operations.
Substantial competition may impair our ability to generate revenue.
- ------------------------------------------------------------------
The market for Internet avatar products is new, and we expect it to be
competitive. An avatar is a computer-generated animated image which is used to
guide and direct the user or to represent one or more users. The principal
competitive products in the Internet avatar market include, but may not be
limited to, 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 Internet avatar products and services
being developed by competitors of which we are not aware.
If the Internet avatar 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
5
<PAGE>
current and potential competitors have substantially greater financial,
technical, marketing, distribution and other resources, greater name
recognition, stronger market presence and longer operating histories than ours.
As a result, they may be able to adapt more quickly to new or emerging
technologies and changes in customer requirements. We cannot assure you that we
will be able to compete in this market successfully.
If the market for Internet avatars develops, we could face competitive
pressures from new technologies or from modification of existing technologies.
We may also face competition from a number of indirect competitors with
substantial customer bases in the computer and other technical fields.
Additionally, Internet portals and other Internet gatekeepers that control
access to transactions could also promote our competitors or charge us
substantial fees. Our competitors may also be acquired by, receive investments
from, or enter into other commercial relationships with, larger, better-
established and better-financed companies. We may be unable to compete
successfully against current and potential competitors, and the competitive
pressures we face could seriously harm our business.
Our existing or potential competitors could reduce our market opportunity
by establishing a first-mover advantage, even if achieved with inferior
products. This could result in loss of market share, confusion in the
marketplace or, if the early products fail to meet market expectations, such
products could temporarily or permanently temper user enthusiasm for our product
offerings. This could result in permanent inability for LifeF/X to successfully
launch its products and require substantial expenditures of funds to
differentiate LifeF/X from competitors.
We are dependent on our key personnel and also need additional personnel to grow
- --------------------------------------------------------------------------------
our business.
- ------------
Development of the LifeF/X technology is a highly technical endeavor. As a
result, we depend on key technical personnel who combine specialized technical
knowledge of photo-realistic 3D digital human animation with broad knowledge of
the Internet.
There are four key technical employees, the loss of any of whom would be a
setback to our product development schedule, but would not be fatal to our long-
term development efforts. Each of these key technical employees is under
contract to LifeF/X and incentivized with stock options.
Competition for qualified technical personnel is intense. Even though we
have been able to acquire the necessary resources to date, we cannot assure that
we can successfully locate, hire, assimilate and retain qualified key management
personnel or that we will successfully assimilate newly hired employees. As a
result, we may be unable to successfully attract, assimilate or retain qualified
personnel. The failure to retain and attract the necessary personnel could
seriously harm our business, financial condition and results of operations.
If we do not respond effectively to technological change, our products and
- --------------------------------------------------------------------------
service could become obsolete and our business would suffer.
- -----------------------------------------------------------
The development of our photo-realistic 3D digital human animation products
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 introductions of new products and services embodying new
technologies; and
. the emergence of new industry standards and practices.
6
<PAGE>
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 will 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 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.
There is no market for digital photo-realistic animation products and services
- ------------------------------------------------------------------------------
and this market may not develop.
- -------------------------------
A market for digital photo-realistic animation products and services has
not yet developed, and its development is subject to substantial uncertainty.
We cannot assure you that this market will ever develop. Our success will
depend on commercial acceptance of our LifeF/X technology.
We have received no revenue from our LifeF/X technology, expect to incur losses
- -------------------------------------------------------------------------------
in the future, and may never achieve profitability.
- --------------------------------------------------
As of December 31, 1999, we had no sales from our continuing operations
related to our LifeF/X technology. Our lack of revenue from exploitation of
LifeF/X technology reflects our research and development focus and the
unavailability of commercial products utilizing the LifeF/X technology. We do
not expect to receive revenue until the second half of 2001. As a result, we
will need to raise additional capital in the future. 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.
If we do not achieve brand recognition, our business will suffer.
- ----------------------------------------------------------------
We must quickly build our LifeF/X brand to gain market acceptance for our
photo-realistic 3D digital animation products and services. We believe it is
imperative to our long term success that we obtain significant Internet market
share for our products and services before other competitors enter the Internet
communication and entertainment media market. We have very limited experience
conducting marketing campaigns for technology services, and we may fail to
generate significant interest. 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 digital animation products and services, our business will suffer
dramatically.
Our business plan requires that we partner with other companies, and if we fail
- -------------------------------------------------------------------------------
to partner cost-effectively in a timely manner with successful partners, our
- ----------------------------------------------------------------------------
business will suffer.
- --------------------
We will pursue strategic partnerships with new or complementary businesses
to gain market acceptance for our technology, produce revenue and expand and
develop our photo-realistic 3D digital
7
<PAGE>
animation product and services offerings. At present, we have no commitments or
agreements with any strategic partner. To the extent we pursue strategic
partnerships with new or complementary businesses, we may not be able to expand
our products or service offerings and related operations in a cost-effective or
timely manner. We may experience increased costs, delays and diversions of
management attention when commencing any new businesses or services.
Furthermore, any new business or service we launch that is not favorably
received or perceived by users could damage our reputation and brand name in the
relevant markets. We also cannot be certain that we will generate satisfactory
revenues from any expanded services or products to offset related costs. 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
will depend upon the reliable performance of both our planned Web site and our
infrastructure and systems. Furthermore, if we experience extensive interest in
our photo-realistic 3D digital animation products and services, we may fail to
meet the expectations of customers due to the strains this demand will place on
our infrastructure and systems. We have a limited basis upon which to evaluate
the capability of our systems or the interest our technology will generate. 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 operations and
personnel growth, we will need to improve existing systems, procedures and
controls and implement new ones. In addition, we will need to expand our
technical, marketing, finance and administrative staff, and train and manage our
increasing employee base. We may not be able to effectively manage this growth.
Our growth and operating results could be impaired if we are unable to meet our
- -------------------------------------------------------------------------------
future capital requirements.
- ---------------------------
We believe that our current cash balance will allow us to fund our
operations for at least the next 12 months. However, we will require
substantial working capital to fund our business and will need to raise
additional capital. In approximately 10 months we plan to seek additional
funding, in the form of equity or debt or a combination of equity and debt, to
meet the cash requirements of our business. We cannot be certain that
additional funds will be available when needed on satisfactory terms, 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;
. changes in technology; and
. unanticipated competitive factors.
The various elements of our business and growth strategies, including our
plans to fully support the commercial release of our photo-realistic 3D digital
human 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 might have a dilutive effect on existing shareholders.
Personal relationships of key personnel are important to LifeF/X's business and
- -------------------------------------------------------------------------------
prospects.
- ---------
Dr. Ian Hunter is a director of and technical consultant to LifeF/X. Dr.
Hunter's brother, Peter Hunter, is one of the UniServices executives driving
development of the technology LifeF/X licenses from UniServices. Peter Hunter is
also LifeF/X's key interface at
8
<PAGE>
UniServices. Our relationship with UniServices is critical to our
business and prospects. We have an excellent working relationship with Ian
Hunter, Peter Hunter and UniServices. This positive relationship is an asset to
LifeF/X but, conversely, deterioration of the relationship between the brothers
or our relationship with either of them could adversely impact us.
System and online security failures could harm our business and operating
- -------------------------------------------------------------------------
results.
- -------
Download and sale of our planned LifeF/X product offerings from our planned
Web site 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 may also be vulnerable to computer
viruses, physical or electronic break-ins and similar disruptions. Any
substantial interruption in any of our systems could result in the loss of data
and could completely impair our ability to generate revenues from our planned
product offerings.
A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. Anyone
who circumvents our security measures could misappropriate confidential
information or cause interruptions to 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.
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. For LifeF/X 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 our target users' acceptance and use of the Internet and other
online services as effective media of commerce.
The Internet may not become a viable long-term commercial marketplace, due
to potentially inadequate development of the necessary network infrastructure,
delayed development of enabling technologies and performance improvements, or
other factors. 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:
. 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 online services do not become viable commercial
marketplaces.
9
<PAGE>
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 laws and regulations may be adopted with respect to the
Internet, relating to:
. user privacy;
. pricing;
. content;
. copyrights;
. trade regulation;
. 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. Furthermore, 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. These claims and
attempted regulations could seriously harm our business, financial condition and
results of operations.
We face risks related to this offering.
Future sales of our Common Stock or shares issuable upon exercise of stock
- --------------------------------------------------------------------------
options or stock warrants could adversely affect our stock price and our ability
- --------------------------------------------------------------------------------
to raise funds in new stock offerings.
- -------------------------------------
We currently have 18,999,917 shares of Common Stock outstanding and
52,699,627 shares of Common Stock outstanding on a fully diluted basis, assuming
the exercise of all outstanding options and warrants. 27,951,312 shares of
Common Stock will be issued upon the exercise of currently outstanding stock
warrants. 5,748,398 shares of Common Stock will be issued upon the exercise of
currently outstanding stock options, including options to purchase 219,023 of
such shares which options are subject to shareholder approval of the
modifications to the LifeF/X 1999 Long Term Incentive Plan approved by the board
of directors on March 14, 2000. 17,510,053 shares are being registered in this
offering. Following this offering, we will have registered all of our
outstanding shares and 176,802 shares which are not yet outstanding but will be
issued upon the exercise of warrants issued in our private placement and
options. Sale of substantial amounts of our Common Stock, or the perception that
such sales could occur, could reduce the market price of our Common Stock.
10
<PAGE>
Certain provisions of Nevada law could delay, defer or prevent a change in
- --------------------------------------------------------------------------
control.
- -------
LifeF/X is subject to the anti-takeover provisions of Sections 784.438
through 784.444 of the Nevada Corporation Law ("NCL"), which will prohibit us
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, and potentially for a further period, unless
the business combination is approved in a prescribed manner under the NCL.
These provisions of Nevada law could have the effect of delaying, deferring or
preventing a change in control of LifeF/X.
FORWARD-LOOKING STATEMENTS
This prospectus contains statements that we believe are forward-looking
statements within the meaning of the federal securities laws. These include
statements about our expectations, beliefs, intentions or strategies for the
future, which we indicate by words or phrases such as "anticipate," "expect,"
"intend," "plan," "will," "we believe," "LifeF/X believes," "management
believes" and similar language. The forward-looking statements are based on our
current expectations and are subject to certain risks, uncertainties and
assumptions, including those set forth under "Risk Factors" and under
"Management's Discussion and Analysis or Plan of Operation" and "Business." Our
actual results may differ materially from results anticipated in these forward-
looking statements. We base our forward-looking statements on information
currently available to us, and we assume no obligation to update them.
11
<PAGE>
MARKET PRICE FOR COMMON STOCK
Our Common Stock was approved for trading on the OTC Bulletin Board under
the symbol "FNSP" on August 23, 1999 and commenced trading on December 15, 1999.
Our symbol was changed to "LEFX" on 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 Bulletin Board. All
sales prices are exclusive of commissions or discounts of any nature and are set
forth after giving effect to all stock splits and stock dividends, if any.
<TABLE>
<CAPTION>
Price Range
-----------------------------------------------------------
High Low
<S> <C> <C>
Fiscal Year Ended December 31, 1999
- ---------------------------------------------
December 15, 1999 to December 31, 1999 23 12 7/16
Fiscal Year Ending December 31, 2000
- ---------------------------------------------
January 1, 2000 to March 15, 2000 30 13
</TABLE>
As of March 15, 2000 there were 18,999,917 shares of our Common Stock
outstanding and approximately 287 shareholders of record.
DIVIDEND POLICY
We have not paid any cash or stock dividends on our Common Stock since our
incorporation and anticipate that, for the foreseeable future, any earnings will
be retained for use in our business.
12
<PAGE>
CAPITALIZATION
The following table sets forth LifeF/X's debt and equity capitalization as
of December 31, 1999 on a historical basis and excludes 27,951,312 shares
reserved for issuance upon the exercise of stock warrants and 5,529,375 shares
reserved for issuance upon the exercise of stock options at December 31, 1999.
The information in the table should be read in conjunction with "Management's
Discussion and Analysis or Plan of Operation" and the Consolidated Financial
Statements and notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
December 31, 1999
------------------
<S> <C>
Short-term debt:................................... $ --
Long-term debt:.................................... $ --
Shareholders' equity:
Common stock, $.001 par value;
100,000,000 shares authorized; 18,999,917
shares issued and outstanding.................. $ 18,992
Additional paid-in capital....................... 52,635,250
Common stock subscribed.......................... (579,000)
Deferred compensation related to stock options... (2,272,148)
Accumulated deficit.............................. (39,149,849)
------------
Total shareholders' equity.................. 10,653,245
------------
Total capitalization............................. $ 10,653,245
============
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the "Summary
Financial Information" and the Consolidated Financial Statements and the notes
thereto appearing elsewhere in this prospectus. Certain statements contained
herein that are not related to historical results, including statements
regarding LifeF/X's business strategy and objectives, future financial position,
expectations about pending litigation and estimated cost savings, are forward-
looking statements within the meaning of Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Securities
Exchange Act"), and involve risks and uncertainties. Although management
believes that the assumptions on which these forward-looking statements are
based are reasonable, there can be no assurance that such assumptions will prove
to be accurate and actual results could differ materially from those discussed
in the forward-looking statements. Factors that could cause or contribute to
such differences include regulatory policies, competition from other similar
businesses, and market and general economic factors. All forward-looking
statements contained in this prospectus are qualified in their entirety by this
statement.
Merger Transaction and Background
On December 14, 1999, Fin Sports acquired all of the outstanding capital
stock of Pac Title/Mirage as a result of the merger of a newly-formed subsidiary
of Fin Sports into Pac Title/Mirage, which was the surviving corporation (the
Merger). Fin Sports was formed in 1987 and was involved in the manufacture and
marketing of sports equipment. From September 1993 until the Merger, Fin Sports
had no active business operations.
Pac Title/Mirage was formed in 1997 as the combination of two businesses:
the LifeF/X technology development effort and an optical 2D and restoration
business that was acquired from Pacific Title and Art Studio, a post production
company founded in 1918. From Pac Title/Mirage's formation until the Merger,
Pac Title/Mirage operated primarily as a visual effects company providing
services to the U.S. film and television entertainment industry. Its operations
consisted of four activities: LifeF/X technology development; optical 2D effects
and film restoration; film scanning and recording services; and digital
effects.
Pac Title/Mirage incurred losses from its inception. Safeguard
Scientifics, Inc. (Safeguard), which owned approximately 49% of Pac
Title/Mirage, loaned Pac Title/Mirage significant amounts to support the
operations of the business and to finance capital expenditures. In March 1999,
Pac Title/Mirage's Board of Directors decided to concentrate Pac Title/Mirage's
efforts on LifeF/X development, with primary emphasis on Internet applications
and, accordingly, initiated steps to dispose of the non-LifeF/X operations,
intending to reduce cash outflows from the non-LifeF/X operations and to reduce
or eliminate Pac Title/Mirage's bank debt. Therefore, the non-LifeF/X
operations have been reflected as a discontinued operation in the accompanying
financial statements for all periods presented.
As noted above, the December 14, 1999 acquisition was accomplished by the
merger of a wholly-owned subsidiary of Fin Sports with and into Pac
Title/Mirage, with Pac Title/Mirage as the surviving corporation. Since the
shareholders of Pac Title/Mirage received the majority voting interests in the
combined company, Pac Title/Mirage is the acquiring enterprise for financial
reporting purposes. The transaction was recorded as a reverse acquisition using
the purchase method of accounting, whereby equity of Pac Title/Mirage was
adjusted for the fair value of the acquired tangible net assets of the wholly-
owned subsidiary of Fin Sports. Because Pac Title/Mirage was the acquirer for
accounting purposes, the financial statements presented elsewhere herein are
those of Pac Title/Mirage, not Fin Sports. Following the Merger, Fin Sports
changed its name to Lifef/x, Inc. and its wholly-owned subsidiary, Pac
Title/Mirage, changed its name to Lifef/x Networks, Inc.
14
<PAGE>
Results of Operations
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenue - LifeF/X intends to develop and adapt the existing LifeF/X
technology for commercial applications and to be the platform-independent
infrastructure standard for, and a leading provider of, branded products and
services that enable the delivery of photo-realistic 3D digital models for a
broad range of market applications with primary emphasis on Internet-related
opportunities. All of our products are currently in the research and
development or planning stages and there have been no sales from the LifeF/X
technology through December 31, 1999.
General and administrative expenses - General and administrative expenses
of $1,493,590 for the year ended December 31, 1999 represented an increase of
$1,311,648, or 721%, over the prior year. The majority of the increase in 1999
over 1998 is related to the following:
(1) In 1999, LifeF/X recorded deferred stock compensation of $2,928,689 on
stock options issued to an officer. This amount is being amortized ratably
as options vest over the two year vesting period of the options. The
related expense recorded in 1999 and included in general and administrative
expenses was $656,541. See Note 6 to the Consolidated Financial
Statements.
(2) 1999 includes $507,511 of accrued severance expense for a former
executive. In addition, occupancy costs were up approximately $42,000 in
1999 over 1998 because Pac Title/Mirage occupied its new facility for only
a portion of 1998.
Research and development expenses - Research and development expenses
increased by $551,491, or 46%, to $1,754,253 for the year ended December 31,
1999 from $1,202,762 for the year ended December 31, 1998. Research and
development consists of efforts related to LifeF/X development activities.
LifeF/X has an exclusive, world-wide, perpetual license agreement with Auckland
UniServices Limited for the continuum modeling technology that is used in
LifeF/X development. Annual license and development fees under the agreement
included in research and development costs were approximately $500,000 for each
of the years ended December 31, 1999 and 1998. Salaries and related personnel
benefits of the LifeF/X development personnel included in research and
development were $1,145,167 for the year ended December 31, 1999 compared to
$640,660 for the year ended December 31, 1998, an increase of $504,507.
Interest expense - Effective on December 30, 1999, Safeguard exchanged
$14,086,837 of Pac Title/Mirage debt and accrued interest thereon owed to
Safeguard for warrants to buy 3,997,500 shares of LifeF/X Common Stock at an
exercise price of $.01 per share. In addition, Safeguard received warrants to
purchase 5,862,500 shares of LifeF/X Common Stock at an exercise price of $6.00
per share. The value assigned to the warrants, less the $14,086,837 of debt and
accrued interest converted, or $9,302,339, was recorded as additional paid-in
capital and as interest expense in the year ended December 31, 1999.
In addition, LifeF/X recorded interest expense of $1,462,383 during the
year ended December 31, 1999, which represents the fair value of 10,375,000
warrants to purchase Pac Title/Mirage Common Stock provided to Safeguard in
conjunction with $9.5 million of loans made by Safeguard to Pac Title/Mirage in
1999.
Discontinued operation - In March 1999, Pac Title/Mirage's Board of
Directors decided to concentrate on LifeF/X development and, accordingly,
initiated steps to dispose of non-LifeF/X operations. Results from the
discontinued operation for the year ended December 31, 1999 consist of the
15
<PAGE>
following: (1) An operating loss on discontinued operation prior to the
measurement date (March 31, 1999) of $3,002,332 (which includes a $1,400,000
impairment loss on long-lived assets), and (2) a provision for a $15,549,874
loss on disposal of discontinued operation for the following: a $7,449,874
reserve for operating losses on discontinued operation from the measurement date
(March 31, 1999) until December 31, 1999 and a provision for estimated losses
for the remaining disposal period of $2,500,000 and estimated loss on disposal
of $5,600,000.
Year Ended December 31, 1998 Compared to the Seven Month Period From June 1,
1997 (inception) through December 31, 1997
General and administrative expenses - General and administrative expenses
amounted to $181,942 for the year ended December 31, 1998 compared to only
$18,705 for the seven month period ended December 31, 1997. Expenses in 1998
were higher due to increased occupancy costs and because the results for 1998
reflect a full year of expenses while 1997 represents only a partial year and
the start-up of the operations.
Research and development expenses - Research and development amounted to
$1,202,762 for the year ended December 31, 1998 compared to $624,900 for the
period from June 1, 1997 (inception) through December 31, 1997. License and
development fees under the license agreement with Auckland UniServices Limited
included in research and development costs were $500,000 for the year ended
December 31, 1998 and $85,000 for the seven month period ended December 31,
1997. The period ended December 31, 1997 only has two months of expense for
license and development fees as the UniServices license and development
agreement was not effective until November 1, 1997.
Discontinued operation - The loss on discontinued operation for the year
ended December 31, 1998 was $4,060,980. This includes a write off of $1.1
million of goodwill attributable to Pac Title/Mirage's digital effects
activities. The period ended December 31, 1997 reflects a loss on discontinued
operation of $369,658 which relates to the partial period from June 1, 1997
(inception) to December 31, 1997.
Liquidity and Capital Resources
In 1997, Pac Title/Mirage obtained an $8,000,000 term loan from a bank and
received $8,000,000 in proceeds from capital stock issued to Safeguard. A
significant portion of these funds were used in 1997 for Pac Title/Mirage's
purchase of its optical 2D and restoration business from Pacific Title and Art
Studio for approximately $15.5 million. The term loan required monthly
principal repayments of $133,333 over five years. In December 1999, principal
repayments were increased to $153,333 per month for January and February 2000,
and to $183,333 per month thereafter. The total outstanding principal balance
on the term loan was $7,866,667, $6,266,667 and $4,666,667 at December 31, 1997,
1998 and 1999, respectively.
Pac Title/Mirage also obtained a $3 million revolving credit facility from
the same bank. Outstanding borrowings under the line of credit were $900,000,
$2,550,000, and $2,484,000 at December 31, 1997, 1998 and 1999, respectively.
LifeF/X sold its non-LifeF/X assets, which consisted of film title and
special effects services, on March 20, 2000. The sale included a transfer of
all liabilities associated with the discontinued operation, including all debt.
As a result, LifeF/X is presently debt-free, other than accounts payable and
accrued expenses. In addition, Safeguard Scientifics, Inc. has fully
indemnified LifeF/X against all liabilities associated with the discontinued
operation. See note 3 to the accompanying Consolidated Financial Statements.
Historically, our revenues have been solely related to our discontinued
operation.
16
<PAGE>
Since the bank loans were made in November 1997, Pac Title/Mirage (and
following the Merger, LifeF/X) has met all of its principal and interest
payments to the bank in a timely manner. LifeF/X has agreed that no additional
advances will be taken under the credit line, notwithstanding that there is
collateral in excess of the amount required to secure the line under the bank's
collateral formula. Further, LifeF/X has agreed that, in the event that the
collateral is insufficient to support the borrowings under the line, the line
will be paid down to the amount that is supported by the collateral and that
such new lower borrowing level will be the maximum amount eligible to be
borrowed in the future.
The term loan agreement and revolving credit facility contain various
covenants related to financial ratios, minimum levels of net worth and other
limitations. We were in compliance with these covenants through October 31,
1998. Notwithstanding that we have not been in compliance with our financial
covenants since October 31, 1998, the bank, based on the continued support
provided by Safeguard and the timeliness of our scheduled loan payments, has not
declared any defaults or pursued any remedies against us to date. Refer to note
4 to the Consolidated Financial Statements. As of December 15, 1999, the bank
agreed, subject to certain terms and conditions (including an increase in
principal payments as noted above) to extend the repayment of the credit
facility to February 29, 2000. On March 20, 2000, the bank agreed to extend
repayment of the amounts outstanding under its line of credit and forbear with
respect to the debt covenants on the term debt through May 29, 2000. However,
since at December 31, 1999 there was no assurance that the bank would extend the
term past May 29, 2000, all of the term debt has been classified in net
liabilities of discontinued operation - current at December 31, 1999. None of
this debt is an ongoing obligation of LifeF/X because all of this debt was
assumed by PTM Productions, Inc., the buyer of our discontinued operation.
The other principal sources of financing have been cash provided by
operations and advances from Safeguard. Safeguard loaned Pac Title/Mirage
$600,000 in 1997, an additional $3,200,000 in 1998 and an additional $12,300,000
during the year ended December 31, 1999.
Effective upon the Merger, Fin Sports became a co-obligor with Pac
Title/Mirage with respect to certain debt owed to Safeguard totaling $13,325,000
at September 30, 1999. Effective December 30, 1999, Safeguard exchanged this
debt plus $761,837 of accrued interest thereon for warrants to buy 3,997,500
shares of Common Stock. The warrants have a term of ten years at an exercise
price of $.01 per share and are exercisable one year after the Merger, subject
to certain early exercise events specified in the warrants. Safeguard loans to
LifeF/X subsequent to September 30, 1999 have been assumed by PTM Productions,
Inc., the buyer of our discontinued operation.
Concurrent with the Merger, LifeF/X initiated a private placement offering
to raise $18 million through the sale to certain investors of 6,000,000 units at
$3.00 per unit, each unit consisting of: (i) one share of Common Stock and (ii)
a warrant to purchase .01 share of Common Stock at $7.50 per share, exercisable
within 18 months after purchase. The private placement was fully subscribed and
we received all funds. At December 31, 1999 we or our escrow agent had received
over $17,000,000. The first portion of the private placement closed in December
1999 and the second portion closed in February 2000.
These proceeds were raised to fund continuing LifeF/X development, with
primary emphasis on Internet applications of the technology. The funds raised
in the private placement will be used for the continuing LifeF/X business.
Safeguard has agreed to indemnify LifeF/X for liabilities associated with the
non-LifeF/X operations and has committed to continue funding the non-LifeF/X
operations. In addition to LifeF/X Internet development, the proceeds of the
private placement will be used to fund product marketing and distribution,
acquire management and support resources and build the infrastructure to
facilitate future growth. The proceeds of the private placement have been and,
until expended, will be invested in highly liquid short-term investments.
17
<PAGE>
LifeF/X has sold all of its non-LifeF/X assets to PTM Productions, Inc., an
entity owned by the pre-Merger Pac Title/Mirage shareholders, in consideration
for the assumption of liabilities (these assets and liabilities collectively,
the "Discontinued Operation Assets and Liabilities"). The Discontinued
Operation Assets and Liabilities consist of the assets and liabilities relating
to non-LifeF/X operations, including certain leased and all owned real property,
outstanding bank debt and all debt owed to Safeguard for loans made by
Safeguard during the period between October 1, 1999 and the sale of these assets
to, and the assumption of the related liabilities by, PTM Productions, Inc. See
Note 3 to Consolidated Financial Statements.
Quantitative and Qualitative Disclosure about Market Risks
The SEC's rule related to market risk disclosure requires that we describe
and quantify our potential losses from market risk sensitive instruments
attributable to reasonably possible market changes. Market risk sensitive
instruments include all financial or commodity instruments and other financial
instruments that are sensitive to future changes in interest rates, currency
exchange rates, commodity prices other market factors. We are not exposed to
market risks from changes in foreign currency exchange rates, commodity prices
or other market factors. We do not hold derivative financial instruments nor do
we hold securities for trading or speculative purposes. At December 31, 1999 we
had $7.2 million of bank debt obligations included in net liabilities of
discontinued operation subject to variable interest rates. None of this debt is
an ongoing obligation of LifeF/X because all of this debt was assumed by PTM
Productions, Inc., the buyer of our discontinued operation. Proceeds from the
private placement in December 1999 have been invested in highly liquid short-
term investments.
Inflation
We do not believe that inflation has had any material effect on our
business over the past two years.
Year 2000 Issues
The Year 2000 computer problem refers to the potential for system and
processing failure of date-related data as a result of computer-controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize a
date represented as "00" as the year 1900 rather than the Year 2000. This could
result in a system failure or miscalculations causing disruptions of operations,
including among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities. To date, we have
not experienced any Year 2000 issues with any of our internal systems or
services, and we do not expect to experience any.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000. SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in
the fair value of derivatives are recorded each period in current earnings or
other comprehensive income (loss) depending on whether a derivative is designed
as part of a hedge transaction and, if so, the type of hedge transaction
involved. We do not expect that adoption of SFAS No. 133 will have a material
impact on our Consolidated Financial Statements as we currently do not hold any
derivative financial instruments.
18
<PAGE>
BUSINESS
Merger Transaction and Background
On December 14, 1999, Fin Sports acquired all of the outstanding capital
stock of Pac Title/Mirage as a result of the merger of a newly-formed subsidiary
of Fin Sports into Pac Title/Mirage, which was the surviving corporation. From
September 1993 until the Merger, Fin Sports had no active business operations.
Pac Title/Mirage was formed in 1997 as the combination of two businesses:
the LifeF/X technology development effort and an optical 2D and restoration
business that was acquired from Pacific Title and Art Studio, a post production
company founded in 1918. From Pac Title/Mirage's formation until the Merger, Pac
Title/Mirage operated primarily as a visual effects company providing services
to the U.S. film and television entertainment industry. Its operations consisted
of four activities: LifeF/X technology development; optical 2D effects and film
restoration; scanning and recording services; and digital effects.
Pac Title/Mirage incurred losses from its inception. Safeguard Scientifics,
Inc. (Safeguard), which owned approximately 49% of Pac Title/Mirage, loaned Pac
Title/Mirage significant amounts to support the operations of the business and
to finance capital expenditures. In March 1999, Pac Title/Mirage's Board of
Directors decided to concentrate Pac Title/Mirage's efforts on LifeF/X
development, with primary emphasis on Internet applications and, accordingly,
initiated steps to dispose of the non-LifeF/X operations, intending to reduce
cash outflows from the non-LifeF/X operations and to reduce or eliminate Pac
Title/Mirage's bank debt. Therefore, the non-LifeF/X operations have been
reflected as a discontinued operation in the accompanying financial statements
for all periods presented.
LifeF/X sold its non-LifeF/X assets, which consisted of film title and
special effects services, on March 20, 2000. The sale included a transfer of all
liabilities associated with the discontinued operation, including all debt. As a
result, LifeF/X is presently debt-free, other than accounts payable and accrued
expenses. In addition, Safeguard Scientifics, Inc. has fully indemnified LifeF/X
against all liabilities associated with the discontinued operation. See note 1
to the accompanying financial statements.
As noted above, the December 14, 1999 acquisition was accomplished by the
merger of a wholly-owned subsidiary of Fin Sports with and into Pac
Title/Mirage, with Pac Title/Mirage as the surviving corporation. Since the
shareholders of Pac Title/Mirage received the majority voting interests in the
combined company, Pac Title/Mirage is the acquiring enterprise for financial
reporting purposes. The transaction was recorded as a reverse acquisition using
the purchase method of accounting, whereby equity of Pac Title/Mirage was
adjusted for the fair value of the acquired tangible net assets of the wholly-
owned subsidiary of Fin Sports. Because Pac Title/Mirage was the acquirer for
accounting purposes, the financial statements presented elsewhere herein are
therefore those of Pac Title/Mirage, not Fin Sports. Following the Merger, the
corporate name of Fin Sports was changed to Lifef/x, Inc. and Pac Title/Mirage
changed its name to Lifef/x Networks, Inc. Lifef/x Networks, Inc. is a wholly-
owned subsidiary of Lifef/x, Inc.
Our research and development expenses totaled $1,754,253 for the year ended
December 31, 1999 and $1,202,762 for the year ended December 31, 1998. Research
and development consisted of efforts related to LifeF/X development activities.
LifeF/X has an exclusive, world-wide, perpetual license agreement with Auckland
UniServices Limited for the continuum modeling technology that is used in
LifeF/X development. Annual license and development fees under the agreement
included in research and development costs were approximately $500,000 for each
of the years ended December 31, 1999 and 1998. Salaries and related personnel
benefits of the LifeF/X development personnel included in research
19
<PAGE>
and development were $1,145,167 for the year ended December 31, 1999 compared to
$640,660 for the year ended December 31, 1998.
Our Goals
Our initial strategy is to achieve the rapid and widespread distribution of
our system to personalize interactive communication in Internet-related
business-to-business (B2B) and business-to-consumer (B2C) activities and other
computer-based applications. We anticipate distributing our system initially
for use in e-mail and instant messaging communication, enabling the sender to
replace written text with messages spoken by first a generic photo-realistic 3D
digital animated face, and later the sender's photo-realistic 3D digital
animated face, converted from the sender's analog or digital photograph. The
LifeF/X technology enables computers to utilize photographs to produce photo-
realistic 3D digital animated human faces. Because the instruction sets for
animating the digital human faces are very small, we believe we can achieve
real-time animations over the Internet utilizing modems as slow as 28.8kbps. 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 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 our core business, we intend
to explore other applications for the LifeF/X technology, including applications
in the theatrical motion picture industry, although the initial focus will be
exclusively concentrated on Internet applications.
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, the creation of increasingly robust network architectures and
the emergence of compelling Web-based content 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 a
highly engaging experience and allows users to access a virtually 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 provider of 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
use was developed for tele-robotic surgery, a professional medical application.
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.
20
<PAGE>
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, our technology can achieve photo-realistic 3D animation. Materials are
anisotropic when they exhibit properties with different magnitudes when measured
along different directions.
Our initial Internet consumer applications will be driven by user directed
text or speech input. Therefore, the initial Internet application will produce
animated images of digital human faces that may be of significantly lower
spatial resolution but of higher temporal resolution than film entertainment
prototypes produced to date. The animations will be produced by the LifeF/X
technology in real time rather than by re-combining stored images.
Our objective is to adapt the existing LifeF/X technology to the Internet
and to be 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 business-to-business (B2B) and business-to-consumer (B2C)
opportunities. We intend to establish the LifeF/X technology as the platform-
independent infrastructure standard for interpersonal and intercorporate
interactive communication. To this end a number of new products are under
development and are described below under "Products under Development."
Our Strategy and Value Proposition
Initially, we wish to achieve the rapid and widespread distribution of our
system to personalize interactive communication in Internet-related B2B and B2C
activities. We anticipate distributing our system initially for use in e-mail
and instant messaging communication, enabling the sender to replace written text
with messages spoken by first a generic photo-realistic 3D digital animated
face, and later the sender's photo-realistic 3D digital animated face, converted
from the sender's analog or digital photograph. 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. The volume of instant
messaging is fast approaching that of e-mail, making it a second universal means
of online communication. E-mail and instant messaging have increased in volume
and improved in functionality, and these trends are expected to continue. The
LifeF/X technology provides significant additional value, as it will permit
individuals to send e-mails and online messages embedded with animation
commands.
As the Web continues to evolve, many businesses and content providers will
seek to utilize interactive audio, video and other multi-media content to enrich
and differentiate their Web sites. We believe that a substantial opportunity
exists to provide software solutions and content aggregation and delivery
services which will provide compelling, interactive, animated content through
photo-realistic 3D models in real time over bandwidths as slow as 28.8kbps. We
envision Web sites utilizing photo-realistic 3D human models as guides,
corporate spokespersons, teachers, entertainers, game characters, personal
avatars, advertising personalities and individual sales help, which will permit
them to extend the functionality of available applications beyond the
traditional opportunities for e-mail, instant messaging and chatrooms, to
training, product support, human resources, supply chain software, ISP's, ASP's,
distance learning, bill presentment and PC gaming, among others.
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<PAGE>
We believe the LifeF/X technology enables this paradigm shift by providing
a standard platform for a network which would provide the ultimate in
differentiated, personalized communications, regardless of the application.
Products under Development
We have not commercialized any of our products, all of which are currently
in the research and development or planning phases. We plan to introduce both
consumer and business products.
LifeF/X Standins. Our lead consumer product is the LifeF/X Standin, a
photo-realistic 3D computer model of a face that can be animated in real time by
text or speech files. The simplest form of consumer Standin will be created
from a 2D digital image sent electronically to our planned Web site, or from a
traditional analog photo mailed to us. We will deliver digital Standins to
users via the Web and other media, together with our LifeF/X Genesis Player,
which plays the Standin animation, and our LifeF/X Director software, which adds
emotional content to the animations. We envision that Standins will be used
with e-mail, Web pages, chatrooms, PC games, corporate intranets and extranets
and many other applications and will be compatible with various third party
products, including PC games, operating systems, screen saver engines, e-mail
applications, chatrooms, online help, etc. All Standin products will share a
common technology architecture. Standins will be interchangeable.
Professional Standins. More sophisticated and articulated Standins can be
captured for the computer by our patent-pending proprietary motion capture
system. The Professional Standin will be animated and played using the LifeF/X
Genesis Player and LifeF/X Director Software.
LifeF/X Genesis Player. The LifeF/X Genesis Player will be a highly
flexible, programmable player that can be used either for Internet streaming of
animation commands for captured LifeF/X Standin performances or for online,
real-time interactive content generation. The Player will be developed as a
flexible programming component that can be used and programmed within the Web
browser to read e-mail or perform numerous system interactions.
LifeF/X Director. Our LifeF/X Director software will animate and control
Standins for uses such as sending e-mails with embedded animation commands. The
software will enable the user to add four basic emotions (happy, sad, angry,
surprised) and simple motions.
LifeF/X Creator Software. Our LifeF/X Creator software will be an advanced
tool controlling Standins intended for use in Web pages, e-mail or newly created
LifeF/X media files. LifeF/X e-Motor Packs, which are packages of emotional
cues for Standins, will be available at an additional cost for use with the
LifeF/X Creator. LifeF/X Creator will have a graphical interface with variable
intensity controls for emotions and movements and is intended to be user-
friendly.
LifeF/X Pro-Creator Software. The LifeF/X Pro-Creator software is an
enhanced version of the basic LifeF/X Creator designed for the professional Web
designer. LifeF/X Pro-Creator will permit full animation and control of LifeF/X
Standins using a flexible and powerful graphical user interface.
LifeF/X Software Developer Kit. We also plan to offer a LifeF/X Software
Developer Kit to facilitate integration of LifeF/X Standins into a variety of
applications.
Marketing and Distribution
We plan to market directly to the user via our planned Web site and use
event marketing techniques and viral marketing, which is the re-distribution
from user to user. Our viral marketing will
22
<PAGE>
include distribution, without charge, of millions of LifeF/X Standins and
related LifeF/X Genesis Players and Director software to consumers. We also plan
to co-brand and co-market our products with partners with whom we plan to
develop strategic relationships.
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. Having already developed
the generic human face now used as the basis for LifeF/X Standins, we plan to
add generic necks, torsos, arms and legs.
Our Competition
The market for Internet avatar products is new, and we expect it to be
competitive. The principal competitive products in the Internet avatar market
include, but may not be limited to, 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 Internet
avatar products and services being developed by competitors of which we are not
aware.
If the Internet avatar 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, stronger market
presence and longer operating histories than ours. As a result, they may be
able to adapt more quickly to new or emerging technologies and changes in
customer requirements. We cannot assure that we will be able to compete
successfully.
Our Technology Differentiator
The LifeF/X technology is partially derived from a finite element system
licensed from UniServices. Finite element modeling consists of representing an
object (which may be complex in shape, may be made of a number of sub-
components, and may vary over different regions) by dividing it into numerous
small pieces (like a 3D puzzle) having simpler shapes and properties that can be
handled mathematically and numerically utilizing relatively limited computer
resources. The behavior, motion, deformation to stress and similar
characteristics of the complex object can then be determined from the individual
responses of the assembled pieces to replcate the behavior of the whole object.
This mathematical modeling environment allows the application of finite element
analysis and other techniques to a variety of complex bioengineering problems.
The system represents over 100 person-years of development effort at
UniServices.
Our LifeF/X technology has enabled us to develop proprietary techniques for
generating accurate reproduction of expressions and tissue wrinkling. Our
proprietary system provides an environment 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.
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<PAGE>
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 of 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. These payments total
$500,000 per year through November 2002. The Company has perpetual renewal
options at a cost of $200,000 per year. However, we have the right to cancel
the license after November 2002. We have filed three patent applications in the
United States and other countries specifically covering image capturing and
creation. One patent has been issued ("Rapid High Resolution Image Capture
System", U.S. Patent # 5,999,209), one has been allowed but not yet issued and
one application is still pending. We plan to apply for other patents in the
future. UniServices has not patented the source code licensed to LifeF/X.
Our Employees
Our executive officers are based in the Boston, Massachusetts metropolitan
area. We currently have a team of 17 officers, employees and contractors in the
Boston, Massachusetts area and seven employees in Los Angeles, California. We
intend to expand the Boston workforce significantly in 2000 and have leased
expanded facilities in the Boston, Massachusetts area. See "Risk Factors -- We
are dependent on our key personnel and also need additional personnel to grow
our business."
Properties
We have leased approximately 2,000 square feet of research and development
space in the greater Los Angeles area under a two year lease with renewal
options and approximately 10,000 square feet of administrative and research and
development space in the greater Boston area under a five year lease at a
monthly rent of approximately $25,000. Each of these facilities is Class A
office space and we will not expend any material amounts for leasehold
improvements.
Legal Proceedings
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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<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth the names and ages of all of our directors
and executive officers as of March 15, 2000. All directors will serve until the
next annual meeting of shareholders and until their successors are elected and
qualified, or until their earlier death, retirement, resignation or removal.
Executive officers serve at the discretion of the board of directors, and are
appointed to serve until the first board of directors meeting following the
annual meeting of shareholders.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Michael Rosenblatt 49 Chairman and Co-President
Lucille S. Salhany 53 Chief Executive Officer,
Co-President and Director
Richard A. Guttendorf, Jr. 58 Chief Financial Officer, Secretary and Director
Ian Hunter 47 Director
Robert Verratti 56 Director
Stephen J. Andriole 50 Director
Serge Lafontaine 50 Lifef/x Networks, Inc.'s
Chief Technology Officer
</TABLE>
Background and Experience
Michael Rosenblatt. Mr. Rosenblatt became Co-President and Chairman of
LifeF/X upon the Merger. Mr. Rosenblatt served as Vice Chairman and director of
Pac Title/Mirage from October 1998 until the Merger and served as Co-President
and director of Pac Title/Mirage from 1997 to October 1998. Since 1995 he has
been President of Mirage Technologies, Inc., the general partner of Mirage
Technologies L.P. which, together with Safeguard and Robert Verratti, formed Pac
Title/Mirage in October 1997. In 1974 Mr. Rosenblatt also founded Atlantic
Entertainment Group, Inc., which became one of the largest privately held motion
picture production and distribution companies in the United States. Mr.
Rosenblatt is also a member of the Executive Branch of the Motion Picture
Academy of Arts and Science.
Lucille S. Salhany. Ms. Salhany became Chief Executive Officer, Co-
President and a director of LifeF/X upon the Merger. Ms. Salhany was President
of JH Media, Ltd. an advisory company with offices in Boston and Los Angeles
from 1997 until December 1999. From 1994 through 1997, Ms. Salhany was
President and CEO of the United Paramount Network (UPN) and currently serves on
the UPN operating committee. 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
broadcast rights to the NFL. Prior to that Ms. Salhany was President, Paramount
Domestic Television. Ms. Salhany serves on the Boards of Directors of Compaq
Computer Corporation, B.R.A. Corporation of Boston, Emerson College and iMedium,
Inc.
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<PAGE>
Richard A. Guttendorf, Jr. Mr. Guttendorf became Chief Financial Officer,
Secretary and a director of LifeF/X upon the Merger. Mr. Guttendorf has been a
director of Pac Title/Mirage since November 1997 and served as its Chairman and
Chief Executive Officer from October 1998 until the Merger. From September 1996
to date Mr. Guttendorf has been a Vice President of Safeguard. Mr. Guttendorf
was previously Chief Executive Officer of Laser Communications, Inc. (LCI), 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.
Dr. Ian Hunter. Dr. Hunter became a director of LifeF/X upon the Merger.
Dr. Hunter has been a consultant to LifeF/X since January 4, 2000. Dr. Hunter
was Director of Research and Development of Pac Title/Mirage from October 1997
until the Merger. Dr. Hunter has been a Professor of Mechanical Engineering and
Bio-Engineering at the Massachusetts Institute of Technology since 1994.
Robert Verratti. Mr. Verratti became a director of LifeF/X upon the
Merger. Mr. Verratti served as Chief Executive Officer and Chairman of the
Board of Pac Title/Mirage from 1997 to October 1998. Since 1980, Mr. Verratti
has been the President of Charlestown Investments, Ltd., a company specializing
in investments in companies in turnaround or undervalued situations. Mr.
Verratti is also a venture partner and consultant to the Chairman of Safeguard
and TL Ventures. Mr. Verratti serves on the boards of directors of Webvision,
Inc., and Lockstream.com.
Dr. Stephen J. Andriole. Dr. Andriole became a director of LifeF/X on
March 15, 2000. Since October 1997, Dr. Andriole has been Senior Vice President
and Chief Technology Officer of Safeguard Scientifics, Inc., where he is
responsible for the overall strategic vision of Safeguard through the
identification of technology and market trends. From March 1995 to October
1997, Dr. Andriole was Chief Technology Officer and Senior Vice President for
Technology Strategy at CIGNA Corporation. Dr. Andriole serves on the boards of
directors of US Data; aligne, Inc.; iMedium, Inc.; Integrated Visions, Inc.; the
Ben Franklin Technology Center of Southeastern Pennsylvania; Broadreach
Consulting, Inc.; and STORM Systems.
Dr. Serge Lafontaine. Dr. Lafontaine became the Chief Technology Officer
of LifeF/X upon the Merger. From October 1997 until the Merger, he was Co-
Director of Research of Pac Title/Mirage and Assistant Director of Research of
Mirage. Dr. Lafontaine has been a post-doctoral fellow in mechanical
engineering at the Massachusetts Institute of Technology (MIT) since 1999, and
was previously a post-doctoral associate in mechanical engineering at MIT from
1997 to 1999. Since 1998 Dr. Lafontaine has been a partner of Advanced
Instrumentation Systems, which builds instrumentation for drug discovery. From
1997 to 1998, Dr. Lafontaine was also a partner of BOMEC, which conducts
research in conducting polymers. From 1994 through 1997, Dr. Lafontaine was a
visiting research scientist at MIT.
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<PAGE>
Executive Compensation
The following information is furnished for the named persons for the
years ended December 31, 1999 and December 31, 1998, and is based upon the
Executive Officers of LifeF/X and its operating predecessor, Pac Title/Mirage.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
=====================================================================================================================
Annual Compensation Long Term Compensation Awards
- ---------------------------------- ---------------------- ----------------------------------------------------
Name and Principal Year Salary Bonus Restricted Securities All Other
Position ($) ($) Stock Awards Underlying Compensation
Options/SAR(#)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Lucille S. Salhany 1999 30,769 (1) -- -- 1,952,459 --
Chief Executive 1998 -- -- -- -- --
Officer and
Co-President
- ---------------------------------------------------------------------------------------------------------------------
Michael Rosenblatt 1999 73,769 (2) -- -- 1,911,511 --
Chairman of the Board 1998 51,000 -- -- -- --
and Co-President
- ---------------------------------------------------------------------------------------------------------------------
Richard A. Guttendorf, 1999 -- (4) -- -- -- --
Jr. 1998 -- (4) -- -- -- --
Chief Financial
Officer, Secretary
and Director
- ---------------------------------------------------------------------------------------------------------------------
Robert Verratti 1999 -- -- -- 50,001 --
1998 150,631 (3) -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Serge Lafontaine 1999 15,385 (1) -- -- 301,541 --
Chief Technology 1998 -- -- -- -- --
Officer, LifeF/X
Networks, Inc.
- ---------------------------------------------------------------------------------------------------------------------
(1) Covers the period for December 1999, the month of the Merger.
(2) Represents $50,000 paid through Pac Title/Mirage and $23,769 for December 1999, the month of the Merger.
(3) Represents compensation as Chairman and CEO of Pac Title/Mirage.
(4) Mr. Guttendorf is a Vice President of Safeguard Scientifics, Inc. and is compensated by that entity for his
services, including services provided to LifeF/X.
=====================================================================================================================
</TABLE>
1999 Option Grants: 1999 Long-Term Incentive Plan
Pac Title/Mirage had a stock option plan (the 1997 Compensation Plan) which
provided for the grant to Pac Title/Mirage employees of incentive stock options
and for the grant of nonstatutory stock options, stock awards or restricted
stock to Pac Title/Mirage employees, directors and consultants. Effective upon
the Merger, this stock option plan was terminated and LifeF/X adopted the
Lifef/x, Inc. 1999 Long-Term Incentive Plan (the New Plan) with terms
substantially similar to those of the 1997 Compensation Plan. The New Plan
reserves up to 7,981,850 shares of LifeF/X Common Stock for issuance under the
New Plan. 2,452,475 of the shares reserved for issuance under the New Plan are
subject to shareholder approval of the modifications to the New Plan approved by
the board on March 14,
27
<PAGE>
2000. Following the adoption of the New Plan, LifeF/X assumed the obligations of
outstanding options granted to Pac Title/Mirage employees under the 1997
Compensation Plan.
These outstanding option obligations included an option grant to Lucille
Salhany (the Chief Executive Officer, Co-President and a director of LifeF/X)
for 1,952,459 shares of Common Stock (after adjusting for the conversion from
Pac Title/Mirage shares to LifeF/X Common Stock shares). The options are
exercisable at $1.50 per share (as adjusted). 20% of the options vested at the
date of grant and the balance of the options vest on a quarterly basis over two
years.
For financial reporting purposes, LifeF/X has recorded deferred stock
compensation of $2,928,689 during the year ended December 31, 1999, representing
the difference between the exercise price and the fair value of LifeF/X's
Common Stock on the grant date. This amount is being amortized by a charge to
operations ratably over the two year vesting period. Such amortization expense
amounted to $656,541 for the year ended December 31, 1999. In addition, LifeF/X
recognized $25,950 of compensation expense for options granted to a non-
employee, representing the fair value of the options on the grant date.
In addition, in connection with the Merger, LifeF/X granted options to
various employees, subject to vesting schedules. Under the New Plan, the strike
price for nonstatutory stock option grants must be at least 85% of fair market
value on the grant date. Outstanding options under the New Plan vest pursuant to
vesting schedules established by the Compensation Committee and expire on or
before the tenth anniversary of the grant date, subject to early termination in
accordance with the New Plan.
The following table presents information concerning individual grants of
stock options made during 1999 to each of the executive officers and directors
of LifeF/X.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Number of Percent of Market
Securities Total Options/ Value on
Underlying SARs Granted Exercise Date of
Options/SARs To Employees Price Grant Expiration
Granted (#) in Fiscal Year ($/Share) ($/Share) Date
------------- --------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Lucille S. Salhany 1,952,459 40.8% $1.50 $3.00 12/09/2009
Michael Rosenblatt 1,911,511 39.9% $3.00 $3.00 12/14/2009
Richard A. Guttendorf, Jr. -- -- -- -- --
Ian Hunter -- -- -- -- --
Robert Verratti 50,001 1.0% $3.00 $3.00 12/14/2009
Serge Lafontaine 301,541 6.3% $3.00 $3.00 12/14/2009
</TABLE>
In 1998 Mr. Verratti was granted options to acquire 174,999 shares at $.91
per share (as adjusted for the conversion of Pac Title/Mirage shares to LifeF/X
shares upon the Merger). No options were exercised by officers in 1998 or 1999.
28
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at Options/SARs at
Shares December 31, 1999 (#) December 31, 1999 (#)(1)
Acquired on Value --------------------------- ---------------------------
Name Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lucille S. Salhany -- -- 437,694 1,514,765 $7,878,492 $27,265,770
Michael Rosenblatt -- -- 234,295 1,677,216 $3,865,868 $27,674,064
Richard A. Guttendorf, Jr. -- -- -- -- -- --
Ian Hunter -- -- -- -- -- --
Robert Verratti -- -- 174,999 50,001 $3,252,531 $ 825,017
Serge Lafontaine -- -- 60,309 241,232 $ 995,099 $ 3,980,328
</TABLE>
(1) Market value of underlying securities at December 31, 1999 ($19.50 per
share), less the exercise price. The values in the last two columns have not
been, and may never be, realized by the officers. Actual gains, if any, on
option exercises will depend on the value of LifeF/X's Common Stock on the date
of exercise.
Employment Agreements
Summary of Lucille Salhany's Employment Agreement
Ms. Salhany serves as our Chief Executive Officer and Co-President under an
employment agreement with a term of two years which commenced on December 1,
1999. Under the terms of her employment, Ms. Salhany's annual base compensation
is $400,000. She is entitled to annual consideration for a bonus based on her
personal performance and the performance of LifeF/X. Ms. Salhany has the option
to purchase 1,952,459 shares of LifeF/X Common Stock subject to the terms and
conditions of LifeF/X's 1999 Long-Term Incentive Plan. Ms. Salhany's right to
purchase twenty percent of these shares vested on grant and her right to
purchase the balance will vest in equal quarterly installments over a two year
period until fully vested. In the event Ms. Salhany's employment terminates due
to her death, permanent disability or because she has breached her fiduciary
duty, engaged in any action constituting fraud, embezzlement or theft, is found
guilty of or pleads guilty or nolo contendere to a felony or misdemeanor
involving moral turpitude which results in material harm to LifeF/X, is grossly
neglectful in performing or willfully refuses to perform her duties, or
materially fails or refuses to comply with any valid and legal directive of the
board of directors, she shall receive only such portion of her base salary and
vacation (if any) which may have accrued but remained unpaid prior to her
termination. If Ms. Salhany's employment is terminated by LifeF/X for any other
reason, she would receive as severance compensation her full base salary for the
unexpired period of the term of her employment, in addition to accrued but
unpaid salary and vacation.
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<PAGE>
Summary of Michael Rosenblatt's Employment Agreement
Mr. Rosenblatt serves as our Chairman of the Board of Directors and as Co-
President under an employment agreement with a term of two years which commenced
on December 1, 1999. Under the terms of his employment, Mr.Rosenblatt's annual
base compensation is $335,000. He is entitled to annual consideration for a
bonus based on his personal performance and the performance of LifeF/X. Mr.
Rosenblatt has the option to purchase 1,952,459 shares of LifeF/X Common Stock
subject to the terms and conditions of LifeF/X's 1999 Long-Term Incentive Plan.
Mr. Rosenblatt's right to purchase twenty percent of these shares vested on
grant and his right to purchase the balance will vest in equal quarterly
installments over a two year period until fully vested. In the event Mr.
Rosenblatt's employment terminates due to his death, permanent disability or
because he has breached his fiduciary duty, engaged in any action constituting
fraud, embezzlement or theft, is found guilty of or pleads guilty or nolo
contendere to a felony or misdemeanor involving moral turpitude which results in
material harm to LifeF/X, is grossly neglectful in performing or willfully
refuses to perform his duties, or materially fails or refuses to comply with any
valid and legal directive of the board of directors, he shall receive only such
portion of his base salary and vacation (if any) which may have accrued but
remained unpaid prior to his termination. If Mr. Rosenblatt's employment is
terminated by LifeF/X for any other reason, he would receive as severance
compensation his full base salary for the unexpired period of the term of his
employment, in addition to any accrued but unpaid salary and vacation.
Summary of Serge Lafontaine's Employment Agreement
Dr. Lafontaine serves as our Chief Technology Officer under an employment
agreement with a term of two years which commenced on December 1, 1999. Under
the terms of his employment, Dr. Lafontaine's annual base compensation is
$250,000. He is entitled to annual consideration for a bonus based on his
personal performance and the performance of LifeF/X. Dr. Lafontaine has the
option to purchase 400,491 shares of LifeF/X Common Stock subject to the terms
and conditions of LifeF/X's 1999 Long-Term Incentive Plan. Dr. Lafontaine's
right to purchase twenty percent of these shares vested on grant and his
right to purchase the balance will vest in equal quarterly installments over a
two year period until fully vested. In the event Dr. Lafontaine's employment
terminates due to his death, permanent disability or because he has breached his
fiduciary duty, engaged in any action constituting fraud, embezzlement or theft,
is found guilty of or pleads guilty or nolo contendere to a felony or
misdemeanor involving moral turpitude which results in material harm to LifeF/X,
is grossly neglectful in performing or willfully refuses to perform his duties,
or materially fails or refuses to comply with any valid and legal directive of
the board of directors, he shall receive only such portion of his base salary
and vacation (if any) which may have accrued but remained unpaid prior to his
termination. If Dr. Lafontaine's employment is terminated by LifeF/X for any
other reason, he shall receive as severance compensation his full base salary
for the unexpired period of the term of his employment, in addition to any
accrued but unpaid salary and vacation.
Director Compensation
Directors do not receive compensation for services provided as a director
or for participation on any committee of the Board of Directors.
30
<PAGE>
Limitation on Liability and Indemnification Matters
Our Articles of Incorporation limit the liability of directors to the
maximum extent permitted by Nevada law. In addition, our bylaws require us to
indemnify our directors and officers, and allow us to indemnify our other
employees and agents to the fullest extent permitted by law. At present, there
is no pending litigation or proceeding involving any director, officer, employee
or agent where indemnification will be required or permitted. We are not aware
of any threatened litigation or proceeding that might result in a claim for such
indemnification. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
LifeF/X pursuant to the foregoing provisions, we have been informed that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 17, 2000
with respect to the beneficial ownership of our Common Stock of each of our
directors, each of our executive officers and all of our executive officers and
directors as a group and the percentage of our Common Stock so owned. We are not
aware of any other beneficial owner of more than 5% of the outstanding shares of
Common Stock.
As used in this section, the term beneficial ownership with respect to a
security is defined by Rule 13d-3 under the Exchange Act 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 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: 153 Needham Street, Building One, Newton,
Massachusetts 02164.
<TABLE>
<CAPTION>
Beneficial Ownership
--------------------
Number of Percentage
Shares of Total(1)
--------- -----------
<S> <C> <C>
Directors and Officers
- ----------------------
Michael Rosenblatt..................................... 2,561,591 (2)(3) 13.1%
Lucille S. Salhany..................................... 585,738 (4) 3.0%
Richard A. Guttendorf, Jr.............................. 40,000 (5) 0.2%
Dr. Ian Hunter......................................... 1,935,885 (6) 10.2%
Robert Verratti........................................ 524,997 (7) 2.7%
Dr. Stephen J. Andriole................................ 30,000 0.2%
Dr. Serge Lafontaine................................... 2,046,137 (8) 10.7%
All Directors and Executive 7,724,348 (9) 37.8%
Officers (7 persons)...................................
5% or More Beneficial Ownership
- -------------------------------
Safeguard Scientifics, Inc............................. 2,361,594 (10) 12.4%
435 Devon Park Drive
Wayne, PA 19087
Michael MacCloskey..................................... 967,856 (11) 5.1%
2847 Thomas Avenue
Dallas, Texas 75204
</TABLE>
______________
(1) The percentages of shares held assume that options and warrants held by the
particular individual, if any, have been exercised, and no others.
(2) Michael Rosenblatt is the record holder of 1,731,272 shares and has the
right to acquire 585,738 shares within 60 days pursuant to options granted under
the 1999 Long-Term Incentive Plan described under "Executive Compensation."
32
<PAGE>
(3) Michael Rosenblatt's indirect beneficial ownership is as follows: (a)
167,501 shares representing his 29.3% ownership in Mirage Technologies LP (which
owns 571,872 shares), (b) 43,750 shares owned by Mirage Technologies, Inc. (a
company 100% owned by Mr. Rosenblatt) and, (c) 33,330 shares owned by family
members. 546,872 of the shares held by Mirage Technologies LP are pledged
to Safeguard Scientifics, Inc. as collateral for a $1,500,000 loan from
Safeguard to Mirage Technologies LP.
(4) Lucille Salhany has the right to acquire 585,738 shares within 60 days
pursuant to options granted under the 1999 Long-Term Incentive Plan described
under "Executive Compensation."
(5) Richard Guttendorf, Jr.'s indirect beneficial ownership represents 40,000
shares owned by family and family trusts.
(6) Ian Hunter is the record holder of 1,774,102 shares and has an indirect
beneficial ownership interest in 161,783 shares representing his 28.3% ownership
in Mirage Technologies LP (which owns 571,872 shares).
(7) Robert Verratti is the record holder of 349,998 shares and has the right to
acquire 174,999 shares within 60 days pursuant to options granted under the 1999
Long-Term Incentive Plan described under "Executive Compensation."
(8) Serge Lafontaine is the record holder of 1,774,102 shares and has the right
to acquire 110,252 shares within 60 days pursuant to options granted under the
1999 Long-Term Incentive Plan described under "Executive Compensation." In
addition, he has an indirect beneficial ownership interest in 161,783 shares
representing his 28.3% ownership in Mirage Technologies LP (which owns 571,872
shares).
(9) The number of shares shown as beneficially owned by all directors and
executive officers as a group includes stock options under which the named
officers and directors have the right to acquire 1,456,727 shares within 60
days.
(10) Safeguard Scientifics, Inc. is the record holder of 2,358,261 shares and
has the right to acquire 3,333 shares within 60 days through the exercise of
warrants.
(11) Michael MacCloskey is the record holder of 887,051 shares and has an
indirect beneficial ownership interest in 80,805 shares representing his 14.1%
ownership in Mirage Technologies LP (which owns 571,872 shares).
33
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
UniServices License
We license a portion of the LifeF/X technology from Auckland UniServices
Limited under a licensing agreement effective November 1, 1997. Under the
UniServices licensing agreement, 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. License and development fees under the license
agreement with Auckland UniServices Limited are $500,000 per year through
November 2002 and $200,000 per year thereafter. Ian Hunter, one of our
directors, is the brother of Peter Hunter, the leading developer of the licensed
technology at the University of Auckland, where he is a professor. UniServices
acts as a licensing agent for the University of Auckland in this relationship.
Ian Hunter receives none of the fees paid by LifeF/X to UniServices.
Ian Hunter Consulting Agreement
Dr. Ian Hunter serves as a technical and engineering consultant to LifeF/X
under a consulting agreement with a term of one year which commenced on January
4, 2000. Under the terms of his consulting agreement, Dr. Hunter's compensation
is $150,000.
Sale of Assets of Discontinued Operation to Company Owned by Pre-Merger Pac
Title/Mirage Shareholders and Related Indemnification Agreements
On March 20, 2000, we sold all of the assets of our discontinued operation
to PTM Productions, Inc., an entity owned by the pre-Merger Pac Title/Mirage
shareholders. Owners of PTM Productions, Inc. include our Chairman and Co-
President Michael Rosenblatt (11.31%), our director Ian Hunter (11.31%),
Safeguard Scientifics (59%), our director Robert Verratti (2%) and our Chief
Technology Officer Serge Lafontaine (11.31%). The sales price consisted of the
buyer's assumption of all of the liabilities of the discontinued operation. On
the date of the sale, the value of our liabilities assumed by PTM Productions
exceeded the value of the assets it acquired from us by assuming those
liabilities. As part of this sale, we transferred all of our bank debt to PTM
Productions. Safeguard has agreed to fully indemnify us against all losses and
liabilities relating to or arising from the bank debt and PTM Productions and
Safeguard have agreed to indemnify us related to the assets purchased and the
liabilities assumed.
Safeguard Administrative Services Agreement
On October 31, 1997, Pac Title/Mirage entered into an administrative
services agreement with Safeguard effective January 1, 1998 that provided for a
monthly fee to Safeguard of 1.5% of net revenues subject to minimum annual
payments of $100,000 and maximum annual payments of $600,000. This agreement has
an initial term through December 31, 2002 and continues thereafter unless
terminated by either party. The agreement has been renegotiated to provide for a
minimum annual payment of $50,000 for the year 2000, and will revert to the
above schedule thereafter. The agreement will terminate early if LifeF/X is
sold. The total amount owed to Safeguard of $535,692 as of December 31, 1999 was
one of the liabilities assumed by PTM Productions in connection with its
purchase of the discontinued operation, while all amounts accruing under the
contract after December 31, 1999 will be paid by LifeF/X.
Mirage Administrative Services Agreement
In October 1997 Pac Title/Mirage entered into an administrative services
support agreement with Mirage Technologies L.P., an entity partially owned by
our Chairman and Co-President Michael Rosenblatt (29%), our director Ian Hunter
(29%) and our Chief Technology Officer Serge Lafontaine (29%) that provided for
a fee of $25,000 per month beginning November 1997. The agreement would have
expired on the earlier of October 31, 2002 or six months after a sale of the
Company. The agreement was cancelled on March 8, 2000 and Mirage agreed to
forgive the accrued management fee of $445,000.
34
<PAGE>
DESCRIPTION OF SECURITIES
General
Our authorized capital stock consists of 100,000,000 shares of Common
Stock, par value $.001 per share.
The following summary descriptions are qualified in their entirety by
reference to our Articles of Incorporation, as amended.
Common Stock
The authorized capital stock of LifeF/X consists of 100,000,000 shares of
Common Stock, $.001 par value per share. 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.
Upon liquidation, dissolution or winding up of LifeF/X, our assets, after
the payment of our 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 of our securities and have no right to require us to redeem
or purchase their shares.
Holders of Common Stock are entitled to share equally in dividends when, as
and if declared by our Board of Directors, out of funds legally available
therefor. We have 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
As of March 15, 2000, we had 27,951,312 warrants outstanding: (i) 60,003
in conjunction with the private placement, (ii) 27,790,917 to Safeguard (other
than warrants it received in the private placement), and (iii) 100,392 to
service providers, as discussed below.
We issued 6,000,000 shares of Common Stock and warrants for 60,003 shares
of Common Stock in our private placement. We issued the Common Stock and
warrants at two closings, which occurred on December 14, 1999 and February 2,
2000. By December 31, 1999, we or our escrow agent had received over $17,000,000
in proceeds from the private placement. At the first closing, we issued to
investors 2,983,000 shares of Common Stock and warrants for 29,830 shares of
Common Stock. At the second closing we issued to investors 3,017,000 shares of
Common Stock and warrants for 30,173 shares of Common Stock. Each unit included
one share of Common Stock and a warrant that 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. At the first closing, we also
issued (a) warrants to purchase 100,000 shares of our common stock to MG
Securities Group, Inc., the placement agent in the private placement, and (b)
39,167 shares of Common Stock and warrants to purchase 392 shares of Common
Stock to attorneys for legal services rendered in connection with the private
placement.
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 LifeF/X, holders of the warrants,
unless exercised, will not be entitled to participate in our assets. 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 our Common Stock
were issued to Safeguard for its existing Pac Title/Mirage warrants. The
warrants entitle Safeguard to purchase 5,862,500 shares of our Common Stock at
an exercise price of $2.50 per share, 5,862,500 shares of
35
<PAGE>
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, we issued
warrants for 10,203,417 shares of Common Stock at an exercise price of $0.01 per
share to Safeguard in connection with the Merger, and the conversion of Pac
Title/Mirage debt owed to Safeguard. 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. In connection with the sale of the Discontinued Operation Assets
and Liabilities to PTM Productions, Inc., Safeguard transferred to the bank
warrants to purchase 4,298 shares of Common Stock at an exercise price of $0.01
per share.
Registration Rights
We agreed to file a Registration Statement to register under the Securities
Act 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"). This prospectus is a part of that Registration Statement. We also
agreed to include in the Registration Statement the 11,294,084 shares of Common
Stock issued in the Merger to the pre-Merger Pac Title/Mirage shareholders,
the 39,167 shares of Common Stock issued to service providers in connection with
the private placement and 100,392 shares of Common Stock issuable upon exercise
of warrants granted to service providers in connection with the private
placement. We will pay all registration expenses incurred in connection with the
registration of the securities. In addition, we will comply with all necessary
state securities laws so as to permit the sale of the Common Stock by the
investors.
We agreed to use our best efforts to cause the Registration Statement to
become effective on or before May 12, 2000 (within 150 days after the date of
the Merger). We also agreed that, if the Registration Statement has not been
declared effective by the close of business on May 12, 2000, we will pay to the
investors from the first closing of the private placement liquidated damages on
a pro rata basis totaling $2,983 per day for each day between May 13, 2000 and
the effective date of the Registration Statement. In addition, we agreed that,
if the Registration Statement has not been declared effective by the close of
business on July 1, 2000, we will pay to the investors from the second closing
of the private placement liquidated damages on a pro rata basis totaling $3,017
per day for each day between July 2, 2000 and the effective date of the
Registration Statement.
In addition, to enable public sale of the 27,790,917 shares of Common Stock
to be issued to Safeguard on the exercise of warrants granted in connection with
(i) the Merger, (ii) conversion of Pac Title/Mirage debt and (iii) the carry
forward of Pac Title/Mirage warrants, we have granted Safeguard the right to
require us to prepare registration statements and file them with the SEC (a) on
unlimited occasions if we are eligible to file our registration statements on
Form S-3, or (b) on two occasions if we are not eligible to file our
registration statements on Form S-3.
Lock-Up/Leak-Out
Until June 12, 2001 (18 months following the Merger on December 14, 1999),
no more than 10% of a Selling Shareholder's Common Shares covered by this
Prospectus (each a Lock-Up Share) may be sold in any consecutive three month
period. If less than 10% of the Selling Shareholder's Lock-Up Shares are sold
in any three month period, the difference between 10% of such Selling
Shareholder's Lock-Up Shares and the amount actually sold may be sold during any
prospective three month periods. Once sold in accordance with these
restrictions, Lock-Up Shares become freely tradeable without restriction.
36
<PAGE>
Duane Jenson, Briar Creek Investment LLC and Leonard Burningham (the "Fin
Sports Shareholders"), holders of 1,614,651 shares of Common Stock on December
15, 1999, have agreed to lock up these shares of Common Stock until June 12,
2001 under the restrictions applicable to Lock-Up Shares.
All shares acquired upon exercise of options will be subject to
substantially identical Lock-Up/Leak-Out provisions.
LifeF/X may waive any of the above restrictions if such waiver is
beneficial to us or will facilitate an orderly trading market for the Common
Stock.
Transfer Agent
American Registrar & Transfer Company, 342 East 900 South, Salt Lake City,
Utah 84111, serves as Transfer Agent for our Common Stock.
37
<PAGE>
PLAN OF DISTRIBUTION
The Selling Securityholders may offer shares of Common Stock from time to
time in one or more transactions in the over-the-counter market, which may
involve brokers or dealers, or in private transactions. We have not entered into
any agreement, arrangement or understanding with brokers or dealers regarding
the shares that may be offered by this prospectus.
38
<PAGE>
SELLING SECURITYHOLDERS
The following table sets forth certain information regarding
beneficial ownership of Common Stock of each selling securityholder and as
adjusted to give effect to the sale of the Common Stock offered hereby.
Information concerning the selling securityholders may change from time to time;
any changes of which we are advised will be set forth in a prospectus supplement
to the extent required.
<TABLE>
<CAPTION>
Before After
Offering Offering
-------- --------
Name of Beneficial Owner Number of Shares of Number of Shares of Number of Shares of Common
Common Stock Held Common Stock Being Offered Stock
<S> <C> <C> <C>
Stephen Andriole(1) 30,000 30,000 -0-
Michele Beuerlein(2) 7,575 (3) 7,575 -0-
Michael G. Bolton(4) 20,000 20,000 -0-
Leonard W. Burningham(5) 40,400 (3) 40,400 -0-
Hillary Grinker 400,000 400,000 -0-
Mary A. Guttendorf(6) 10,000 10,000 -0-
Richard A. Guttendorf, Jr. 24,000 24,000 -0-
G.R.A.T. (7)
Richard A. Guttendorf III 3,000 3,000 -0-
(8)
John K. Halvey (9) 10,000 10,000 -0-
Trust of Colin L. Halvey 5,000 5,000 -0-
dtd 5/27/99 (10)
Trust of Grace Ann Halvey 5,000 5,000 -0-
dtd 12/19/97 (11)
Richard J. Hindlian, as 26,664 26,664 -0-
Trustee of the MSR Trust,
U/I/D dated 12/29/99 (12)
Ian Hunter (13) 1,774,102 1,774,102
Jeri L. Johnson 1999 Trust 7,000 7,000 -0-
dtd 5/27/99 (14)
Jerry L. Johnson (15) 86,000 86,000 -0-
Jonathan W. Johnson 1999 7,000 7,000 -0-
Trust dtd 5/27/99 (16)
David Kestenberg 249,470 (3) 249,470 -0-
Kingdon Associates 151,500 (3) 151,500 -0-
Kingdon Family 40,400 (3) 40,400 -0-
Partnership, LP
Kingdon Partners 121,200 (3) 121,200 -0-
M. Kingdon Offshore NV 696,900 (3) 696,900 -0-
Serge Lafontaine (17) 1,774,102 1,774,102 -0-
Seymour Lippman 323,200 (3) 323,200 -0-
Loeb Ventures I LLC(18) 20,200 (3) 20,200 -0-
Thomas Lynch (19) 70,000 70,000 -0-
Michael MacCloskey (20} 887,051 887,051 -0-
Jack L. Messman (21) 75,000 75,000 -0-
MG Securities(22) 100,000 (23) 100,000 -0-
Mirage Technologies, Inc. 43,750 43,750 -0-
(24)
Mirage Technologies, 571,872 571,872 -0-
L.P(25)
Warren V. Musser (26) 200,000 200,000 -0-
James A. Ounsworth (27) 90,000 90,000 -0-
Michael Rosenblatt (28) 1,731,272 1,731,272 -0-
Safeguard 99 Capital L.P. 14,406,666 (30) 336,666 14,070,000 (37)
(29)
Safeguard 97 Capital L.P. 8,233,282 (31) 2,027,365 6,205,917 (37)
(29)
Safeguard Scientifics 150,082 (31) 82 150,000 (37)
(Delaware), Inc. (32)
Savage Holdings, Inc. (33) 461,082 (3) 461,082 -0-
Gretchen E. Tucker(34) 3,000 3,000 -0-
Robert Verratti(35) 349,998 349,998 -0-
159 selling securityholders,
each of whom will be selling 4,730,202(3) 4,730,202 -0-
less than 0.5% of the Common
Stock(36)
TOTALS 37,935,970 17,510,053 20,425,917
</TABLE>
39
<PAGE>
(1) LifeF/X Director and Safeguard Senior Vice President and Chief Technology
Officer
(2) Partner of Loeb & Loeb LLP, which provides certain legal services to
LifeF/X
(3) Represents shares held plus shares issuable upon exercise of currently
exercisable warrants, exercisable at a per-share price of $7.50
(4) Safeguard Senior Vice President
(5) Former counsel to Fin Sports and father of Branden T. Burningham, Esq.,
legal counsel to LifeF/X
(6) Spouse of Richard A. Guttendorf, Jr., Chief Financial Officer, Secretary
and Director of LifeF/X and Safeguard Vice President
(7) Trust of Chief Financial Officer, Secretary and Director of LifeF/X and
Safeguard Vice President
(8) Son of Richard A. Guttendorf, Jr., Chief Financial Officer, Secretary and
Director of LifeF/X and Safeguard Vice President
(9) Safeguard Senior Vice President
(10) Trust for son of John L. Halvey, Safeguard Senior Vice President
(11) Trust for daughter of John L. Halvey, Safeguard Senior Vice President
(12) Trust for family of Michael Rosenblatt, LifeF/X Chairman and Co-President
(13) LifeF/X Director
(14) Trust for daughter of Jerry L. Johnson, Senior Vice President of Safeguard
(15) Safeguard Senior Vice President
(16) Trust for son of Jerry L. Johnson, Senior Vice President of Safeguard
(17) LifeF/X Chief Technology Officer
(18) Investment company of Loeb & Loeb LLP, counsel to LifeF/X with respect to
certain legal matters
(19) President of Comp-U-Com, Inc., a majority-owned subsidiary of Safeguard,
and former director of Pac Title/Mirage
(20) Partner of Mirage Technologies, L.P.
(21) Safeguard Director
(22) Placement agent for the private placement
(23) Represents warrants for stock issuable at an exercise price of $7.50 per
share
(24) Corporation owned by Michael Rosenblatt, Chairman and Co-President of
LifeF/X
(25) Partnership owned by Michael Rosenblatt, Chairman and Co-
President of LifeF/X; Serge Lafontaine, Chief Technology Officer of
LifeF/X; Ian Hunter, Director of LifeF/X; and Michael MacCloskey
(26) Safeguard Chairman and former director of Pac Title/Mirage
(27) Safeguard Chief Counsel
(28) Chairman and Co-President of LifeF/X
(29) Partnership controlled by Safeguard
(30) Represents the following:
Shares held................................................333,333
Shares issuable upon exercise of warrant, exercisable at a per share price
of $2.50................4,690,000
Shares issuable upon exercise of warrant, exercisable at a per share price
of $5.00................4,690,000
Shares issuable upon exercise of warrant, exercisable at a per share price
of $6.00................4,690,000
Shares issuable upon exercise of warrant currently exercisable at a per
share price of $7.50 3,333
(31) Represents shares held plus shares issuable upon exercise of warrants,
exercisable at a per share price of $0.01
(32) Shareholder of LifeF/X
(33) Consultant to Fin Sports regarding the Merger
(34) Daughter of Richard A. Guttendorf, Jr., Chief Financial Officer, Secretary
and Director of LifeF/X and Vice President of Safeguard
(35) LifeF/X Director and Safeguard consultant
(36) The percentages calculated in this table are based on the assumption that
all shares of Common Stock registered hereunder which would be issued upon
exercise of warrants and options have been issued following exercise of
those warrants and options
(37) Represents shares issuable upon exercise of warrants not exercisable within
60 days. Therefore, beneficial ownership of outstanding Common Stock is
less than 1%
40
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The market price of our Common Stock could decline as a result of sales of
a large number of shares of our Common Stock in the market after this offering,
or the perception that such sales could occur. Such sales also might make it
more difficult for us to sell equity securities in the future at a time and
price that we deem appropriate. After this offering, 19,016,324 shares of
Common Stock will be outstanding, and no shares will be held as treasury stock.
Following this offering, all of the shares being offered pursuant to this
prospectus are freely tradable, subject to the Lock-Up/Leak-Out restrictions
applicable to these shares. Refer to "Description of Securities-Lock-Up/Leak-
Out" elsewhere in this prospectus.
LEGAL MATTERS
The validity of the shares of our Common Stock offered hereby will be
passed upon for LifeF/X by Branden T. Burningham, Salt Lake City, Utah. Branden
T. Burningham is the son of Leonard W. Burningham, Esq. who is one of the
Selling Securityholders, and holds a 12.8% limited partnership interest in the
Leonard W. Burningham Fin Partnership, that owns approximately 100,000 shares
of our Common Stock. Branden T. Burningham provides legal services to Duane S.
Jenson, who is a Selling Securityholder.
EXPERTS
The Consolidated Financial Statements of LifeF/X, Inc. at December 31, 1999
and 1998 and for the years then ended, and for the period June 1, 1997 to
December 31, 1997, and the cumulative period June 1, 1997 (inception) through
December 31, 1999, included in this prospectus and Registration Statement have
been audited by KPMG LLP (KPMG), independent certified public accountants, as
indicated in their report with respect thereto and are included herein in
reliance upon authority of said firm as experts in accounting and auditing.
CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANTS
Mantyla, McReynolds & Associates (Mantyla), Salt Lake City, Utah, served
as the independent public accountants for Fin Sports up until the Merger. KPMG
served as the independent public accountants for Pac Title/Mirage. Effective
December 14, 1999, the date of the Merger, we dismissed Mantyla as our
independent accountants, and engaged KPMG, the then-current independent public
accountants for Pac Title/Mirage, as our new independent accountants. The
dismissal of Mantyla and the retention of KPMG was approved by our Board of
Directors.
Prior to the engagement of KPMG, neither we nor anyone on our behalf
consulted with KPMG regarding the application of accounting principles to a
specified transaction, either completed or uncompleted, or type of audit opinion
that might by rendered on LifeF/X's financial statements.
Mantyla audited Fin Sports' financial statements for the years ended
December 31, 1997 and 1998. Mantyla's report for such periods 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
Fin Sports' 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 Fin
Sports' 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.
41
<PAGE>
Mantyla furnished Fin Sports with a letter dated December 7, 1999 addressed
to the Securities and Exchange Commission stating there were no disagreements
between Mantyla and Fin Sports, 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 incorporated by
reference to Exhibit 16.1 to Form 8-K filed by LifeF/X, Inc. on December 15,
1999.
ADDITIONAL INFORMATION
We have filed with the Commission, a registration statement on Form SB-2
under the Securities Act with respect to the Common Stock offered hereby. This
prospectus, which constitutes a part of the registration statement, omits
certain of the information set forth in the registration statement in accordance
with the rules and regulations of the Commission. For further information with
respect to LifeF/X and the Common Stock offered hereby, reference is made to
such registration statement and such exhibits filed as a part thereof.
Statements contained in this prospectus as to the content of any contract or
other document referred to are not necessarily complete, and in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the registration statement, each such statement being qualified in
all respects by such reference. The registration statement and exhibits can be
inspected and copied at the public reference section at the Commission's
principal office, 450 5th Street, N.W., Judiciary Plaza, Washington, D.C. 20549,
the Commission's Regional Offices located at the Northwestern Atrium Center,
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661-2511, and 7 World
Trade Center, 13th Floor, New York, New York 10048 and through the Commission's
Web site (http://www.sec.gov). Copies may be obtained from the Commission's
principal office upon payment of the fees prescribed by the Commission.
42
<PAGE>
LIFEF/X, INC.
Index to Consolidated Financial Statements
<TABLE>
<S> <C>
Independent Auditors' Report...................... F-2
Consolidated Balance Sheets....................... F-3
Consolidated Statements of Operations............. F-4
Consolidated Statements of Shareholders' Equity... F-5
Consolidated Statements of Cash Flows............. F-6
Notes to Consolidated Financial Statements........ F-7
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors
LifeF/X, Inc.
We have audited the accompanying consolidated balance sheets of LifeF/X, Inc. (a
development stage company) and subsidiary (the Company) as of December 31, 1998
and 1999 and the related statements of operations, shareholders' equity and cash
flows for the period from June 1, 1997 (inception) through December 31, 1997 and
for each of the years in the two-year period ended December 31, 1999 and for the
cumulative period June 1, 1997 (inception) through December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of LifeF/X, Inc. (a
development stage company) and subsidiary as of December 31, 1998 and 1999 and
the results of their operations and their cash flows for the period from June 1,
1997 (inception) through December 31, 1997 and for each of the years in the two-
year period ended December 31, 1999 and for the cumulative period June 1, 1997
(inception) through December 31, 1999 in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Los Angeles, California
February 18, 2000, except for note 3 and
the last paragraph of note 4, which are
as of March 20, 2000, and the last paragraph
of note 6, which is as of March 15, 2000.
F-2
<PAGE>
LIFEF/X, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
----------------------------------
Assets (note 3) 1998 1999
---------------- ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ -- 7,778,040
Restricted cash from stock subscriptions - (note 5) -- 9,051,000
Interest receivable -- 17,249
Prepaid expenses -- 175,000
------------- -----------
Total current assets -- 17,021,289
Net assets of discontinued operation - long-term (note 3) 8,143,697 4,451,701
------------- -----------
$ 8,143,697 21,472,990
============= ===========
Liabilities and Shareholders' Equity
Current liabilities:
Short-term notes payable to related party (note 9) $ 1,700,000 --
Accounts payable and accrued expenses 284,123 864,123
Net liabilities of discontinued operation - current (note 3) 2,586,648 9,598,372
------------- -----------
Total current liabilities 4,570,771 10,462,495
Other long-term liabilities -- 357,250
Long-term notes payable to related party (note 9) 2,100,000 --
------------- -----------
6,670,771 10,819,745
------------- -----------
Commitments and contingencies (notes 7 and 12)
Shareholders' equity (notes 2, 5 and 6):
Preferred Stock, $.01 par value. Authorized 20,000,000
shares (note 5):
Series A - issued and outstanding 8,000,000 shares in 1998 -- --
and none in 1999
Series B - issued and outstanding 7,680,000 shares in 1998
and none in 1999, stated at liquidation preference 7,996,799 --
Common stock, $.001 par value. Authorized 100,000,000
shares; issued and outstanding 18,999,917 shares (1999) -- 18,992
Common stock, $.01 par value. Authorized 50,000,000 shares;
issued and outstanding 320,100 shares (1998) 3,201 --
Additional paid-in capital 6,000 52,635,250
Common stock subscribed (note 5) -- (579,000)
Deferred compensation related to stock options (note 6) -- (2,272,148)
Accumulated deficit accumulated during development stage (6,533,074) (39,149,849)
------------- -----------
Total shareholders' equity 1,472,926 10,653,245
------------- -----------
$ 8,143,697 21,472,990
============= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
LIFEF/X, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Period from Cumulative
June 1, 1997 June 1, 1997
(inception) (inception)
through Years ended December 31, through
December 31, ---------------------------------- December 31,
1997 1998 1999 1999
---------------- ---------------- --------------- ---------------
Revenue (notes 1 and 3) $ -- -- -- --
---------------- ---------------- ---------------------------------
<S> <C> <C> <C> <C>
Operating costs and expenses:
General and administrative 18,705 181,942 1,493,590 1,694,237
Research and development 624,900 1,202,762 1,754,253 3,581,915
----------- ----------- ----------- ----------
Total operating costs and expenses 643,605 1,384,704 3,247,843 5,276,152
----------- ----------- ----------- ----------
Loss from operations (643,605) (1,384,704) (3,247,843) (5,276,152)
Interest expense on borrowings 13,677 58,850 68,453 140,980
Interest expense - warrants issued in
connection with debt conversion (note 5) -- -- 9,302,339 9,302,339
Interest expense - warrants issued in
connection with loans - (note 9) -- -- 1,462,383 1,462,383
Interest income -- -- (17,249) (17,249)
----------- ----------- ----------- ----------
Loss from continuing operations
before income tax expense (657,282) (1,443,554) (14,063,769) (16,164,605)
Income tax expense (note 8) 800 800 800 2,400
----------- ----------- ----------- --------------
Loss from continuing operations (658,082) (1,444,354) (14,064,569) (16,167,005)
Discontinued operation (note 3):
Loss on discontinued operation (369,658) (4,060,980) (3,002,332) (7,432,970)
Loss on disposal, including $7,449,874 for
operating losses from measurement date
until December 31, 1999 and $2,500,000
for losses for the remaining disposal period -- -- (15,549,874) (15,549,874)
----------- ----------- ----------- --------------
Net loss $ (1,027,740) (5,505,334) (32,616,775) (39,149,849)
=========== =========== =========== ==============
Net loss per common share on a basic
and diluted basis:
Continuing operations $ (1.88) (4.12) (11.08)
Discontinued operation (1.06) (11.60) (14.61)
----------- ----------- -----------
$ (2.94) (15.72) (25.69)
=========== =========== ===========
Weighted average common shares outstanding 350,107 350,107 1,269,824
=========== =========== ===========
</TABLE>
F-4
<PAGE>
LIFEF/X, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Pacific Title / Mirage, Inc. Preferred Stock
---------------------------------------------------------------------
Series A Series B
--------------------------------- ---------------------------------
Shares Amount Shares Amount
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Balance at June 1, 1997 (inception) -- $ -- -- $ --
Issuance of Series A Preferred Stock 8,000,000 -- -- --
Issuance of Series B Preferred Stock and
common stock -- -- 8,000,000 7,999,999
Conversion of Series B Preferred Stock
to common stock -- -- (320,000) (3,200)
Net loss -- -- -- --
--------------- --------------- --------------- ---------------
Balance at December 31, 1997 8,000,000 -- 7,680,000 7,996,799
Issuance of stock warrants (note 9) -- -- -- --
Net loss -- -- -- --
--------------- --------------- --------------- ---------------
Balance at December 31, 1998 8,000,000 -- 7,680,000 7,996,799
Issuance of stock warrants (note 9) -- -- -- --
Issuance of stock warrants (note 5) -- -- -- --
Conversion of PTM Preferred and common
stock into LifeF/X common stock and
warrants upon Merger (notes 2 and 5) (8,000,000) -- (7,680,000) (7,996,799)
Deferred compensation - stock options (note 6) -- -- -- --
Vesting of stock options issued
as compensation (note 6) -- -- -- --
Issuance of shares - private placement
offering (note 5) -- -- -- --
Private placement offering costs (note 5) -- -- -- --
Common stock subscribed (note 5) -- -- -- --
Net loss -- -- -- --
--------------- --------------- --------------- ---------------
Balance at December 31, 1999 -- $ -- -- $ --
=============== =============== =============== ===============
<CAPTION>
Pacific Title / Mirage, Inc. LifeF/X, Inc.
common stock common stock
-------------------------------- ---------------------------------
Shares Amount Shares Amount
-------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Balance at June 1, 1997 (inception) -- $ -- -- $ --
Issuance of Series A Preferred Stock -- -- -- --
Issuance of Series B Preferred Stock and
common stock 100 1 -- --
Conversion of Series B Preferred Stock
to common stock 320,000 3,200 -- --
Net loss -- -- -- --
-------------- --------------- --------------- ---------------
Balance at December 31, 1997 320,100 3,201 -- --
Issuance of stock warrants (note 9) -- -- -- --
Net loss -- -- -- --
-------------- --------------- --------------- ---------------
Balance at December 31, 1998 320,100 3,201 -- --
Issuance of stock warrants (note 9) -- -- -- --
Issuance of stock warrants (note 5) -- -- -- --
Conversion of PTM Preferred and common
stock into LifeF/X common stock and
warrants upon Merger (notes 2 and 5) (320,100) (3,201) 12,960,750 12,601
Deferred compensation - stock options (note 6) -- -- -- --
Vesting of stock options issued
as compensation (note 6) -- -- -- --
Issuance of shares - private placement
offering (note 5) -- -- 6,000,000 6,000
Private placement offering costs (note 5) -- -- 39,167 391
Common stock subscribed (note 5) -- -- -- --
Net loss -- -- -- --
-------------- --------------- --------------- ---------------
Balance at December 31, 1999 -- $ -- 18,999,917 $ 18,992
============== =============== =============== ===============
<CAPTION>
Deferred
Common compensation Total
Additional stock related to Accumulated shareholders'
paid-in capital subscribed stock options deficit equity
--------------- --------------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at June 1, 1997 (inception) -- -- -- -- --
Issuance of Series A Preferred Stock -- -- -- -- --
Issuance of Series B Preferred Stock and
common stock -- -- -- -- 8,000,000
Conversion of Series B Preferred Stock
to common stock -- -- -- -- --
Net loss -- -- -- (1,027,740) (1,027,740)
-------------- --------------- --------------- --------------- -----------
Balance at December 31, 1997 -- -- -- (1,027,740) 6,972,260
Issuance of stock warrants (note 9) 6,000 -- -- -- 6,000
Net loss -- -- -- (5,505,334) (5,505,334)
-------------- --------------- --------------- --------------- -----------
Balance at December 31, 1998 6,000 -- -- (6,533,074) 1,472,926
Issuance of stock warrants (note 9) 1,462,383 -- -- 1,462,383
Issuance of stock warrants (note 5) 23,389,176 -- -- -- 23,389,176
Conversion of PTM Preferred and common
stock into LifeF/X common stock and
warrants upon Merger (notes 2 and 5) 7,987,399 -- -- -- --
Deferred compensation - stock options (note 6) 2,928,689 -- (2,928,689) -- --
Vesting of stock options issued
as compensation (note 6) 25,950 -- 656,541 -- 682,491
Issuance of shares - private placement
offering (note 5) 17,994,000 -- -- -- 18,000,000
Private placement offering costs (note 5) (1,158,347) -- -- -- (1,157,956)
Common stock subscribed (note 5) -- (579,000) -- -- (579,000)
Net loss -- -- -- (32,616,775) (32,616,775)
-------------- --------------- --------------- --------------- -----------
Balance at December 31, 1999 52,635,250 (579,000) (2,272,148) (39,149,849) 10,653,245
============== =============== =============== =============== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
LIFEF/X, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Period from Cumulative
June 1, 1997 June 1, 1997
(inception) (inception)
through Years ended December 31, through
December 31, ------------------------------- December 31,
1997 1998 1999 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,027,740) (5,505,334) (32,616,775) (39,149,849)
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Loss on disposal -- -- 15,549,874 15,549,874
Noncash interest expense - warrants issued in
connection with debt conversion -- -- 9,302,339 9,302,339
Noncash interest expense - warrants issued in
connection with loans -- -- 1,462,383 1,462,383
Noncash compensation expense - stock options -- -- 682,491 682,491
Changes in operating assets and liabilities, net of
effects of acquisition of Pacific Title and Art Studio:
Interest receivable (17,249) (17,249)
Prepaid expenses -- -- (175,000) (175,000)
Accounts payable, accrued expenses and
other long-term liabilities 113,300 170,823 937,250 1,221,373
Net cash provided by (used in) discontinued operation (176,858) 4,783,201 (6,079,122) (1,472,779)
------------- ------------- ------------- -------------
Net cash (used in) operating activities (1,091,298) (551,310) (10,953,809) (12,596,417)
------------- ------------- ------------- -------------
Cash flows from investing activities:
Acquisition of Pacific Title and Art Studio, net of cash
acquired (15,478,659) -- -- (15,478,659)
Purchases of property, plant and equipment (496,710) (2,623,631) (1,187,494) (4,307,835)
------------- ------------- ------------- -------------
Net cash (used in) investing activities (15,975,369) (2,623,631) (1,187,494) (19,786,494)
------------- ------------- ------------- -------------
Cash flows from financing activities:
Proceeds from note payable to related party 600,000 1,500,000 12,300,000 14,400,000
Borrowings of long-term debt from related party -- 1,700,000 -- 1,700,000
Borrowings on debt 8,766,667 50,000 -- 8,816,667
Proceeds from sale of warrants exercisable into 600,000
shares of common stock -- 6,000 -- 6,000
Proceeds from issuance of Series B Preferred Stock and
common stock 8,000,000 -- -- 8,000,000
Proceeds from sale of stock through private placement, net
of common stock subscribed -- -- 17,421,000 17,421,000
Restricted cash from stock subscriptions -- -- (9,051,000) (9,051,000)
Private placement offering costs -- -- (1,157,956) (1,157,956)
Net cash provided by (used in) financing activities -
discontinued operation (300,000) (81,059) 407,299 26,240
------------- ------------- ------------- -------------
Net cash provided by financing activities 17,066,667 3,174,941 19,919,343 40,160,951
------------- ------------- ------------- -------------
Net increase in cash and cash equivalents -- -- 7,778,040 7,778,040
Cash and cash equivalents at beginning of period -- -- -- --
------------- ------------- ------------- -------------
Cash and cash equivalents at end of period $ -- -- 7,778,040 7,778,040
============= ============= ============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, including discontinued operation $ 60,277 700,056 726,802 1,487,135
Income taxes -- 800 800 1,600
============= ============= ============= =============
Supplemental disclosure of noncash financing activities:
Common stock warrants $ -- -- 23,389,176 23,389,176
Common stock subscribed -- -- 579,000 579,000
Deferred compensation related to stock options -- -- 2,928,689 2,928,689
============= ============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
LIFEF/X, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1998 and 1999
(1) Summary of Significant Accounting Policies
(a) Organization and Description of Business
On December 14, 1999, Fin Sports U.S.A., Inc. (FSI) completed a
transaction (the Merger), whereby FSI acquired all of the outstanding
capital stock of Pacific Title/Mirage, Inc. (PTM) through the merger
of a wholly owned subsidiary of FSI, with and into PTM, with PTM as
the surviving corporation. In connection with the Merger, FSI changed
its name to Lifef/x, Inc. (LifeF/X or the Company) and PTM changed its
name to Lifef/x Networks, Inc. For a detailed discussion of this
transaction, refer to note 2 - Acquisition of Pacific Title/Mirage,
Inc. by Fin Sports U.S.A., Inc.
LifeF/X, Inc. and its wholly-owned subsidiary, LifeF/X Networks, Inc.
have been engaged in the following operations: (1) the development of
LifeF/X technology, a mathematically based technology capable of
creating photo-realistic computer animation of biological entities,
including humans animated in real time, and (2) the non-LifeF/X
operations, which provides film title, credits, special effects,
digital effects and related services to the motion picture and
television industry.
The Company is a development stage enterprise as defined in Statement
of Financial Accounting Standards (SFAS) No. 7, "Accounting and
Reporting by Development Stage Enterprises." The Company is devoting
substantially all of its present efforts to developing technology.
Planned principal operations have commenced, but have not produced
LifeF/X technology revenue to date.
The Company's inception was June 1, 1997 when development of LifeF/X
technology commenced, and the Company was formally incorporated on
September 11, 1997.
On September 30, 1997, Mirage Technologies, LP (Mirage) contributed
certain of its technologies and net assets to the Company in exchange
for 8,000,000 shares of Series A Preferred Stock and 25 shares of
common stock. This transaction was accounted for as a reorganization
of entities under common control and, accordingly, the assets and
liabilities were recorded at their historical cost basis in a manner
similar to a pooling of interests. Since there was no historical-cost
basis for the technology contributed by Mirage, no value was assigned.
The Company assumed net liabilities from Mirage totaling $792,878 that
consisted primarily of the fixed assets and expenses related to the
LifeF/X development activities of Mirage.
On October 30, 1997, Safeguard Scientifics, Inc. (Safeguard) invested
$8 million in cash in the Company in exchange for 8,000,000 shares of
Series B Preferred Stock and 75 shares of common stock. On October 30,
1997, Safeguard converted 320,000 of its Series B Preferred Stock into
320,000 shares of common stock and transferred these shares to an
officer of the Company.
On October 31, 1997, the Company acquired certain assets and
liabilities of Pacific Title and Art Studio (PTAS) for net purchase
consideration of approximately $15.5 million. The acquisition was
accounted for as a purchase and the results of PTAS' operations are
included in the results of operations of the Company from the date of
acquisition. The aggregate purchase price has been allocated to the
assets and liabilities of PTAS based upon their respective fair market
values. The
F-7 (continued)
<PAGE>
LIFEF/X, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1998 and 1999
excess of the purchase price over the fair value of net assets
acquired was approximately $7.3 million and is being amortized over
the expected useful life. Refer to item (f) of note 1 - Summary of
Significant Accounting Policies.
The Company has incurred losses from its inception (June 1, 1997) to
date. During this period, Safeguard has loaned the Company significant
amounts to support the operations of the business and to finance
capital expenditures. In 1999, the Board of Directors decided to
concentrate the Company's efforts on LifeF/X development, with primary
emphasis on Internet applications and, accordingly, initiated steps to
dispose of the non-LifeF/X operations, and thereby reduce cash
outflows and raise cash through the sale of non-LifeF/X assets to
repay the Company's bank debt. The Company is focusing on development
of LifeF/X technology for potential commercial uses with primary
emphasis on Internet applications. Therefore, the non-LifeF/X
operations have been reflected as a discontinued operation in the
accompanying consolidated financial statements for all periods
presented. Refer to note 3 - Discontinued Operation and Spin Off
Transaction.
(b) Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of LifeF/X, Inc. and its wholly-owned subsidiary LifeF/X
Networks, Inc. All significant intercompany accounts, intercompany
profits and intercompany transactions are eliminated.
(c) Cash and Cash Equivalents
Cash and cash equivalents are comprised of highly liquid investments
with original maturities of three months or less.
(d) Revenue Recognition
Revenue related to the Company's discontinued non-LifeF/X operations
are from film title and special effects service contracts and are
recognized on a percentage-of-completion basis based on costs incurred
to estimated total costs to be incurred. Unbilled receivables amount
to $576,450 and $1,374,874 as of December 31, 1998 and 1999,
respectively, and represent revenue that has been earned by the
Company, but not yet billed to the customer. All unbilled receivables
are related to the discontinued operation and included in net
liabilities of discontinued operation - current. Refer to note 3 -
Discontinued Operation and Spin off Transaction. Any anticipated
losses on contracts are expensed when identified.
Revenue for continuing operations is expected to be derived from the
sale of software products and services of the LifeF/X technology.
Revenues will be recognized upon shipment. To date, no LifeF/X
technology revenues have been recognized.
(e) Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated
depreciation and amortization. All property, plant and equipment are
related to the discontinued operation and included in net assets of
discontinued operation - long-term. Depreciation of property, plant
and equipment is calculated
F-8 (continued)
<PAGE>
LIFEF/X, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1998 and 1999
using the straight-line method over the estimated useful lives of the
assets, generally 3 to 15 years or, for leasehold improvements, the
term of the lease, if shorter. The Company also utilizes equipment
that is subject to operating and capital leases. Refer to note 7 -
Commitments. Refer to note 3 - Discontinued Operation and Spin Off
Transaction for a discussion of the transfer of all of these lease
obligations to PTM Productions, Inc.
(f) Excess of Cost over Net Assets Acquired
The Company continually evaluates the recoverability of goodwill for
indication of impairment based on the undiscounted future cash flows
from the related business activity. During 1998, the Company assessed
the goodwill attributable to its digital effects business and
consequently wrote off approximately $1,113,000 which is included in
loss on discontinued operation in the accompanying consolidated
statements of operations. The remaining excess of cost over net assets
acquired is being amortized on a straight-line basis over 20 years. As
of December 31, 1999, excess of cost over net assets acquired was
$5,202,185, net of accumulated amortization of $1,000,000, which is
included in net assets of discontinued operation - long-term.
(g) Research and Development Costs
Research and development costs related to designing, developing and
testing the LifeF/X and other technologies are charged to expense as
incurred.
(h) Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, deferred income taxes reflect the impact of
"temporary differences" between assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws and
regulations.
(i) Concentration of Credit Risk
Substantially all of the Company's past business activity has been
related to its discontinued operation, primarily customers in the
motion picture and television industry located in Southern California.
The Company performs ongoing credit evaluations of its customers but
does not require collateral. The Company maintains reserves for
potential credit losses and such losses have been within management's
expectations. Although the Company does not currently foresee credit
risk associated with its receivables in excess of amounts provided for
in the allowance for doubtful accounts, repayment is dependent upon,
among other things, the financial stability of its customers and the
industry and geographic location in which the Company operates.
One customer represented approximately 21% of the Company's 1999 net
revenue related to the discontinued operation, and two customers
represented approximately 40% and 14% of the Company's accounts
receivable as of December 31, 1999, which is included in net
liabilities of discontinued operation - current.
F-9 (continued)
<PAGE>
LIFEF/X, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1998 and 1999
(j) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements and revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
(k) Accounting for Stock Options
The Company accounts for stock option grants under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which permits the use of the intrinsic-value method for
grants to employees in accordance with Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations.
(l) Earnings (Loss) per Share
Basic earnings (loss) per share is computed by dividing net income
(loss) available to common shareholders by the weighted average number
of common shares outstanding during the period in accordance with SFAS
No. 128, "Earnings Per Share." Diluted earnings (loss) per share
reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then
shared in the earnings of the entity. Diluted earnings (loss) per
share is computed similarly to fully diluted earnings (loss) per share
pursuant to APB Opinion No. 15.
There were 1,514,835 and 5,529,375 common stock options outstanding at
December 31, 1998 and 1999, respectively, and 27,951,312 warrants to
purchase shares of common stock at December 31, 1999 which were not
included in the computation of diluted loss per share because the
impact would have been antidilutive.
(m) Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable. All long-lived assets are included in
net assets of discontinued operation - long-term. Recoverability of
assets to be held and used is measured by a comparison of the carrying
amount of the assets to future undiscounted operating cash flows
expected to be generated by the assets. If such assets are considered
to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair
value of the assets.
In March 1999, the Company reviewed its long-lived assets in light of
operating losses that the Company continued to recognize. The future
undiscounted cash flows were compared to the net carrying value of the
related assets. The future undiscounted cash flows were not sufficient
to recover the net carrying value of the assets, and a $1.4 million
impairment charge was recorded by the Company and is included in the
loss on discontinued operation in the year ended December 31, 1999.
Refer to note 3 - Discontinued Operation and Spin Off Transaction.
F-10 (continued)
<PAGE>
LIFEF/X, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1998 and 1999
(n) Other Comprehensive Income (Loss)
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for
reporting and presentation of comprehensive income (loss) and its
components in a full set of financial statements. Comprehensive income
(loss) consists of net income (loss) and net unrealized gains (losses)
on securities and is presented in the statements of shareholders'
equity and comprehensive income (loss). The statement requires only
additional disclosures in the financial statements; it does not affect
the Company's financial position or results of operations. The Company
does not have any transactions or other economic events that qualify
as other comprehensive income (loss) as defined under SFAS No. 130. As
such, net income (loss) equaled comprehensive income (loss) for all
periods.
(o) Segment Reporting
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 establishes a standard for the way public
business enterprises are to report selected information about
operating segments. The determination of an entity's operating
segments is based upon a management approach, including the way
management organizes the segment within the enterprise for making
operating decisions and assessing performance. Management currently
reviews financial data at the highest level, the commercial
application of LifeF/X technology and film title and special effects
services (non-LifeF/X operations). Therefore, under the management
approach of SFAS No. 131, there are two operating segments, one of
which is treated as a discontinued operation. Refer to note 3 -
Discontinued Operation and Spin Off Transaction.
(2) Acquisition of Pacific Title/Mirage, Inc.
by Fin Sports U.S.A., Inc.
On December 14, 1999, Fin Sports U.S.A., Inc. acquired all of the
outstanding capital stock of PTM through the merger of a wholly owned
subsidiary of FSI with and into PTM, with PTM as the surviving corporation.
Since the shareholders of PTM received the majority voting interests in the
combined company, PTM is the acquiring enterprise for financial reporting
purposes. The transaction was recorded as a reverse acquisition using the
purchase method of accounting whereby equity of PTM was adjusted for the
fair value of the acquired tangible net assets of the wholly owned
subsidiary of FSI.
Because PTM is the acquirer for accounting purposes, the consolidated
financial statements presented at December 31, 1998 and for the period from
June 1, 1997 (inception) through December 31, 1997 and for the year ended
December 31, 1998 are therefore those of PTM, not FSI. In addition, the
operating results for the period January 1, 1999 through the date of the
transaction, December 14, 1999, reflect those of PTM, not FSI. Operating
results thereafter reflect the combined operations of PTM and FSI.
F-11 (continued)
<PAGE>
LIFEF/X, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1998 and 1999
The operating results reflected in the accompanying consolidated financial
statements do not include FSI's operating activities prior to December 14,
1999, the date of the Merger. The following summarized pro forma
information assumes the Merger occurred on June 1, 1997 (inception),
January 1, 1998 and January 1, 1999, respectively:
<TABLE>
<CAPTION>
Period from
June 1, 1997
(inception)
through Years ended December 31,
December 31, --------------------------------
1997 1998 1999
------------------- --------------- -------------
<S> <C> <C> <C>
Revenue $ -- -- --
Loss from continuing operations (658,352) (1,447,033) (17,167,322)
Loss per share from continuing operations (.05) (.11) (1.29)
Weighted average shares outstanding 12,999,917 12,999,917 13,295,807
</TABLE>
In December 1999, prior to the Merger, Savage Holdings, Inc. (SHI), a
consultant, entered into an option agreement with Duane Jenson (Jenson),
principal shareholder of FSI for services rendered to Jenson for the benefit of
FSI. Pursuant to the terms of the option agreement, Jenson granted to SHI an
option to receive 64% of any proceeds from the sale of FSI common stock owned
by Jenson. The option exercise price was $500,000 and the option was exercisable
only during the ten-day period immediately following the Merger.
After the Merger, SHI exercised this option. SHI has no voting rights or any
other rights of a common shareholder. Jenson deposited shares of FSI common
stock equal to 64% of his holdings into an escrow account. FSI ascribed a value
of $3.1 million to this option at the date of grant and accordingly, FSI
recognized a charge to its results of operations, prior to the Merger.
F-12 (continued)
<PAGE>
LIFEF/X, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1998 and 1999
(3) Discontinued Operation and Spin Off Transaction
As discussed in note 1 - Summary of Significant Accounting Policies, the
Company's Board of Directors decided to dispose of the non-LifeF/X
operations in March 1999 and the Company has accounted for the non-LifeF/X
operations as a discontinued operation.
The condensed operating results of the discontinued operation are as
follows:
<TABLE>
<CAPTION>
Period from
June 1, 1997
(inception)
through Years ended December 31,
December 31, --------------------------------
1997 1998 1999
------------------- ------------- -------------
<S> <C> <C> <C>
Revenue $ 2,971,759 21,633,151 14,059,769
Loss from discontinued operation, including
$1,400,000 impairment charge in 1999 (369,658) (4,060,980) (3,002,332)
Loss on disposal, including $7,449,874 for
operating losses from measurement date
until December 31, 1999 and $2,500,000
for losses for the remaining disposal
period -- -- (15,549,874)
=================== ============== =============
</TABLE>
The accrued liability for estimated operating losses of the discontinued
operation for the period from January 1, 2000 to the date of the spin-off, March
20, 2000, include: (1) estimated fees payable to the bank of approximately
$200,000 related to the restructured bank facility (note 4) and,(2) a charge of
approximately $800,000 related to modification of terms of certain stock options
held by employees of the discontinued operation (note 6).
The net assets (liabilities) of the discontinued operation are summarized
as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1998 1999
------------------- -------------------
<S> <C> <C>
Current assets $ 3,530,391 4,728,178
Current portion of long-term bank debt (note 4) (1,600,000) (4,666,667)
Bank line of credit (note 4) (2,550,000) (2,484,000)
Short-term notes payable to related party (note 9) -- (2,775,000)
Current liabilities - other (1,967,039) (1,900,883)
Accrued liability for estimated operating losses of discontinued
operation for remaining disposal period -- (2,500,000)
------------------- -------------------
Net liabilities of discontinued operation - current $ (2,586,648) (9,598,372)
=================== ===================
</TABLE>
F-13 (continued)
<PAGE>
LIFEF/X, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998 and 1999
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1998 1999
------------------- -------------------
<S> <C> <C>
Property, plant and equipment, net $ 8,962,970 7,287,839
Excess of cost over net assets acquired, net 5,502,185 5,202,185
Other assets 115,325 42,400
Long-term bank debt, net of current portion (note 4) (4,666,667) --
Other long-term debt to related parties (note 9) (570,497) (980,692)
Long-term liabilities - other (1,199,619) (1,500,031)
Accrued loss on disposal of discontinued operation -- (5,600,000)
---------------- ----------------
Net assets of discontinued operation - long-term $ 8,143,697 4,451,701
================ ================
</TABLE>
Subsequent to year end, the Company sold all of its non-LifeF/X assets
and liabilities (collectively, the "Spin Off Assets and Liabilities")
detailed above to PTM Productions, Inc. (PTM Productions), an entity 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,
including: certain leased and owned real property, outstanding bank debt
and certain debt owed 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).
All the Spin Off Assets and Liabilities were transferred to PTM Productions
following year end. Neither the Company nor its stockholders will be
entitled to any beneficial interest in the Spin Off Assets and Liabilities.
At the date of the spin off transaction, the liabilities of the non-LifeF/X
operations exceeded the assets of the non-LifeF/X operations, and as a
result, the Company will record additional paid-in capital to the extent
liabilities assumed by PTM Productions exceed net assets transferred to PTM
Productions.
In connection with the spin off transaction, the Company obtained consents
from a number of third parties, including its bank lender, which holds a
lien covering all of its assets, including the LifeF/X technology. Assets
relating to the LifeF/X technology were released in conjunction with the
spin off. As part of the spin off transaction, the Company transferred
this bank debt to PTM Productions and Safeguard has agreed to indemnify the
Company from and against any and all losses and liabilities relating to or
arising from the bank debt. In addition, in connection with the spin off
transaction, PTM Productions and Safeguard have provided certain
indemnities to the Company for the Spin Off Assets and Liabilities. In
consideration for the Safeguard indemnification, subject to any senior
liens, Safeguard has been 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 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
(Continued)
F-14
<PAGE>
LIFEF/X, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998 and 1999
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 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 PTM Productions nor Safeguard will indemnify the Company 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.
(4) Long-Term Bank Debt and Lines of Credit
The Company has a $3,000,000 revolving credit facility with a bank that has
been extended until May 29, 2000. Borrowings under the credit facility bear
interest, which is payable monthly, at prime (7.75% at December 31, 1998
and 8.5% at December 31, 1999) plus .25%. There was $2,550,000 and
$2,484,000 outstanding on the credit facility at December 31, 1998 and
1999, respectively, which is included in net liabilities of discontinued
operation- current. The credit facility is collateralized by accounts
receivable and a $2,000,000 guarantee by Safeguard.
The Company's term loan agreement and revolving credit facility contain
various covenants related to financial ratios, minimum levels of net worth
and other limitations. The Company was in compliance with these covenants
through October 31, 1998. The Company was not in compliance with certain
financial covenants as of December 31, 1998. Notwithstanding the fact that
the Company has not been in compliance since December 31, 1998, the bank,
based on the continued support provided by Safeguard and the timeliness of
the Company's scheduled loan payments, has not declared any defaults or
pursued any remedies against the Company to date. Refer to note 3 -
Discontinued Operation and Spin Off Transaction, for a discussion of
Safeguard's indemnification obligations. As of December 15, 1999, the
Company entered into a consent letter with the bank pursuant to which the
bank agreed, subject to certain terms and conditions (including an increase
in principal payments as noted below), to extend the repayment of the
credit facility to February 29, 2000 and which has subsequently been
extended to May 29, 2000 through a forbearance agreement with the bank.
The following is a summary of long-term bank debt included with assets
(liabilities) of discontinued operation. Refer to note 3 - Discontinued
Operation and Spin Off Transaction:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1998 1999
------------------- -----------------
<S> <C> <C>
Term loan with bank $ 6,266,667 4,666,667
Less current portion 1,600,000 4,666,667
---------------- ----------------
Long-term debt, net of current portion $ 4,666,667 --
================ ================
</TABLE>
(Continued)
F-15
<PAGE>
LIFEF/X, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998 and 1999
Under the original term loan agreement, the term loan was payable in 60
monthly principal installments through November 2002 of $133,333 plus
interest at prime (7.75% at December 31, 1998 and 8.5% at December 31,
1999) plus .25%. In December 1999, the Company agreed to increase the
principal payments to $158,333 per month from January 2000 through February
2000 and $183,333 per month until November 2002. On March 20, 2000, the
Company entered into a restructure agreement with the bank that allowed the
Company to extend repayment of the amounts outstanding under its line of
credit to May 29, 2000 and obtained a forbearance with respect to the debt
covenants from the bank on the long-term debt through May 29, 2000.
However, there is no assurance that the bank will extend the term past May
29, 2000. Therefore, all of the term debt has been classified in net
liabilities of discontinued operation -current, in the December 31, 1999
consolidated financial statements. The term loan is secured by all assets
of the Company's discontinued operation (excluding equipment subject to
capitalized leases). In connection with this restructure agreement, the
Company agreed to reimburse the bank for certain legal fees incurred,
estimated at $100,000 and Safeguard has agreed to transfer warrants to
purchase LifeF/X common stock at an exercise price of $0.01 per share to
the bank valued at $100,000. Such amounts have been included in accrued
liability for estimated operating losses of discontinued operation.
(5) Shareholders' Equity
Prior to the Merger, the Company had 20,000,000 shares of Preferred Stock
authorized, with 8,000,000 shares of Series A Preferred Stock and 7,680,000
shares of Series B Preferred Stock outstanding. All of the shares of the
Series B Preferred Stock and 1,760,000 shares of the Series A Preferred
Stock were owned by Safeguard. In conjunction with the Merger, the Series A
Preferred Stock was converted into LifeF/X Common Stock using a conversion
factor of 1.0937432, resulting in the issue of 8,749,846 shares. The Series
B Preferred Stock was converted into LifeF/X Common Stock using a
conversion factor of .2856811467, resulting in the issue of 2,194,031
shares. In addition, the Series B Preferred Stock converted into warrants
to purchase LifeF/X common stock at an exercise price of $.01 per share
using a conversion factor of .8080621094, resulting in the issue of
6,205,917 warrants to Safeguard.
Effective upon the Merger, Safeguard converted $14,086,837 of PTM debt and
accrued interest thereon of $761,837 owed to Safeguard into the right to
receive warrants for 3,997,500 shares of LifeF/X common stock. The warrants
have a term of ten years (expiring December 2009) and are exercisable
beginning December 14, 2000 (one year after the Merger), at an exercise
price of $.01 per share subject to certain early exercise events specified
in the warrants.
In connection with the Merger, warrants for 11,725,000 PTM shares held by
Safeguard prior to the Merger carried forward on a share-for-share basis as
warrants for LifeF/X common stock. The warrants have a term of ten years
(expiring December 2009) and are exercisable beginning December 14, 2000
(one year after the Merger), subject to certain early exercise events
specified in the warrants. 50% of the warrants held by Safeguard were
carried forward as warrants to purchase 5,862,500 shares of LifeF/X common
stock at an exercise price of $2.50 per share and the remaining 50% to
purchase 5,862,500 shares of LifeF/X common stock at $5.00 per share. In
addition, Safeguard received warrants to purchase 5,862,500 shares of
LifeF/X common stock at an exercise price of $6.00 per share.
Upon issuance, the Company estimated the fair value of the warrants using a
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rate of 6.5%; dividend yield of 0%;
volatility factor of the expected market price of the Company's common
stock of 60%, and a
(Continued)
F-16
<PAGE>
LIFEF/X, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998 and 1999
weighted-average expected life of the warrants of seven years. The range of
values assigned to the warrants was $1.94 to $3.00 per share, and the total
value assigned was $23,389,176. The value assigned to the warrants, less
the $14,086,837 in debt and accrued interest converted, amounted to
$9,302,339, which was recorded as additional paid-in capital and as
additional interest expense during the year ended December 31, 1999.
Concurrently with the Merger, LifeF/X, Inc. initiated a private placement
offering for $18 million through the sale of 6,000,000 units at $3.00 per
unit to certain investors. Each unit consisted of (i) one share of common
stock and (ii) a warrant to purchase .01 share of common stock at $7.50 per
share, exercisable pursuant to the holder's put right, all on certain terms
and conditions.
The private placement occurred in two stages. The first portion of the
placement closed in December 1999 and the Company received the proceeds
relating to 2,983,000 units. The second portion of the placement closed in
February 2000 at which time Company received the balance of the proceeds
relating to 3,017,000 units. At December 31, 1999, the balance sheet
reflects $9,051,000 in escrow funds and cash from stock subscriptions which
had been received but not yet paid to the Company. Subsequent to year end,
the funds in escrow were released to the Company.
At December 31, 1999, the Company had unit subscriptions for $579,000 which
were funded subsequent to year end. These are reflected as common stock
subscribed in the shareholders' equity section of the consolidated balance
sheet. The costs of the offering amounted to $1,157,956 and were deducted
from additional paid-in capital, offsetting the gross proceeds of the
offering.
Safeguard purchased 333,333 units of the offering for $1,000,000 ($3.00 per
unit), receiving 333,333 shares of common stock and related warrants for
the purchase of 3,333 shares.
Refer to note 2 - Acquisition of Pacific Title/Mirage, Inc. by Fin Sports
U.S.A., Inc., for a discussion of the acquisition of all of PTM's capital
stock by FSI in conjunction with the Merger in December 1999.
(6) Stock Option Plan
PTM had a stock option plan (the 1997 Compensation Plan) which provided for
the grant to PTM employees of incentive stock options and for the grant of
nonstatutory stock options, stock awards or restricted stock to PTM
employees, directors and consultants. Effective upon the Merger, this stock
option plan was terminated and LifeF/X, Inc. adopted the 1999 Long-Term
Incentive Plan (the Plan) with terms substantially similar to those of the
PTM plan. The new Plan reserves up to 5,529,375 shares of LifeF/X common
stock for issuance under the Plan. Following the adoption of the new plan,
LifeF/X, Inc. assumed the obligations of outstanding options granted to
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 1,952,459 shares of common stock (after adjusting for the
conversion from PTM shares to FSI shares). The options are exercisable at
$1.50 per share (as adjusted). 20% of the options vested at the date of
grant and the balance of the options vest on a quarterly basis over two
years. For financial reporting purposes, the Company has recorded deferred
stock compensation of $2,928,689 during the year ended December 31, 1999,
representing the difference between the exercise price and the fair value
of the Company's common stock on the grant date. This amount is being
amortized by a charge to operations ratably over the two year vesting
period. Such amortization expense amounted to $656,541 for the year ended
December 31, 1999. In addition, the
(Continued)
F-17
<PAGE>
LIFEF/X, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998 and 1999
Company recognized $25,950 of compensation expense for options granted to a
non-employee, representing the fair value of such options on the grant
date.
In addition, in connection with the Merger, LifeF/X, Inc. granted options
to various employees subject to vesting schedules. Nonstatutory stock
options granted must be at least 85% of fair market value at grant date.
Outstanding options under the Plan vest in varying increments and expire on
or before the 10th anniversary of the grant date or upon earlier
termination.
Restricted stock purchase options may be subject to vesting contingencies
or other specified conditions.
The following table summarizes stock option activity for the period from
June 1, 1997 (inception) through December 31, 1997 and for the two years
ended December 31, 1999, (as adjusted for the conversion of PTM shares to
LifeF/X shares at a factor of 1.0937432 LifeF/X shares per PTM share): All
option grants (except the 1,952,459 options granted to Lucille Salhany as
described above), were at exercise prices which approximated or exceeded
the fair market value of the underlying common stock at the date of grant.
<TABLE>
<CAPTION>
Weighted-
average
Number of exercise price
shares per share
------------------- -------------------
<S> <C> <C>
Balance at December 31, 1997 -- $ --
Granted 1,514,835 .91
------------------- -------------------
Balance at December 31, 1998 1,514,835 .91
Granted 4,788,362 2.39
Canceled (773,822) (.91)
------------------- -------------------
Balance at December 31, 1999 5,529,375 $ 2.19
=================== ===================
Reserved for future issuance at December 31, 1999 --
===================
</TABLE>
(Continued)
F-18
<PAGE>
LIFEF/X, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998 and 1999
If the Company had elected to recognize compensation cost based on the fair
value at the date of grant, consistent with the method as prescribed by
SFAS No. 123, "Accounting for Stock Based Compensation," loss from
continuing operations before discontinued operation for the years ended
December 31, 1998 and 1999 would have changed to the pro forma amount
indicated below:
<TABLE>
<CAPTION>
1998 1999
-----------------------------------
<S> <C> <C>
Loss from continuing operations:
As reported $ (1,444,354) (14,064,569)
Pro forma (1,832,000) (15,465,000)
Basic and diluted loss per
share from continuing
operations - pro forma (5.23) (12.18)
==================================
</TABLE>
The fair value of options granted during 1999 was determined using a Black-
Scholes option pricing model with the following assumptions: risk-free
interest rate of 6.5%, dividend yield of 0%, expected volatility of 60% and
an expected life of 5 years. At date of grant, the fair value of the stock
options ranged from $1.73 to $2.19 per option in 1999. The fair value of
options granted during 1998 was determined using a Black-Scholes option
pricing model with the following assumptions: risk-free interest rate of
6.0%, dividend yield of 0%, expected volatility of 0% and an expected life
of 5 years. At date of grant, the fair value of the stock options was $.28
per option in 1998.
(Continued)
F-19
<PAGE>
LIFEF/X, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998 and 1999
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Options outstanding
-----------------------------------------------------------------------------------------------------------------------------
Weighted-
average Weighted- Weighted-
Range of remaining average average
exercise Number contractual exercise Number exercise
prices outstanding life price exercisable price
-------------- ------------------ ------------------ ------------------ ---------------- ------------------
<S> <C> <C> <C> <C> <C>
$ .91 741,013 8.3 years $ .91 522,491 $ .91
1.50 1,952,459 9.9 years 1.50 437,694 1.50
3.00 2,835,903 9.9 years 3.00 310,958 3.00
--------------- ------------
5,529,375 1,271,143
=============== ============
</TABLE>
On March 15, 2000, the Company increased the LifeF/X common stock reserved
for the Plan from 5,529,375 shares to 7,981,850 shares and granted an
additional 219,023 options to employees at an exercise price equal to the
fair value of the Company's common stock at the grant date. The Company's
Board of Directors accelerated the vesting of certain stock options and
made other modifications to the Plan for options held by employees of the
discontinued operation that will no longer be LifeF/X employees after the
date of the spin-off. The Company has accounted for this modification of
terms and the increase in the intrinsic value of these stock options, which
totaled approximately $800,000. Such amounts have been included in the
accrued liability for estimated operating losses of the discontinued
operation.
(7) Commitments
The Company has an exclusive, worldwide, perpetual license and support
agreement for the use of certain 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. These payments total
approximately $500,000 per year through October 31, 2002. The Company has
the option to extend the agreement for one or more additional one-year
terms for an annual development fee of $200,000 (subject to adjustments for
inflation).
The Company conducts a portion of its discontinued operation in a leased
facility under a lease expiring in 2007 and leases certain machinery and
equipment under operating leases expiring at various dates through 2003.
Rent expense on the facility and operating lease expense of its
discontinued operation during disposal period is included in the provision
for loss on disposal of discontinued operation. The Company is obligated
under various capital leases for computer hardware and software equipment
that expire at various dates during the next three years.
(Continued)
F-20
<PAGE>
LIFEF/X, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998 and 1999
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) and lease payments
for real estate, as well as future minimum capital lease payments as of
December 31, 1999, including leases related to its discontinued operation,
are as follows:
<TABLE>
<CAPTION>
Capital Operating
leases leases
--------------- ---------------
<S> <C> <C>
Year ending December 31:
2000 $ 476,696 2,707,490
2001 368,975 1,467,445
2002 224,964 620,820
2003 12,435 657,178
2004 8,438 655,889
Thereafter -- 2,222,740
--------------- ---------------
Total minimum lease payments 1,091,508 $ 8,331,562
===============
Less amount representing interest 211,465
---------------
Present value of minimum capital lease payments 880,043
Less current installments of obligations under capital leases,
included in net assets of discontinued operation - current 373,639
---------------
Obligations under capital leases, excluding current
installments, included in net assets of discontinued
operation - long-term $ 506,404
===============
</TABLE>
Total future minimum lease payments under the operating lease relating to
the facility lease were $5,137,982.
Facility rent expense and operating lease payments for the period ended
December 31, 1997 (seven months) and for the years ended December 31, 1998
and 1999 was approximately $111,000, $2,596,000 and $3,342,000,
respectively, which is included in loss from discontinued operation.
(8) Income Taxes
The provision for income taxes consists of minimum franchise taxes for the
state of California.
The difference between the Company's U.S. Federal statutory income tax rate
of 34%, as well as its state and local rate, net of a Federal benefit, when
compared to its effective rate of zero is principally comprised of its
valuation allowance.
(Continued)
F-21
<PAGE>
LIFEF/X, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998 and 1999
The components of the net deferred tax asset at December 31, 1998 and 1999
are presented below:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1998 1999
--------------- ---------------
<S> <C> <C>
Deferred tax assets:
Net operating losses $ 793,497 6,081,024
Credit carryforwards 71,383 105,383
--------------- ---------------
Gross deferred tax assets 864,880 6,186,407
Less valuation allowance (864,880) (6,186,407)
--------------- ---------------
Deferred tax assets, net of valuation allowance $ -- --
=============== ===============
</TABLE>
F-22
<PAGE>
LIFEF/X, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998 and 1999
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences and loss carryforwards become
deductible. Due to the uncertainty as to whether the Company will realize
the benefits of these deductible temporary differences, a full valuation
allowance has been established as of December 31, 1998 and 1999.
At December 31, 1999, the Company has net operating loss carry forwards for
federal tax reporting purposes of approximately $17,000,000 which expire at
various dates, primarily in years 2012 through 2019. The Company has
research and experimentation credit carry forwards of approximately
$105,000, which expire in 2019.
The net operating loss and credit carryforwards may be subject to certain
limitations due to changes in ownership, which may inhibit the Company's
ability to use these carryforwards in the future.
(9) Related Party Transactions
(a) Management Fees
In connection with the initial capitalization of the Company discussed
in note 1 - Summary of Significant Accounting Policies, Mirage
contributed certain assets to the Company which included certain
patent applications. The Company entered into an administrative
services support agreement with Mirage which provides for a fee of
$25,000 per month beginning November 1997. The agreement will expire
on the earlier of October 31, 2002 or six months after a sale of the
Company. The total amount owed to Mirage as of December 31, 1998 and
1999 was $246,000 and $445,000, respectively, which has been included
in net assets of discontinued operation - long-term as of December 31,
1998 and 1999. Subsequent to year end, the agreement was cancelled and
Mirage agreed to forgive the accrued management fee of $445,000.
On October 31, 1997, the Company entered into an administrative
services agreement with Safeguard effective January 1, 1998 that
provided for a monthly fee to Safeguard of 1.5% of net revenues
subject to minimum and maximum annual payments of $100,000 and
$600,000, respectively. This agreement has an initial term through
December 31, 2002 and will continue thereafter unless terminated by
either party. The agreement has been renegotiated to provide for a
minimum annual payment of $50,000 for the year 2000, and will revert
to the above schedule thereafter. The agreement will terminate early
if the Company is sold. The total amount owed to Safeguard as of
December 31, 1998 and 1999 was $324,497 and $535,692, respectively.
Safeguard has agreed not to require payment for at least the next 12
months. The liability as of December 31, 1999 has been transferred to
PTM Productions and has been included in net assets of discontinued
operation - long-term as of December 31, 1998 and 1999 as it is
related to the discontinued operation. All future amounts accruing
under this contract after December 31, 1999 are related to the
continuing operations and will be paid by the Company.
(Continued)
F-23
<PAGE>
LIFEF/X, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998 and 1999
(b) Safeguard
Short-term notes payable to Safeguard consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1998 1999
--------------- ---------------
<S> <C> <C>
Notes payable to Safeguard, payable on demand at an annual interest
rate of prime (7.75% and 8.5% at December 31, 1998 and 1999,
respectively) plus 1%, with interest payable monthly $ 1,000,000 2,775,000
Demand note payable to Safeguard, payable upon demand, at an annual
interest rate of prime (7.75% at December 31, 1998), plus 1%,
payable at maturity 700,000 --
---------------- ---------------
$ 1,700,000 2,775,000
================ ===============
</TABLE>
The note payable balance at December 31, 1999 of $2,775,000 reflected
above, represents Post September 30 Debt that is included in the Spin Off
Assets and Liabilities transferred to PTM Productions subsequent to year
end as discussed in note 3 - Discontinued Operation and Spin Off
Transaction. Therefore, at December 31, 1999 this item was included in the
net liabilities of discontinued operation - current.
Long-term notes payable to Safeguard consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1998 1999
---------------- ---------------
<S> <C> <C>
Term note payable to Safeguard, interest payable monthly at the
prime rate (7.75% at December 31, 1998), due the earlier of an
initial public offering, sale of the Company or March 2001 $ 600,000 --
Term note payable to Safeguard, interest payable monthly at the
prime rate (7.75% at December 31, 1998), due the earlier of an
initial public offering, sale of the Company or March 2001 1,500,000 --
---------------- ---------------
$ 2,100,000 --
================ ===============
</TABLE>
In March 1998, in conjunction with granting of a $1.5 million loan and a
payment of $6,000, Safeguard was issued a warrant to purchase 600,000
shares of PTM common stock at an exercise price of $2.50 per share at any
time between April 1, 1998 and April 2, 2005. As of the issuance date, the
warrant was estimated to have a nominal fair value.
(Continued)
F-24
<PAGE>
LIFEF/X, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998 and 1999
In November 1998, in conjunction with the receipt of a note payable for
$1.0 million, the Company issued a warrant to Safeguard to purchase 750,000
shares of the Company's common stock at an exercise price of $2.00 per
share. This warrant had an expiration date of November 30, 2005. As of the
issuance date, the fair value of the warrant was nominal.
(Continued)
F-25
<PAGE>
LIFEF/X, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998 and 1999
From January 1999 through September 1999, Safeguard provided unsecured
loans to PTM totaling $9.5 million at an interest rate of prime plus 1%.
The principal plus the accrued interest was payable on demand. In
conjunction with these unsecured loans, the Company issued additional
warrants to Safeguard to purchase 10,375,000 shares of common stock at
an exercise price of $1.00 per share, bringing the total warrants
outstanding to 11,725,000. These warrants had expiration dates ranging
from February 2006 through August 2006.
Upon issuance, the Company estimated the fair value of the warrants
using a Black-Scholes option pricing model with the following weighted-
average assumptions: risk-free interest rate of 6.5%; dividend yield of
0%; volatility factor of the expected market price of the Company's
common stock ranging from 20% to 60%, depending on the grant date, and a
weighted-average expected life of the warrants of seven years. The range
of values assigned to the warrants was $0.01 to $0.66 per share, and the
total value assigned was $1,462,383. This amount was recorded as
additional paid-in capital and as interest expense during the year ended
December 31, 1999.
In connection with the Merger, the warrants for 11,725,000 PTM shares
held by Safeguard prior to the Merger carried forward on a share-for-
share basis as warrants for common stock of LifeF/X. The warrants have a
term of ten years (expiring December 2009), and are exercisable
beginning December 14, 2000 (one year after the Merger), subject to
certain early exercise events specified in the warrants. 50% of the PTM
warrants held by Safeguard were carried forward as warrants to purchase
5,862,500 shares of LifeF/X common stock at an exercise price of $2.50
per share and the remaining 50% to purchase 5,862,500 shares of LifeF/X
common stock at $5.00 per share. In addition, Safeguard received
warrants to purchase 5,862,500 shares of LifeF/X common stock at an
exercise price of $6.00 per share.
The total number of shares of LifeF/X common stock that are subject to
exercise under the warrants held by Safeguard after the Merger amounts
to 27,794,250 shares of LifeF/X common stock.
(10) 401(k) Plan
The Company has a retirement plan under Section 401(k) of the Internal
Revenue Code (the Plan). The terms of the Plan provide that employees over
21 years of age who have completed at least six months of employment are
eligible to participate in the Plan. Contributions to the Plan by the
employees are set aside in a separate trust. The Company makes matching
contributions at 25% of the first 6% of each employee's contribution and
may discontinue matching contributions at any time. For the period ended
December 31, 1997 (seven months) and the years ended December 31, 1998 and
1999, the Company made contributions to the Plan of approximately $12,000,
$93,000 and $85,000, respectively.
(11) Severance Obligation
Certain of the Company's employees are covered under a collective
bargaining agreement, under which the Company must provide for severance
payments to be paid to these employees based on qualified years of service.
The Company has a severance liability recorded of $523,199 and $517,071 at
December 31, 1998 and 1999, respectively, which has been included in net
assets of discontinued operation - long-term.
F-26
<PAGE>
LIFEF/X, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998 and 1999
(12) Contingencies
The Company is involved in legal proceedings with outside parties involving
routine business matters. Management believes that the ultimate resolution
of these matters will not have a material adverse effect on the Company's
financial condition or results of operations.
F-27
<PAGE>
LIFEF/X, INC.
_______________________
PROSPECTUS
_______________________
<PAGE>
PART II
Item 24. Indemnification of Directors and Officers
The Company's Articles of Incorporation includes provisions which limit the
liability of our directors. As permitted by applicable provisions of the Nevada
Law, directors will not be liable to the Company for monetary damages arising
from a breach of their fiduciary duty as directors in certain circumstances.
This limitation does not affect liability for any breach of a director's duty to
the Company or our stockholders (i) with respect to approval by the director of
any transaction from which he or she derives an improper personal benefit, (ii)
with respect to acts or omissions involving an absence of good faith, that the
director believes to be contrary to the best interests of the Company or our
stockholders, that involve intentional misconduct or a knowing and culpable
violation of law, that constitute an unexcused pattern or inattention that
amounts to an abdication of his or her duty to the Company or our stockholders,
or that show a reckless disregard for duty to the Company or our stockholders in
circumstances in which he or she was, or should have been aware, in the ordinary
course of performing his or her duties, of a risk of serious injury to the
Company or our stockholders, or (iii) based on transactions between the Company
and our directors or another corporation with interrelated directors or based on
improper distributions, loans or guarantees under applicable sections of Nevada
Law. This limitation of directors' liability also does not affect the
availability of equitable remedies, such as injunctive relief or rescission. In
addition, the Company has granted contractual indemnification rights to (a) its
director, Robert Verratti, pursuant to an indemnification agreement dated as of
December 14, 1999, (b) its director Ian Hunter pursuant to his consulting
agreement and (c) its executive officers Lucille Salhany, Michael Rosenblatt and
Serge Lafontaine pursuant to their respective employment agreements.
The Company has been advised that it is the position of the Commission that
insofar as the provision in the Company's Articles of Incorporation, as amended,
may be invoked for liabilities arising under the Securities Act, the provision
is against public policy and is therefore unenforceable.
Item 25. Other Expenses of Issuance and Distribution
The estimated expenses for the issuance and distribution of the Common
Stock registered hereby, other than underwriting commissions, fees and
Representative's nonaccountable expense allowance are set forth in the following
table:
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- --------
<S> <C>
SEC Registration Fee....................................... $129,434
Transfer Agent Fees........................................ 500
Legal Fees................................................. 70,000
Accounting Fees............................................ 50,000
Printing and Engraving Costs............................... 15,000
Miscellaneous.............................................. 10,000
--------
Total $274,934
========
</TABLE>
Item 26. Recent Sales of Unregistered Securities
The following is information for all securities that the Company has sold
within the past three years without registering the securities under the
Securities Act:
In order to raise capital, the Company executed a private placement for up
to $18 million of the Company's units at a price of $3.00 per unit. Each unit
consisted of one share of the Company's common stock and a warrant to purchase
.01 shares of the Company's common stock at an exercise price of $7.50 per
share. The private placement was fully subscribed and we received all funds. By
December 31, 1999, the Company or its escrow agent had received over $17,000,000
in proceeds from the private placement. The Company issued 6,000,000 shares of
Common Stock and warrants for 60,003 shares of Common Stock at two closings,
which occured on December 14, 1999 and February 2, 2000. All shares of common
stock and warrants sold in the private placement are being registered pursuant
to this Registration Statement.
II-1
<PAGE>
Item 27. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
2.1 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 (incorporated by reference to Form 8-K filed by
Lifef/x, Inc. on December 15, 1999)
3.1 Amendment to Bylaws of Fin Sports U.S.A., Inc.
3.2 Articles of Incorporation of Lifef/x, Inc. (to be filed by amendment)
3.3 Bylaws of Lifef/x, Inc. (to be filed by amendment)
4.1 Registration Rights Agreement Dated December 14, 1999
4.2 Fin Sports U.S.A., Inc. Subscription Agreement (Revised November
24, 1999)
5.1 Legal Opinion of Branden T. Burningham, Esq.
10.1 Employment Agreement dated December 1, 1999 re: Serge LaFontaine
10.2 Employment Agreement dated December 1, 1999 re: Michael Rosenblatt
10.3 Employment Agreement dated December 1, 1999 re: Lucille Salhany
10.4 Consulting Agreement dated January 4, 2000 re: Ian Hunter
10.5 Lifef/x, Inc. 1999 Long Term Incentive Plan including Amendment
10.6 Technologies License, Development, Consulting and Collaboration
Agreement between Auckland UniServices Limited and Pacific
Title/Mirage, Inc. effective as of November 1, 1997 (to be filed
by amendment; confidential treatment to be applied for)
10.7 Indemnification Agreement dated December 14, 1999
10.8 Security Agreement dated March 20, 2000
10.9 Assignment and Assumption Agreement dated December 14, 1999
10.10 General Bill of Sale, Assignment and Assumption Agreement dated
March 20, 2000
10.11 Software License Agreement dated March 20, 2000
10.12 Indemnification Agreement dated December 14, 1999 re: Robert
Verratti
10.13 Lock-Up/Leak-Out Agreement dated December 14, 1999
10.14 Massachusetts Office Lease dated March 16, 2000
16.1 Letter of Mantyla McReynolds, a Professional Corporation dated
December 7, 1999 (incorporated by reference to Form 8-K filed by
Lifef/x, Inc. on December 15, 1999)
21.1 Subsidiaries of Registrant
23.1 Consent of KPMG LLP
23.2 Consent of Branden T. Burningham, Esq. (included in Exhibit 5.1)
24.1 Power of Attorney (included in the Signature Page - II-5)
24.2 Certified Resolutions of the Board of Directors Authorizing Signature
of the Lifef/x SB-2 Registration Statement dated March 21, 2000 by Power of
Attorney
27.1 Financial Data Schedule
</TABLE>
II-2
<PAGE>
Item 28. Undertakings
The undersigned Registrant hereby undertakes as follows:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information set
forth in the Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement.
(2) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the provisions described above in Item 24, or
otherwise, the Registrant has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of our counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction of the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
(3) For purposes of determining any liability under the Securities Act,
to treat the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1), or (4), or
497(h) under the Securities Act as part of this Registration Statement as of the
time the Commission declared it effective.
(4) For the purpose of determining any liability under the Securities
Act, to treat each post-effective amendment that contains a form of prospectus
as a new registration statement for the securities offered in the Registration
Statement, and the offering of such securities at that time as the initial bona
fide offering of those securities.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Boston,
State of Massachusetts, on the 21st day of March, 2000.
LifeF/X, Inc.
By: /s/ Lucille S. Salhany
________________________________________
Lucille S. Salhany
Co-President and Chief Executive Officer
II-4
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Lucille S. Salhany and Richard A.
Guttendorf, as his true and lawful attorneys-in-fact and agents, and each of
them with full power to act without the other, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to this Registration Statement on Form SB-2 of LifeF/X, Inc., and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, grant unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
foregoing, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or his substitutes, may lawfully do or cause to be done by virtue
hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date stated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Lucille S. Salhany Co-President, Chief Executive March 16, 2000
- ------------------------------- Officer and Director
Lucille S. Salhany
/s/ Michael Rosenblatt
- ------------------------------- Co-President and March 16, 2000
Michael Rosenblatt Chairman of the Board
/s/ Richard A. Guttendorf, Jr.
- ------------------------------- Chief Financial Officer March 16, 2000
Richard A. Guttendorf, Jr. Secretary and Director
/s/ Dr. Ian Hunter
- ------------------------------- Director March 16, 2000
Dr. Ian Hunter
/s/ Robert Verratti
- ------------------------------- Director March 16, 2000
Robert Verratti
/s/ Stephen Andriole Director March 16, 2000
- -------------------------------
Stephen Andriole
</TABLE>
II-5
<PAGE>
EXHIBIT 3.1
AMENDMENT TO BYLAWS OF
FIN SPORTS U.S.A., INC.
The following amendment to the Bylaws of Fin Sports U.S.A., Inc., a
Nevada corporation (the "Company"), was adopted by the unanimous consent of the
Board of Directors of the Company as of November 3, 1999:
Section 2.11 Written Action by the Consent of Shareholders. Any
---------------------------------------------
action required to be taken at a special or annual meeting of the
stockholders may be taken by written consent, in lieu of a meeting, if
the consent is signed by stockholders owning at least a majority of
the outstanding voting securities of the subject class of securities,
in accordance with Section 78.320 of the Nevada Revised Statutes.
I, Kent Faulkner, Secretary of the Company, do hereby certify that the
foregoing Amendment to Bylaws of Fin Sports U.S.A., Inc. was duly adopted by
resolution of the Board of Directors effective as of the 3rd day of November,
1999.
/s/
_______________________________________
Kent Faulkner
<PAGE>
EXHIBIT 4.1
REGISTRATION RIGHTS AGREEMENT
-----------------------------
Dated as of December 14, 1999
Parties: MG SECURITIES GROUP, INC. with an address at 900 Jackson Street, Suite
450, Dallas Texas 75202 ("MG");
The investors (the "Investors") of Financing Shares (as defined
herein) and Warrant Shares (as defined herein) whose names appear on
the signature pages of this Agreement (whether as original signatories
or hereinafter added as signatories to this Agreement); and
LIFEF/X, INC., with an address at 331 Dudley Road, Newton, MA 02459
(the "Company").
WHEREAS, the Company desires to issue and sell 6,000,000 of the Company's
Units consisting of 6,000,000 shares of the Company's common stock (the "Common
Stock"), pursuant to Subscription Agreements with the Company (the "Financing
Shares"), and the right to purchase 60,000 shares of Common Stock, pursuant to
Warrants granted by the Company (the "Warrant Shares") in connection with the
private placement of the Company's Units described in that certain Private
Placement Memorandum, dated October 29, 1999, as amended and supplemented (the
"Private Placement");
WHEREAS, the Company has granted Warrants to MG, the placement agent in the
Private Placement as compensation in connection with the Private Placement, the
right to purchase 100,000 shares of the Company's Common Stock (the "Placement
Agent Shares") (the Financing Shares, Warrant Shares and Placement Agent Shares
are collectively referred to herein as the "Registrable Securities");
WHEREAS, the Company has as of the date herewith issued and sold an
aggregate of 2,983,000 of the Company's Units to the Investors who are original
signatories of this Agreement;
WHEREAS, the Company desires to hereinafter issue and sell to additional
Investors the balance of the Company's Units;
WHEREAS, the parties to this Agreement desire that upon the issuance and
sale of the balance of the Company's Units to each additional Investor, each
additional Investor be bound by the terms and conditions of this Agreement and
execute a counterpart of this Agreement;
WHEREAS, MG and the Investors acknowledge that the Company has granted
certain demand registration rights covering certain shares of the Company's
Common Stock held by Safeguard Scientific (Delaware), Inc. and its affiliates
pursuant to that certain Registration Rights Agreement, dated of even date
herewith (the "Safeguard Registration Rights Agreement"); and
WHEREAS, the Company has undertaken to register the Registrable Securities,
under the terms set forth herein.
<PAGE>
NOW, THEREFORE, the Company, MG and the Investors hereby covenant and agree
as follows:
Certain Definitions. As used in this Agreement, the following terms shall
-------------------
have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Common Stock, $0.001 par value, of the
Company, as constituted as of the date of this Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the regulations
of the Commission thereunder, all as the same shall be in effect at the time.
"Register," "registered" and "registration" shall mean a registration
effected by preparing and filing a registration statement or statements or
similar documents in compliance with the Securities Act and the declaration or
ordering of effectiveness of the registration statement or other document by the
Commission.
"Requisite Period" shall mean, with respect to a firm commitment
underwritten public offering the period commencing on the effective date of the
registration statement and ending on the date each underwriter has completed the
distribution of all securities purchased by it, and, with respect to any other
registration, the period commencing on the effective date of the registration
statement and ending on the earlier of the date on which the sale of all
Registrable Securities covered thereby is completed and 180 days after such
effective date.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statue, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
Capitalized terms not defined herein shall have the meanings set forth in
the Subscription Agreements and the Warrants.
1. Registration.
------------
1.1. Registration Statement. Pursuant to Section 2 hereof, the
----------------------
Company shall file a registration statement (the "Registration Statement") as
soon as practicable but in no event later than 150 days after the date hereof
covering the Registrable Securities. The obligation of the Company under this
Section 1.1 shall be limited to one registration statement.
1.2. Incidental Registration. MG and the Investors have the right to
-----------------------
request the inclusion of the Registrable Securities as part of any other
registration of securities filed by the Company (other than in connection with a
transaction contemplated by Rule 145(a) promulgated under the Act or pursuant to
Forms S-4 or S-8). In the event of such a proposed registration, the Company
shall furnish MG and the Investors with not less than thirty (30) days written
notice thereof prior to the proposed date of filing of such registration
statement. Such notice to MG and
2
<PAGE>
the Investors shall continue to be given for each registration statement filed
by the Company until such time as all of the Registrable Securities have been
sold by MG and the Investors. MG and the Investors shall exercise the incidental
rights provided for herein by giving written notice, within fifteen (15) days of
the receipt of the Company's notice of its intention to file a registration
statement. Upon such exercise, the Company will use its best efforts to cause
the Registrable Securities as to which registration has been requested, subject
to any cutbacks imposed by the Company's managing underwriter (if any), to be
included in the securities to be covered by such registration statement to be
filed by the Company, all to the extent and under the conditions such
registration is permitted by the Securities Act. Notwithstanding anything to the
contrary set forth herein, the Company may withdraw any registration statement
referred to in this Section 1.2 which it initially proposed to file in its sole
discretion without thereby incurring any liability to MG or the Investors. The
Company shall cause any registration statement filed pursuant to the above
incidental rights to remain effective for the Requisite Period.
2. Registration Procedures.
-----------------------
2.1. If and whenever the Company is required by the provisions hereof
to effect the registration of any Registrable Securities under the Securities
Act, the Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration
statement with respect to such securities, and, with respect to the registration
required under Section 1.1, use its best efforts to cause the Registration
Statement to become effective not later than 150 days from the date hereof and
to remain effective for the Requisite Period;
(b) prepare and file with the Commission such amendments to the
registration statement and supplements to the prospectus used in connection
therewith as may be necessary to keep the registration statement effective for
the Requisite Period and comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities covered by the
registration statement in accordance with the intended method of disposition set
forth in the registration statement for such period;
(c) furnish to each seller of Registrable Securities and to each
underwriter such number of copies of the registration statement and the
prospectus included therein (including each preliminary prospectus) as such
persons reasonably may request in order to facilitate the intended disposition
of the Registrable Securities covered by the registration statement;
(d) use its best efforts (i) to register or qualify the
Registrable Securities covered by the registration statement under the
securities or "blue sky" laws of such jurisdictions as the sellers of
Registrable Securities or, in the case of an underwritten public offering, the
managing underwriter reasonably shall request, (ii) to prepare and file in those
jurisdictions such amendments (including post effective amendments) and
supplements, and take such other actions, as may be necessary to maintain such
registration and qualification in effect at all times for the period of
distribution contemplated thereby and (iii) to take such further action as may
be necessary or advisable to enable the disposition of the Registrable
Securities in such jurisdictions, provided, that the Company shall not for any
such purpose be required to
3
<PAGE>
qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service of
process in any such jurisdiction;
(e) immediately notify each seller of Registrable Securities and
each underwriter under the registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event of which the Company has knowledge as a result of which
the prospectus contained in the registration statement, as then in effect,
includes any untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing and promptly amend or
supplement the registration statement to correct any such untrue statement or
omission;
(f) notify each seller of Registrable Securities of the issuance
by the Commission of any stop order suspending the effectiveness of the
registration statement or the initiation of any proceedings for that purpose and
make every reasonable effort to prevent the issuance of any stop order and, if
any stop order is issued, to obtain the lifting thereof at the earliest possible
time;
(g) permit a single firm of counsel designated as selling
stockholders' counsel by the holders of a majority in interest of the
Registrable Securities being registered to review the Registration Statement and
all amendments and supplements thereto for a reasonable period of time prior to
their filing (provided, however, that in no event shall the Company be required
to reimburse legal fees in excess of $25,000 for the Registration Statement
pursuant to this Section 2.1(g)) and the Company shall not file any document in
a form to which such counsel reasonably objects;
(h) make generally available to its security holders as soon as
practicable, but not later than 90 days after the close of the period covered
thereby, an earnings statement (in form complying with the provisions of Rule
158 under the Securities Act) covering a 12-month period beginning not later
than the first day of the Company's next fiscal quarter following the effective
date of the registration statement;
(i) if the offering is an underwritten offering, enter into a
written agreement with the managing underwriter selected in the manner herein
provided in such form and containing such provisions as are usual and customary
in the securities business for such an arrangement between such underwriter and
companies of the Company's size and investment stature, including, without
limitation customary indemnification and contribution provisions;
(j) if the offering is an underwritten offering, at the request
of any seller of Registrable Securities, use its best efforts to furnish to such
seller on the date that Registrable Securities are delivered to the underwriters
for sale pursuant to such registration: (i) a copy of an opinion dated such date
of counsel representing the Company for the purposes of such registration,
addressed to the underwriters, and (ii) a copy of a letter dated such date from
the independent public accountants retained by the Company, addressed to the
underwriters;
(k) make available for inspection by each seller of Registrable
Securities and any attorney, accountant or other agent retained by such seller,
all financial and
4
<PAGE>
other records, pertinent corporate documents and properties of the Company, and
cause the Company's officers, directors and employees to supply all information
reasonably requested by any such seller, attorney, accountant or agent in
connection with the registration statement;
(l) take all other reasonable actions necessary to expedite and
facilitate the registration of the Registrable Securities pursuant to the
registration statement.
2.2. In connection with the registration hereunder, the sellers of
Registrable Securities will furnish to the Company in writing such information
and documentation with respect to themselves and the proposed distribution by
them as reasonably shall be necessary in order to assure compliance with federal
and applicable state securities laws.
2.3. If the registration pursuant to this Agreement is in connection
with an underwritten public offering by the Company, the sellers of Registrable
Securities (a) hereby agree to enter into a written agreement with the managing
underwriter selected by the Company in such form and containing such provisions
as are customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature, (b)
hereby appoint MG to act as their agent to negotiate the terms of any
restriction on the right of such sellers to sell their Registrable Securities
which shall be imposed by the managing underwriter for such offering; provided,
however, that sellers holding a majority of the Registrable Securities to be
registered shall approve any terms so negotiated, (c) agree to provide such
information and execute such documents as may reasonably be required in
connection with such registration, (d) agree to sell the Registrable Securities
on the basis provided in any underwriting arrangements and (e) agree to complete
and execute all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements, which arrangements shall not be inconsistent herewith.
2.4. If the Registration Statement has not been declared effective
within 150 days of the date hereof, then the Company shall pay liquidated
damages pro rata to the Investors as follows: one (1%) percent of the initial
purchase price of the Units paid by the Investors in the Private Placement for
the Units for each full 30 day period until the Registration Statement has been
declared effective. Each Investor shall be entitled to a pro rata portion of
such liquidated damages based on the number of Units purchased by such Investor
as compared to the total Units sold by the Company. The liquidated damages
payable hereunder shall be payable in cash promptly upon notice to the Company
delivered pursuant to Section 9 hereof and shall be prorated for any portion of
a 30 day period for which such liquidated damages are due and payable. MG shall
not be entitled to any liquidated damages hereunder.
3. Expenses. All expenses incurred by the Company in complying with this
--------
Agreement, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including counsel fees) incurred
in connection with complying with state securities or "blue sky" laws, fees of
the National Association of Securities Dealers, Inc., fees of transfer agents
and registrars and fees and disbursements of one counsel for the sellers of
Registrable Securities for the Registration Statement (subject to the limitation
in Section 2.1(g)), but excluding any Selling Expenses, are called "Registration
Expenses". All underwriting discounts
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<PAGE>
and selling commissions applicable to the sale of Registrable Securities are
called "Selling Expenses".
3.1. The Company will pay all Registration Expenses in connection with
the registration statements filed hereunder, and the Selling Expenses in
connection with each the registration statements shall be borne by the
participating sellers of Registrable Securities in proportion to the number of
Registrable Securities sold by each or as they may otherwise agree.
4. Indemnification and Contribution. (a) In the event of a registration
--------------------------------
of any of the Registrable Securities under the Securities Act pursuant to the
terms of this Agreement, the Company will indemnify and hold harmless and pay
and reimburse, each seller of such Registrable Securities thereunder, and each
other person, if any, who controls such seller within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the registration statement under which such Registrable Securities
were registered under the Securities Act pursuant hereto or any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation or alleged violation of
the Securities Act or any state securities or blue sky laws and will reimburse
each such seller, and each such controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, that the
Company will not be liable in any such case if and to the extent that any such
loss, claim, damage or liability arises out of or is based upon the Company's
reliance on an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by any such
seller, any such underwriter or any such controlling person in writing
specifically for use in the registration statement or prospectus.
(b) In the event of a registration of any of the Registrable
Securities under the Securities Act pursuant hereto each seller of such
Registrable Securities thereunder, severally and not jointly, will indemnify and
hold harmless the Company, each person, if any, who controls the Company within
the meaning of the Securities Act, each officer of the Company who signs the
registration statement and each director of the Company against all losses,
claims, damages or liabilities, joint or several, to which the Company or such
officer, director or controlling person may become subject under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon reliance on any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Registrable Securities were
registered under the Securities Act pursuant hereto or any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and each
such officer, director and controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action, provided, that such seller will
be liable hereunder in any such case if and only
6
<PAGE>
to the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with information
pertaining to such seller, as such, furnished in writing to the Company by such
seller specifically for use in the registration statement or prospectus, and
provided, that the liability of each seller hereunder shall be limited to the
proceeds received by such seller from the sale of Registrable Securities covered
by the registration statement. Notwithstanding the foregoing, the indemnity
provided in this Section 4(b) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability or expense if such settlement is
effected without the consent of such indemnified party.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 4 and shall only relieve
it from any liability which it may have to such indemnified party under this
Section 4 if and to the extent the indemnifying party is materially prejudiced
by such omission. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate in and, to the
extent it shall wish, to assume and undertake the defense thereof with counsel
reasonably satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 4 for any legal expenses subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation and of liaison with counsel so selected,
provided, that if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded based upon written advise of his counsel that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified party shall have the right to select a separate counsel
and to assume such legal defenses and otherwise to participate in the defense of
such action, with the expenses and fees of such separate counsel and other
expenses related to such participation to be reimbursed by the indemnifying
party as incurred.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i) any
seller of Registrable Securities exercising rights under this Agreement, or any
controlling person of any such holder, makes a claim for indemnification
pursuant to this Section 4 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 4 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any such seller or any
such controlling person in circumstances for which indemnification is provided
under this Section 4; then, and in each such case, the Company and such seller
will contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (after contribution from others) in such proportion so that
such seller is responsible for the portion
7
<PAGE>
represented by the percentage that the public offering price of its Registrable
Securities offered by the Registration Statement bears to the public offering
price of all securities offered by the Registration Statement, and the Company
is responsible for the remaining portion; provided, that, in any such case, (A)
no such seller will be required to contribute any amount in excess of the public
offering price of all such Registrable Securities offered by it pursuant to the
registration statement and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
5. Changes in Capital Stock. If, and as often as, there is any change in
------------------------
the capital stock of the Company by way of a stock split, stock dividend,
combination or reclassification, or through a merger, consolidation,
reorganization or recapitalization, or by any other means, appropriate
adjustment shall be made in the provisions hereof so that the rights and
privileges granted hereby shall continue with respect to the capital stock as so
changed.
6. Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Registrable Securities to the public without registration, at all
times after 90 days after any registration statement covering a public offering
of securities of the Company under the Securities Act shall have become
effective, the Company agrees to:
6.1. make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act:
6.2. file with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
6.3. furnish to each seller of Registrable Securities forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of such Rule 144 and of the Securities Act and the
Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as such
seller may reasonably request in availing itself of any rule or regulation of
the Commission allowing such seller to sell any Registrable Securities without
registration.
7. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants to the Investor as follows:
7.1. The execution, delivery and performance of this Agreement by the
Company have been duly authorized by all requisite corporate action and will not
violate any provision of law, any order of any court or other agency of
government, the Articles of Incorporation or By-laws of the Company or any
provision of any indenture, agreement or other instrument to which it or any or
its properties or assets is bound, conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument or result in the creation or imposition
of any lien, charge or encumbrance of any nature whatsoever upon any of the
properties or assets of the Company or its subsidiaries.
8
<PAGE>
7.2. This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms.
8. Assignment of Registration Rights. The rights to have the Company
---------------------------------
register Registrable Securities pursuant to this Agreement may be assigned by MG
or any Investor to transferees or assignees of such securities; provided, that
such assignment is for at least ten percent (10%) of the initial number of
Registrable Securities issued by the Company to each holder of Registrable
Securities in connection with the Private Placement, and the Company is, within
a reasonable time after such transfers, furnished with written notice of the
name and address of such transferee or assignee and the securities with respect
to which such registration rights are being assigned. The terms "MG" or
"Investor", as the case may be, as used in this Agreement shall include such
permitted assignees.
9. Miscellaneous.
-------------
(a) All covenants and agreements contained in this Agreement by
or on behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto (including without
limitation transferees of any Registrable Securities), whether so expressed or
not.
(b) All notices, requests, consents and other communications
hereunder shall be in writing and shall be delivered in person, mailed by
certified or registered mail, return receipt requested, or sent by telecopier or
telex, addressed (i) if to the Company, at 331 Dudley Road, Newton, MA 02459;
(ii) if to MG, at 900 Jackson Street, Suite 450, Dallas, Texas 75202; (iii) if
to any other party hereto, at the address of such party set forth beneath such
party's signature to this Agreement; and (iv) if to any subsequent holder of
Registrable Securities, to it at such address as may have been furnished to the
Company in writing by such holder; or, in any case, at such other address or
addresses as shall have been furnished in writing to the Company (in the case of
a holder of Registrable Securities) or to the holders of Registrable Securities
(in the case of the Company) in accordance with the provisions of this
paragraph.
(c) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts
entered into and to be performed wholly within said State.
(d) Any judicial proceeding brought against any of the parties
to this Agreement on any dispute arising out of this Agreement of any matter
related hereto shall be brought in the courts of the State of New York or in the
United States District Court for the Southern District of New York, and, by
execution and delivery of this Agreement, each of the parties hereto accepts for
itself and himself the process in any such action or proceeding by the mailing
of copies of such process to it, at its or his address as set forth in Section
9(b) and irrevocably agrees to be bound by any judgment rendered thereby in
connection with this Agreement. Each party hereto irrevocably waives to the
fullest extent permitted by law any objection that it or he may now or hereafter
have to the laying of the venue of any judicial proceeding brought in such
courts and any claim that any such judicial proceeding has been brought in an
inconvenient forum. The foregoing consent to jurisdiction shall not constitute
9
<PAGE>
general consent to service of process in the State of New York for any purpose
except as provided above and shall not be deemed to confer rights on any person
other than the respective parties to this Agreement.
(e) This Agreement may not be amended or modified without the
written consent of the Company and the holders of at least a majority of the
Registrable Securities.
(f) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof. No waiver shall be effective
unless and until it is in writing and signed by the party granting the waiver.
(g) This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(h) Other than registration rights granted under the Safeguard
Registration Rights Agreement, the Company shall not grant to any third party
any registration rights more favorable than or inconsistent with any of those
contained herein, or which would in any way, adversely affect the rights of
holders of Registrable Securities hereunder, so long as any of the registration
rights under this Agreement remains in effect.
(i) If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
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<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
date first above written.
LIFEF/X, INC.
By: /s/ Richard A. Guttendorf
________________________________
Name: Richard A. Guttendorf
Title: Chief Financial Officer
MG SECURITIES GROUP, INC.
By: /s/ Michael Andersen
_________________________
Name: Michael Andersen
Title: President
[REGISTRATION RIGHTS AGREEMENT]
<PAGE>
ADDITIONAL INVESTOR:
Dated as of February 2, 2000 __________________________________
Name of Investor
__________________________________
Signature
__________________________________
Title, if applicable
Address:
__________________________________
__________________________________
__________________________________
No. of Units:_____________________
[REGISTRATION RIGHTS AGREEMENT]
<PAGE>
EXHIBIT 4.2
FIN SPORTS U.S.A., INC.
SUBSCRIPTION AGREEMENT
(Revised November 24, 1999)
Fin Sports U.S.A., Inc.
5525 South 900 East, Suite 110
Salt Lake City, Utah 84117
Attn: President
Ladies and Gentlemen:
1. Subscription. The undersigned (the "Purchaser"), intending to be legally
bound, hereby irrevocably agrees to purchase from Fin Sports U.S.A., Inc. (the
"Company") the number of units (the "Units") set forth on the signature page
hereof, at a purchase price of $3.00 per Unit, each consisting of one share of
common stock, par value $.001 per share, of the Company (the "Common Stock" or
the "Shares") and a warrant (the "Warrant") to purchase .01 share of Common
Stock at an exercise price of $7.50 (the "Transaction").
2. Payment. The Purchaser encloses herewith a check payable to, or will
immediately make a wire transfer payment to the Escrow Agent in the full amount
of the purchase price of the Units being subscribed for. To request wire
transfer instructions, please contact Mr. Mark MacCloskey; telephone no. (214)
761-0789. Such funds will be held for the Purchaser's benefit, and will be
returned promptly, without interest, penalty, expense or deduction if this
Subscription Agreement is not accepted by the Company.
3. Acceptance of Subscription. The Purchaser understands and agrees that the
Company in its sole discretion reserves the right to accept or reject this or
any other subscription for Units, in whole or in part, notwithstanding prior
receipt by the Purchaser of notice of acceptance of this subscription. The
Company shall have no obligation hereunder until the Company shall execute and
deliver to the Purchaser an executed copy of this Subscription Agreement. If
this subscription is rejected in whole or the Transaction is terminated all
funds received from the Purchaser will be returned without interest, penalty,
expense or deduction, and this Subscription Agreement shall thereafter be of no
further force or effect. If this subscription is rejected in part, the funds for
the rejected portion of this subscription will be returned without interest,
penalty, expense or deduction, and this Subscription Agreement will continue in
full force and effect to the extent this subscription was accepted.
4. Private Placement Memorandum. As more fully described in the Private
Placement Memorandum dated October 29, 1999 (the "PPM"), the items set forth in
subsections (a) through (d) below shall be conditions precedent to the purchase
of the Units by Purchaser hereunder. The Purchaser hereby acknowledges that the
PPM is being supplemented and/or amended and restated (the "Amended PPM") to,
among other things, reflect: (i) the reduction of the purchase price per Unit
from $6.00 per Unit to $3.00 per Unit; (ii) the increase in the maximum offering
amount from $12,000,000 to $18,000,000 (6,000,000 Units); and (iii) the grant of
a warrant by PTM to Savage Holdings, Inc., a consultant to the Company, at an
exercise price of $500,000, which, if exercised, will entitle Savage Holdings,
Inc. to receive 166,667 Units at the first closing
<PAGE>
of this offering. If exercised, this warrant exercise price and the Units
issuable to Savage Holdings, Inc. following exercise will be included in the
calculation of the minimum offering ($8,000,000 for 2,666,667 Units) and the
maximum offering ($18,000,000 for 6,000,000 Units).
Hereinafter, all references to the PPM shall mean the PPM as amended by the
Amended PPM, as appropriate. Any capitalized terms used but not defined herein
shall have the meanings ascribed to such terms in the PPM.
(a) The Company shall have received subscriptions for a minimum of $8,000,000
in Units;
(b) At Closing, Purchaser and the Company shall enter into a Registration
Rights Agreement providing that the Company shall file a registration statement
relating to the Shares and the Common Stock underlying the Warrants and use its
best efforts to cause such registration statement to become effective (the date
of such effectiveness, the "Effective Date") within 150 days from the Closing
Date. The Registration Rights Agreement shall provide that if the registration
statement is not declared effective on or before 150th day following the Closing
Date, then the Company shall pay liquidated damages as follows: one (1%) percent
of the initial purchase price of the Units theretofore paid hereunder for each
full thirty (30) day period and prorated for any portion of a 30 day period for
which such liquidated damages are due and payable until the registration
statement has been declared effective.
(c) The purchase price for the Units shall have been deposited with such third
party escrow agent as may be designated by the Placement Agent, as Escrow Agent.
(d) The Merger described in the PPM shall have occurred.
5. Representations and Warranties. The Purchaser hereby acknowledges,
represents, warrants, and agrees as follows:
(a) The proceeds of this offering, less any deductions for transactional fees
including, but not limited to, legal fees, will be contributed by the Company to
PTM within one business day following the Closing.
(b) The Purchaser shall not have any direct or indirect interest in the Spin
Off Assets and Liabilities or the proceeds thereof. The Spin Off Assets and
Liabilities will be transferred by PTM to Newco and until such time as this spin
off transaction occurs, PTM will hold the Spin Off Assets and Liabilities and
the proceeds thereof in trust for the benefit of Newco.
(c) None of the shares of Common Stock offered pursuant to this Subscription
Agreement are registered under the Securities Act of 1933, as amended (the
"Securities Act") or any state securities laws. The Purchaser understands that
the sale of the Units is intended to be exempt from registration under the
Securities Act, by virtue of Section 4(2) and Rule 506 of Regulation D
promulgated thereunder, based, in part, upon the representations, warranties and
agreements of the Purchaser contained in this Subscription Agreement;
2
<PAGE>
(d) The Purchaser and the Purchaser's attorney, accountant, purchaser
representative and/or tax advisor, if any (collectively, the "Advisors") have
received the PPM, the cover letter (if any) to this Subscription Agreement and
all documents requested by the Purchaser, have carefully reviewed them and this
Subscription Agreement and understand the information contained herein and
therein, and the Purchaser and the Advisors, if any, prior to the execution of
this Subscription Agreement, have had access to the same kind of information
which would be available in a registration statement filed by the Company under
the Securities Act;
(e) All information concerning PTM contained in the PPM has been provided by
PTM and the officers and directors of the Company have not independently
verified the PTM information and take no responsibility for the PTM information;
(f) Neither the Securities and Exchange Commission nor any state securities
commission has approved the Units, or passed upon or endorsed the merits of the
Transaction;
(g) All documents, records, and books pertaining to the investment in the Units
have been made available for inspection by such Purchaser and the Advisors, if
any;
(h) The Purchaser and the Advisors, if any, have had a reasonable opportunity
to ask questions of and receive answers from a person or persons acting on
behalf of the Company concerning the sale of the Units and the business,
financial condition, results of operations and prospects of the Company and all
such questions have been answered to the full satisfaction of the Purchaser and
the Advisors, if any;
(i) In evaluating the suitability of an investment in the Company, the
Purchaser has not relied upon any representation or other information (oral or
written) as contained in documents or answers to questions so furnished to the
Purchaser or the Advisors by the Company;
(j) The Purchaser is unaware of, is no way relying on, and did not become aware
of the sale of the Units through or as a result of, any form of general
solicitation or general advertising including, without limitation, any article,
notice, advertisement or other communication published in any newspaper,
magazine or similar media or broadcast over television or radio, in connection
with the sale of the Units and is not subscribing for Units and did not become
aware of the sale of the Units through or as a result of any seminar or meeting
to which the Purchaser was invited by, or any solicitation of a subscription by,
a person not previously known to the Purchaser in connection with investments in
securities generally;
(k) The Purchaser has taken no action which would give rise to any claim by any
person for brokerage commissions, finders' fees or the like relating to this
Subscription Agreement or the transactions contemplated hereby.
(l) The Purchaser or the Purchaser representative, as the case may be, together
with the Advisors, if any, have such knowledge and experience in financial, tax,
and business matters, and, in particular, investments in securities, so as to
enable them to utilize the information made available to them in connection with
the sale of the Units to evaluate the merits and risks of an
3
<PAGE>
investment in the Units and the Company and to make an informed investment
decision with respect thereto;
(m) The Purchaser is not relying on the Company or any of its or agents with
respect to the legal, tax, economic and related considerations of an investment
in the Units, and the Purchaser has relied on the advice of, or has consulted
with, only the Purchaser's own Advisors, if any;
(n) The Purchaser is acquiring the Units solely for such Purchaser's own
account for investment and not with a view to resale or distribution thereof, in
whole or in part. The Purchaser has no agreement or arrangement, formal or
informal, with any person to sell or transfer all or any of the Units, in whole
or in part, or any securities issuable upon exercise thereof; and the Purchaser
has no plans to enter into any such agreement or arrangement;
(o) The Purchaser must bear the substantial economic risks of the investment in
the Units indefinitely because none of the Units may be sold, hypothecated or
otherwise disposed of, in whole or in part, unless subsequently registered under
the Securities Act and applicable state securities laws or an exemption from
such registration is available. Legends shall be placed on the share
certificates and warrant certificates to the effect that they have not been
registered under the Securities Act or applicable state securities laws and
appropriate notations thereof will be made in the Company's stock books. Stop
transfer instructions will be placed with the transfer agent of the Shares and
the warrants constituting the Units. It is not anticipated that there will be
any market for resale of the Units and such securities will not be freely
transferable at any time in the foreseeable future. As described in the PPM,
upon the Effective Date, the Purchaser shall be allowed to sell up to ten (10%)
percent of its Shares during each three-month period following the Effective
Date; provided, however, that in the event any Purchaser does not sell its full
10% during any three-month period, such Purchaser may sell the Post-Effective
Date Carry Forward Shares (as defined below) during the following three-month
periods. Post-Effective Carry Forward Shares shall be defined as the difference
between 10% of the Shares held by the Purchaser as of the Effective Date and the
Shares actually sold during any three-month period. The Company has the right to
waive these restrictions if such waiver is beneficial to the Company or will
facilitate an orderly trading market for the Common Stock;
(p) The Purchaser has adequate means of providing for such Purchaser's current
financial needs and foreseeable contingencies and has no need for liquidity of
the investment in the Units for an indefinite period of time;
(q) The Purchaser is aware that an investment in the Units involves a number of
very significant risks;
(r) The Purchaser meets the requirements of at least one of the suitability
standards for an "accredited investor" as set forth on the Accredited Investor
Certification contained herein;
(s) The Purchaser: (i) if a natural person represents that the Purchaser has
reached the age of 21 and has full power and authority to execute and deliver
this Subscription Agreement and all other related agreements or certificates and
to carry out the provisions hereof and thereof; (ii) if a corporation,
partnership, limited liability company or partnership, association, joint stock
4
<PAGE>
company, trust, unincorporated organization or other entity, such entity was not
formed for the specific purpose of acquiring the Units, such entity is duly
organized, validly existing and in good standing under the laws of the state of
its organization, the consummation of the transactions contemplated hereby is
authorized by, and will not result in a violation of state law or its charter or
other organizational documents, such entity has full power and authority to
execute and deliver this Subscription Agreement and all other related agreements
or certificates and to carry out the provisions hereof and thereof and to
purchase and hold the Units, the execution and delivery of this Subscription
Agreement has been duly authorized by all necessary action, this Subscription
Agreement has been duly executed and delivered on behalf of such entity and is a
legal, valid and binding obligation of such entity; and (iii) if executing this
Subscription Agreement in a representative or fiduciary capacity, it has full
power and authority to execute and deliver this Subscription Agreement in such
capacity and on behalf of the subscribing individual, ward, partnership, trust,
estate, corporation, limited liability company or partnership, or other entity
for whom the Purchaser is executing this Subscription Agreement, and such
individual, ward, partnership, trust, estate, corporation, limited liability
company or partnership, or other entity has full right and power to perform
pursuant to this Subscription Agreement and make an investment in the Company,
and that this Subscription Agreement constitutes a legal, valid and binding
obligation of such entity. The execution and delivery of this Subscription
Agreement will not violate or be in conflict with any order, judgment,
injunction, agreement or controlling document to which the Purchaser is a party
or by which it is bound;
(t) The Purchaser and the Advisors, if any, had the opportunity to obtain any
additional information, to the extent the Company had such information in its
possession (subject to restrictions as to confidentiality) or could acquire it
without unreasonable effort or expense, necessary to verify the accuracy of such
information and all documents received or reviewed in connection with the
purchase of the Units and have had the opportunity to have representatives of
the Company provide them with such additional information regarding the terms
and conditions of this particular investment and the financial condition,
results of operations, business and prospects of the Company deemed relevant by
the Purchaser or the Advisors, if any, and all such requested information, to
the extent the Company had such information in its possession or could acquire
it without unreasonable effort or expense, has been provided to its full
satisfaction;
(u) The Purchaser represents to the Company that any information which the
Purchaser has heretofore furnished or furnishes herewith to the Company is
complete and accurate and may be relied upon by the Company in determining the
availability of an exemption from registration under Federal and state
securities laws in connection with the sale of securities as described herein.
The Purchaser further represents and warrants that it will notify and supply
corrective information to the Company immediately upon the occurrence of any
change therein occurring prior to the Company's issuance of the share
certificates and warrant certificates;
(v) The Purchaser has significant prior investment experience, including
investment in non-listed and non-registered securities. The Purchaser is
knowledgeable about investment considerations in development-stage companies,
such as the Company. The Purchaser has a sufficient net worth to sustain a loss
of its entire investment in the Company in the event such a loss should occur.
The Purchaser's overall commitment to investments which are not readily
5
<PAGE>
marketable is not excessive in view of its net worth and financial circumstances
and the purchase of the Units will not cause such commitment to become
excessive. The investment is a suitable one for the Purchaser;
(w) The Purchaser is satisfied that it has received adequate information with
respect to all matters which it or the Advisors, if any, consider material to
its decision to make this investment;
(x) The Purchaser acknowledges that to the extent the Purchaser is provided
with any estimates of market size, projected research and development expenses
and regulatory approvals, Purchaser acknowledges that the attainment of any such
projections and estimates cannot be guaranteed by the Company and should not be
relied upon;
(y) No oral or written representations have been made, or oral or written
information furnished, to the Purchaser, the Purchaser's representative or the
Purchaser's advisors if any, in connection with the sale of the Units which are
in any way inconsistent with the information contained in this Subscription
Agreement;
(z) Purchaser acknowledges and is aware that (i) the Company has no operating
business and after the merger, as more fully described in the PPM, of the
Company's wholly-owned subsidiary with and into PTM, the Company will have no
business other that that of PTM which shall consist of research and development
of untested technology, and (ii) there is no assurance as to the future
performance of the Company;
(aa) Within five days after receipt of a request from the Company, the Purchaser
will provide such information and deliver such documents as may reasonably be
necessary to comply with any and all laws and ordinances to which the Company is
subject;
(bb) THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF CERTAIN STATES AND ARE BEING
OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF
SAID ACT AND SUCH LAWS. THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER SAID ACT AND SUCH LAWS PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER
REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR
ENDORSED THE MERITS OF THIS TRANSACTION OR THE ACCURACY OR ADEQUACY OF THIS
SUBSCRIPTION AGREEMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL;
(cc) The Purchaser acknowledges that the Units have not been registered under
any state's Uniform Securities Act, as amended (the "Acts"), and are subject to
restrictions on transferability and sale of securities as set forth herein. The
Purchaser hereby agrees that such Units will not be transferred or sold without
registration under the Acts or exemptions therefrom;
6
<PAGE>
(dd) (For Connecticut residents only) The Purchaser acknowledges that the Units
have not been registered under the Connecticut Uniform Securities Act, as
amended (the "Connecticut Act"), and are subject to restrictions on
transferability and sale of securities as set forth herein. The Purchaser hereby
agrees that such Units will not be transferred or sold without registration
under the Connecticut Act or exemption therefrom;
(ee) (For Maine residents only) These Units are being sold pursuant to an
exemption from registration with the Bank Superintendent of the State of Maine
under Section 1 0502(2)(R) of Title 32 of the Maine Revised Statutes. These
Units may be deemed restricted securities and as such the holder may not be able
to resell the Units unless pursuant to registration under state or federal
securities laws or unless an exemption under such laws exists;
(ff) (For Missouri residents only) The Purchaser acknowledges that the Units
have not been registered under the Missouri Uniform Securities Act, as amended
(the "Missouri Act") and are subject to restrictions on transferability and sale
of securities as set forth herein. The Purchaser hereby acknowledges that such
Units may be disposed of only through a licensed broker-dealer. It is a felony
to sell securities in violation of Missouri Act;
(gg) (For Texas residents only) The Purchaser hereby acknowledges that the Units
cannot be sold unless they are subsequently registered under the Securities Act
of 1933, as amended, and the Texas Securities Act, or an exemption from
registration is available. The Purchaser further acknowledges that because the
Units are not readily transferable, the Purchaser must bear the economic risk of
his investment for an indefinite period of time; and
(hh) (For ERISA plans only) The fiduciary of the ERISA plan represents that he
has been informed of and understands the Company's investment objectives,
policies and strategies, and that the decision to invest "plan assets" (as such
term is defined in ERISA) in the Company is consistent with the provisions of
ERISA that require diversification of plan assets and impose other fiduciary
responsibilities. The Purchaser fiduciary or Plan (a) is responsible for the
decision to invest in the Company; (b) is independent of the Company or any of
its affiliates; (c) is qualified to make such investment decision, and (d) in
making such decision, the Purchaser fiduciary or Plan has not relied primarily
on any advice or recommendation of the Company or any of its affiliates.
6. Indemnification. The Purchaser agrees to indemnify and hold harmless the
Company, and its respective officers, directors, employees, agents, control
persons and affiliates against all losses, liabilities, claims, damages, and
expenses whatsoever (including, but not limited to, any and all expenses
incurred in investigating, preparing, or defending against any litigation
commenced or threatened) based upon or arising out of any actual or alleged
false acknowledgment, representation or warranty, or misrepresentation or
omission to state a material fact, or breach by the Purchaser of any covenant or
agreement made by the Purchaser herein or in any other document delivered in
connection with this Subscription Agreement.
7. Irrevocability; Binding Effect. The Purchaser hereby acknowledges and
agrees that the subscription hereunder is irrevocable by the Purchaser, except
as required by applicable law, and
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<PAGE>
that this Subscription Agreement shall survive the death or disability of the
Purchaser and shall be binding upon and inure to the benefit of the parties and
their heirs, executors, administrators, successors, legal representatives, and
permitted assigns. If the Purchaser is more than one person, the obligations of
the Purchaser hereunder shall be joint and several and the agreements,
representations, warranties, and acknowledgments herein shall be deemed to be
made by and be binding upon each such person and such person's heirs, executors,
administrators, successors, legal representatives, and permitted assigns.
8. Modification. This Subscription Agreement shall not be modified or waived
except by an instrument in writing signed by the party against whom any such
modification or waiver is sought.
9. Notices. Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by certified mail, return
receipt requested, or delivered against receipt to the party to whom it is to be
given (a) if to Company, at the address set forth above, or (b) if to the
Purchaser, at the address set forth on the signature page hereof (or, in either
case, to such other address as the party shall have furnished in writing in
accordance with the provisions of this Paragraph 9). Any notice or other
communication given by certified mail shall be deemed given at the time of
certification thereof, except for a notice changing a party's address which
shall be deemed given at the time of receipt thereof.
10. Assignability. This Subscription Agreement and the rights, interests and
obligations hereunder are not transferable or assignable by the Purchaser and
the transfer or assignment of the Units shall be made only in accordance with
all applicable laws.
11. Applicable Law. This Subscription Agreement shall be governed by and
construed in accordance with the laws of the State of New York relating to
contracts entered into and to be performed wholly within such State. The
Purchaser hereby irrevocably submits to the jurisdiction of any New York State
court or United States Federal court sitting in New York County over any action
or proceeding arising out of or relating to this Subscription Agreement or any
agreement contemplated hereby, and the Purchaser hereby irrevocably agrees that
all claims in respect of such action or proceeding may be heard and determined
in such New York State or Federal court. The Purchaser further waives any
objection to venue in such State and any objection to an action or proceeding in
such State on the basis of a non-convenient forum. The Purchaser further agrees
that any action or proceeding brought against the Company shall be brought only
in New York State or United States Federal courts sitting in New York County.
THE PURCHASER AGREES TO WAIVE ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION BASED UPON OR ARISING OUT OF THIS SUBSCRIPTION AGREEMENT OR ANY
DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY.
12. Blue Sky Qualification. The purchase of Units under this Subscription
Agreement is expressly conditioned upon the exemption from qualification of the
offer and sale of the Shares from applicable Federal and state securities laws.
The Company shall not be required to qualify this transaction under the
securities laws of any jurisdiction and, should qualification be necessary, the
Company shall be released from any and all obligations to maintain this sale,
and may rescind any sale contracted, in the jurisdiction.
8
<PAGE>
13. Use of Pronouns. All pronouns and any variations thereof used herein shall
be deemed to refer to the masculine, feminine, neuter, singular or plural as the
identity of the person or persons referred to may require.
14. Confidentiality. The Purchaser acknowledges and agrees that any information
or data it has acquired from or about the Company, not otherwise properly in the
public domain, was received in confidence. The Purchaser agrees not to divulge,
communicate or disclose, except as may be required by law or for the performance
of this Agreement, or use to the detriment of the Company or for the benefit of
any other person or persons, or misuse in any way, any confidential information
of the Company, including any scientific, technical, trade or business secrets
of the Company and any scientific, technical, trade or business materials that
are treated by the Company as confidential or proprietary, including, but not
limited to, ideas, discoveries, inventions, developments and improvements
belonging to the Company and confidential information obtained by or given to
the Company about or belonging to third parties.
15. Miscellaneous.
(a) This Agreement constitutes the entire agreement between the Purchaser and
the Company with respect to the subject matter hereof and supersedes all prior
oral or written agreements and understandings, if any, relating to the subject
matter hereof. The terms and provisions of this Agreement may be waived, or
consent for the departure therefrom granted, only by a written document executed
by the party entitled to the benefits of such terms or provisions.
(b) The Purchaser's representations and warranties made in this Agreement shall
survive the execution and delivery hereof and delivery of the Units.
(c) Each of the parties hereto shall pay its own fees and expenses (including
the fees of any attorneys, accountants, appraisers or others engaged by such
party) in connection with this Agreement and the transactions contemplated
hereby whether or not the transactions contemplated hereby are consummated.
(d) This Agreement may be executed in one or more counterparts each of which
shall be deemed an original, but all of which shall together constitute one and
the same instrument.
(e) Each provision of this Subscription Agreement shall be considered separable
and if for any reason any provision or provisions hereof are determined to be
invalid or contrary to applicable law, such invalidity or illegality shall not
impair the operation of or affect the remaining portions of this Subscription
Agreement.
(f) Paragraph titles are for descriptive purposes only and shall not control or
alter the meaning of this Subscription Agreement as set forth in the text.
9
<PAGE>
Accredited Investor Certification
---------------------------------
(Initial the appropriate box(es))
[ ] (i) I am a natural person who had individual income of more than $200,000
in each of the most recent two years or joint income with my spouse in excess of
$300,000 in each of the most recent two years and reasonably expect to reach
that same income level for the current year ("income", for purposes hereof,
should be computed as follows: individual adjusted gross income, as reported (or
to be reported) on a federal income tax return, increased by (1) any deduction
of long-term capital gains under section 1202 of the Internal Revenue Code of
1986 (the "Code"), (2) any deduction for depletion under Section 611 et seq. of
the Code, (3) any exclusion for interest under Section 103 of the Code and (4)
any losses of a partnership as reported on Schedule E of Form 1040);
[ ] (ii) I am a natural person whose individual net worth (i.e., total assets
in excess of total liabilities), or joint net worth with my spouse, will at the
time of purchase of the Units be in excess of $1,000,000;
[ ] (iii) The Purchaser is an investor satisfying the requirements of Section
501(a)(1), (2) or (3) of Regulation D promulgated under the Securities Act,
which includes but is not limited to, a selfdirected employee benefit plan where
investment decisions are made solely by persons who are "accredited investors"
as otherwise defined in Regulation D;
[ ] (iv) The Purchaser is a trust, which trust has total assets in excess of
$5,000,000, which is not formed for the specific purpose of acquiring the Units
offered hereby and whose purchase is directed by a sophisticated person as
described in Rule 506(b)(ii) of Regulation D and who has such knowledge and
experience in financial and business matters that he is capable of evaluating
the risks and merits of an investment in the Units;
[ ] (v) I am a director or executive officer of Fin Sports U.S.A., Inc.; or
[ ] (vi) The Purchaser is an entity (other than a trust) in which all of the
equity owners meet the requirements of at least one of the above subparagraphs.
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<PAGE>
If the Purchaser is an INDIVIDUAL, and if purchased as JOINT TENANTS, as TENANTS
IN COMMON, or as COMMUNITY PROPERTY:
___________________________________ ____________________________
Print Name(s) Social Security Number(s)
___________________________________ ____________________________
Signature(s) of Purchaser(s)
___________________________________
Number of Units/$Amount
____________________ ______________________________________
Date Address
If the purchaser is a PARTNERSHIP, CORPORATION, LIMITED LIABILITY COMPANY or
TRUST:
___________________________________ ____________________________
Name of Partnership, Federal Taxpayer
Corporation, Limited Identification Number
Liability Company or
Trust
Date
By:________________________________ ____________________________
Name: State of Organization
Title:_____________________________ ____________________________
Address
___________________________________
Number of Units/$Amount
11
<PAGE>
SUBSCRIPTION ACCEPTED AND AGREED TO
this _____ day of _________________
Fin Sports U.S.A., Inc.
By:________________________________
__________________, President
12
<PAGE>
EXHIBIT 5.1
March 20, 2000
Lifef/x, Inc.
8 Cambridge Center
Cambridge, Massachusetts 02142
Re: Lifef/x, Inc., a Nevada corporation (the "Company")
Ladies and Gentlemen:
I refer to the Company's Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended (the "Registration Statement"), which will be
filed with the Securities and Exchange Commission. The Registration Statement
relates to the registration of approximately 17,510,053 shares of the Company's
one mill ($0.001) par value common stock (the "Common Stock"), to be offered and
sold by the holders thereof (the "Selling Stockholders").
You should be aware that (i) I am the son of Leonard W. Burningham,
Esq., who is one of the Selling Stockholders, and that I hold a 12.8% limited
partnership interest in the Leonard W. Burningham Fin Partnership, which owns
approximately 100,000 shares of the Company's common stock; and (ii) That I have
represented and presently represent Duane S. Jenson, another Selling
Stockholder.
Assumptions
-----------
In rendering the opinion expressed below, I have assumed, with your
permission and without independent verification or investigation:
1. That all signatures on documents I have examined in connection
herewith are genuine and that all items submitted to me as original are
authentic and all items submitted to me as copies conform with originals;
2. Except for the documents stated herein, there are no documents or
agreements between the Company and/or any third parties which would expand or
otherwise
<PAGE>
modify the respective rights and obligations of the parties as set forth in the
documents referred to herein or which would have an effect on the opinion;
3. That each of the documents referred to constitutes the legal, valid and
binding obligation of the party executing the same; and
4. That as to all factual matters, each of the representations and
warranties contained in the documents referred to herein is true, accurate and
complete in all material respects, and the opinion expressed herein is given in
reliance thereon.
I have examined the following documents in connection with this matter:
1. Articles of Incorporation of the Company, as amended;
2. Bylaws of the Company, as amended;
3. The Registration Statement;
4. Unanimous Consents of the Board of Directors and of the majority
stockholders of the Company;
5. The executed Agreement and Plan of Merger (the "PTM Merger"), dated
December 14, 1999, between the Company (then known as "Fin Sports, U.S.A.,
Inc."); Pacific Title/Mirage, Inc., a Delaware corporation; and PTM Acquisition
Corp., a Delaware corporation;
6. Form of Subscription Agreement used in the Company's recently completed
$18,000,000 private placement of units, together with a list of the subscribers
thereunder;
7. The 8-K Current Report of the Company dated December 15, 1999, as
amended, regarding the PTM Merger; and
8. Letter of present counsel for the Company concerning the lack of any
action by the Company which would negate or materially alter any prior actions
of the Company in respect of the foregoing.
I have also examined various other documents, books, records, instruments
and certificates of public officials, directors, executive officers and agents
of the Company, and have made such investigations as I have deemed reasonable,
necessary or prudent under the circumstances. Also, in rendering this opinion, I
have reviewed various statutes and judicial precedence as I have deemed relevant
or necessary.
Based upon my examination mentioned above, and relying on the statements of
fact contained in the documents that I have examined, I am of the opinion that
the Common Stock, when sold, will be legally issued, fully paid and
non-assessable.
<PAGE>
I hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement and the reference to me in the Prospectus under
the caption "Legal Opinions."
Sincerely yours,
/s/ Branden Burningham
Branden T. Burningham
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), is made and entered into to
be effective as of December 1, 1999, by and between Lifef/x Networks, Inc. (the
"Company"), a Delaware corporation doing business in Massachusetts, and Serge
Lafontaine ("Executive"), an individual residing in Lincoln, Massachusetts.
The parties-hereby agree as follows:
1. Employment; Term.
----------------
(a) The Company hereby employs Executive, and Executive hereby
accepts employment with the Company, upon the terms and conditions contained in
this Agreement. The term of Executive's employment hereunder (the "Employment
Period") shall commence on December 1, 1999 (the "Effective Date") and shall
continue for a period of two (2) years from and after the Effective Date, unless
sooner terminated as hereinafter provided.
(b) The Employment Period may be extended for two (2) successive one
year periods by mutual written agreement of the parties hereto. If either party
intends not to renew -this Agreement upon the expiration of the Employment
Period then in effect, such party shall give the other party notice of such
intention not less than thirty (30) days prior to the expiration of such
Employment Period. Failure to provide notice of such intention shall not
constitute either a renewal of this Agreement or an extension of the Employment
Period.
2. Duties.
------
(a) During the Employment Period, Executive shall serve as the Chief
Technology Officer. Executive shall report directly to the Board of Directors of
the Company and to the Chief Executive Officer. Executive shall faithfully
perform for the Company the duties of Executive's office which shall include
such duties of an executive, technical, managerial or administrative nature as
may be specified and designated from time to time by the Chief Executive Officer
and the Chairman of the Board of the Company. Subject to Section 2(b) below,
Executive shall devote substantially all of Executive's business time and effort
to the performance of Executive's duties for the Company hereunder.
(b) Notwithstanding anything to the contrary contained in Section
2(a) above, and subject to the provisions of Sections 9 and 14(a) and 14(b) and
other applicable provisions hereof, Executive shall be permitted to engage as a
consultant and limited partner in the management and business activities of
Mirage Technologies, Inc. ("MTI"), as post-doctoral fellows at M.I.T. ("MTP"),
and in which Partnership Executive has been a Limited Partner since 1995, and in
addition in connection with Executive's other personal investments and affairs,
and including Advanced Instrument Systems, as further described in Section 14(b)
hereof, provided that such activities do not, individually or in the
<PAGE>
aggregate, materially interfere or conflict with Executive's duties and
responsibilities to the Company, as reasonably determined by the Chief Executive
Officer of the Company.
3. Compensation. Commencing on December 1, 1999, the Company shall pay
------------
to Executive a salary at an annual rate of $250,000. The salary payable pursuant
to this Section 3 (the "Base Salary") shall be payable in accordance with the
Company's payroll practices, as in effect from time to time. In addition to
Executive's Base Salary, Executive shall be entitled to annual consideration for
a bonus based on Executive's and the Company's performance, such bonus, if any,
to be as determined by the Compensation Committee as a subcommittee of the Board
of Directors, in its sole discretion.
4. Stock Option Grant. Following the execution of this Agreement and
------------------
subject to the approval of the Board of Directors of the Company's parent
company, Lifef/x, Inc. ("Parent"), the Company will cause Parent to grant
Executive an option (the "Option") to purchase 400,491 shares of Parent's Common
Stock, subject to the terms and conditions of Parent's stock option plan and
agreements currently under development by Parent. Twenty percent (20%) of the
Option will vest on the Effective Date and the balance will vest in equal
quarterly installments over a period of two (2) years until fully vested. The
Option exercise price shall be $3.00 per share for 300,491 shares, and fair
market value for 100,000 shares. The unvested balance of stock options shall
vest immediately in the event of the Executive's death or in the event of his
Permanent Disability, as defined herein, or in the event his employment
hereunder is terminated with the effect of the Company being obligated to pay
the Severance Compensation described in Section 7(c) hereof.
5. Expenses; Benefits.
------------------
(a) During the Employment Period, the Company agrees to reimburse
Executive, in accordance with the Company's policies as in effect and as
modified from time to time, for all reasonable and ordinary and necessary
business expenses paid or incurred by Executive in connection with the
performance of Executive's duties for the Company hereunder; provided, however
that Executive must obtain the Company's approval prior to incurring individual
expenses exceeding $2,500 (or $5,000 in the aggregate) in any thirty (30) day
period.
(b) During the Employment Period, Executive shall be entitled to
accrue vacation at a rate of 1.25 days per month for up to three weeks (i.e.,
fifteen days) of vacation annually, which vacation shall accrue at a rate of
1.25 days per month; provided that the maximum vacation accrual that Executive
may have at any time shall be fifteen (15) days. Once the Executive has accrued
the full fifteen (15) days vacation, all vacation accruals shall cease and shall
not resume unless and until Executive uses enough vacation time to fall below
the maximum accrual, at which point Executive shall start accruing vacation
again from that date forward until the maximum is reached again.
(c) During the Employment Period, Executive shall be entitled to
participate in and enjoy the benefits of any health, life, or disability
insurance, and of any retirement, pension, or profit-sharing plans, or other
similar plan or plans which may be instituted by the Company for the benefit of
its senior executive staff employees generally, upon such terms as may be
therein provided from time to time, and as modified or
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<PAGE>
terminated from time to time. During the initial six month period of this
Agreement, the Executive shall be reimbursed for his reasonable expenses
incurred for such fringe benefit purposes until such time as the Company has
established its own plans and policies for such purpose. As each such plan or
policy is established by the Company in its sole discretion, this reimbursement
obligation shall terminate and be of no further legal force or effect. The
failure of the Executive to satisfy any eligibility requirements of such plans
or policies, waiting periods, or other requirements shall not increase the
maximum reimbursement obligation of the Company hereunder.
(d) During the Employment Period, the Company agrees to reimburse the
Executive, in accordance with the Company's policies as in effect from time to
time, the amount of $500 per month for automobile costs and expenses incurred by
Executive in the course of the performance of his duties hereunder.
6. Termination. Executive's employment hereunder may be terminated prior
-----------
to the expiration of the Employment Period only as follows:
(a) Automatically in the event of the death of Executive;
(b) At the option of the Company, by written notice to Executive or
Executive's personal representative in the event of the Permanent Disability (as
defined below) of Executive. As used herein, and subject to applicable law, the
term "Permanent Disability" shall mean a physical or mental incapacity or
disability which renders Executive unable to perform the essential functions of
his position, as determined by the Company, for a period of not less than one
hundred twenty (120) days in any calendar year. In the event that the Executive
resumes the performance of substantially all of his duties hereunder before the
termination of his employment under this subparagraph becomes effective, the
notice of termination shall automatically be deemed to have been revoked. No
compensation or benefits will be paid or provided to the Executive under this
Agreement on account of termination for Permanent Disability for periods
following the date when such a termination of employment is effective. The
Executive's rights under the benefit plans of the Company shall be determined
under the provisions of those plans. At the request of the Company, Executive
will submit to a medical examination by a physician acceptable to both parties
for the purpose of permitting the Company to determine whether Executive is
unable to perform the essential functions of his position;
(c) At the option of the Company, by written notice to Executive upon
the occurrence of any one or more of the following events:
(i) any action by Executive constituting breach of fiduciary
duty, fraud, embezzlement or theft in the course of Executive's employment
hereunder;
(ii) any conviction of or guilty plea or plea of nolo contendere
by Executive involving a felony or misdemeanor involving moral turpitude, and
which offense results in material harm to the Company, as determined by the
Board of Directors of the Company in its sole and reasonable discretion;
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<PAGE>
(iii) gross neglect or willful refusal by Executive to perform
Executive's duties hereunder for a period of ten (10) days following notice
thereof by the Company;
(iv) material failure or refusal by Executive to comply with any
valid and legal directive of the Board of Directors of the Company; or
(v) a breach by Executive of any obligation under this Agreement if
the Company determines in its sole discretion that such breach is not curable
or, if curable, is not cured within thirty (30) days after written notice
thereof by the Company to Executive.
(d) At the option of Executive, by written notice to the Company at any
time:
(i) within one hundred twenty (120) days after the occurrence of a
material breach of any material obligation under this Agreement by the Company
if such breach is not curable or, if curable, is not cured within forty-five
(45) days after written notice thereof by Executive to the Company; or
(ii) within fifteen (15) days if the Company shall have failed to
pay Executive the Base Salary on its due date in accordance with Section 3 and
such failure shall not have been cured within fifteen (15) days of such failure;
or
(iii) subject to the terms and conditions of Section 4 hereof, as
the result of the Company's material failure to issue its grant of the stock
options agreed to herein; or
(iv) in the event the Executive is requested by the Company to
change the location of his regular place of employment by the Company to a
location more than forty miles distant from the City of Cambridge,
Massachusetts; or
(v) in the event the Company initiates legal proceedings pursuant
to this Agreement seeking enforcement against the Executive of the terms and
conditions of Sections 8 or 9 hereof; or
(vi) in the event Good Reason exists, such Good Reason to include
only the following two listed circumstances, and in such event the Executive's
employment with the Company may be regarded as having been constructively
terminated by the Company, and the Executive may therefore terminate his
employment for Good Reason as a result thereof, and subject to the terms and
conditions of this Agreement, thereupon become entitled to only the benefit of
Subsection 9(e)(iv), if, before the end of his Employment Period, one or more of
the following events shall occur (unless such event(s) applies generally to all
senior management of the Company or unless the Executive shall have become
Permanently Disabled):
(1) without the Executive's written consent, the assignment
to the Executive of any duties or the reduction of the Executive's duties,
either
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<PAGE>
of which results in a significant diminution in the Executive's position or
responsibilities with the Company in effect immediately prior to such
assignment, and which is reasonably expected to continue for a period of at
least one month, or the removal of the Executive from his position and his
active and ongoing responsibilities and duties pursuant to this Agreement; or
(2) a material reduction by the Company in the kind or
level of employee benefits to which the Executive is entitled immediately prior
to such reduction with the result that the Executive's overall employee benefits
package is significantly reduced.
(e) The Company may terminate this Agreement at any time and for
any reason or for no reason, subject to the Company's obligations under Section
7(c).
7. Effect of Termination.
---------------------
(a) In the event of the Company's termination of Executive's
employment hereunder prior to the expiration of the Employment Period for any
reason, the Company shall have no liability or obligation to Executive other
than as specifically set forth in this Section 7.
(b) Upon the termination by the Company of Executive's employment
hereunder pursuant to the provisions of Section 6(a), 6(b), or 6(c) hereof, or
the termination by Executive of Executive's employment hereunder for any reason
other than as set forth in Section 6(d), Executive (or Executive's heirs or
legal representatives) shall be entitled to receive only such portion (if any)
of the Base Salary as may theretofore have accrued but be unpaid on the date of
such termination, plus any accrued and unpaid vacation pay which may be owing
through the date of termination, plus in the event of the Executive's Permanent
Disability hereunder, the Base Salary amount payable pursuant to Section 3
hereof for the period of time until the Company's disability insurance on the
Executive becomes payable, such maximum period of time in any event not to
exceed a maximum period of twelve months from the date of such disability.
(c) Upon the termination of Executive's employment hereunder
either: (i) by the Company for any reason other than pursuant to Sections 6(a),
6(b) or 6(c), including, without limitation, pursuant to Section 6(e), or (ii)
by Executive pursuant to Section 6(d), then Executive shall be entitled to
receive such portion of the Base Salary as may theretofore have accrued but be
unpaid on the date of such termination and any accrued and unpaid vacation pay
which may be owing through the date of termination, and the Company shall
continue to pay to Executive, as severance compensation (the "Severance
Compensation"), Executive's full Base Salary as provided in Section 3 above for
the unexpired period of the Employment Period set forth in Section I(a) hereof.
At the option of the Company, the Severance Compensation shall be payable (i) at
the same time as such compensation would have been paid to Executive had
Executive not been so terminated, or (ii) in one lump sum within thirty (30)
days of the termination of Executive's employment.
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(d) Upon the termination of Executive's employment hereunder for
any reason, Executive shall immediately surrender to the Company all Company
property in the possession, custody or control of Executive, including but not
limited to any computer hardware, software, computer disks and/or data storage
devices, as well as all notes, data, sketches, drawings, manuals, documents,
records, data bases, programs, blueprints, memoranda, specifications, customer
lists, financial reports, equipment and all other physical forms of expression
incorporating or containing any Confidential Information (as defined in Section
8 hereof), it being distinctly understood that all such writings, physical forms
of expression and other things are exclusive property of the Company.
8. Confidential Information and Inventions.
---------------------------------------
(a) Executive recognizes and acknowledges that during the course of
Executive's employment with the Company, Executive shall have access to
Confidential Information. Subject to the terms and conditions of Section 2(b)
and Section 14 hereof, "Confidential Information" means all information or
material not publicly known about the Company, including, without limitation,
any such information which relates to any of its products, services or any phase
of its operations, business or financial affairs. Confidential Information
includes, but is not limited to, the following types of information and other
information of a similar nature (whether or not reduced to writing): trade
secrets, inventions, drawings, file data, documentation, diagrams,
specifications, know-how, processes, formulas, models, flow charts, software in
various stages of development, source codes, object codes, research and
development procedures, test results, marketing techniques and materials,
marketing and development plans, price lists, pricing policies, business plans,
information relating to customers and/or suppliers' identities, characteristics
and agreements, financial information and projections and employee files.
Confidential Information also includes any information described above which the
Company obtains from another party and which the Company treats and/or has an
obligation to treat as confidential or designates as Confidential Information,
whether or not owned or developed by the Company. Confidential Information shall
not include any information which is or becomes (i) generally available to the
public other than as a result of disclosure in violation of any agreement with
the Company or (ii) generally known in the industry in which the Company is or
may become involved other than as a result of disclosure in violation of any
agreement with the Company. (The term "Company," as used in this Section 8,
means not only Lifef/x Networks, Inc., but also any company, partnership or
entity which, directly or indirectly, controls, is controlled by or is under
common control with Lifef/x Networks, Inc.)
(b) Subject to the terms and conditions of Section 2(b) and Section
14 hereof, both during the Employment Period and at all times thereafter, all
Confidential Information which Executive may now possess, may obtain during or
after the Employment Period, or may create prior to the end of the Employment
Period will be held confidential by Executive, and Executive will not (nor will
Executive assist any other person to do so), directly or indirectly, (i) reveal,
report, publish or disclose such Confidential Information to any person, firm,
corporation, association or other entity for any reason or purpose whatsoever
(other than in the course of carrying out Executive's duties hereunder or as
expressly authorized by the Company), (ii) render any services to
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any person, firm, corporation, association or other entity to whom any such
Confidential Information, in whole or in part, has been disclosed or is
threatened to be disclosed by or at the instance of Executive, or (iii) use such
Confidential Information except for the benefit of the Company and in the course
of Executive's employment with the Company; provided, however that the foregoing
will not apply to the extent Executive is required to disclose any Confidential
Information by applicable law or legal process so long as Executive promptly
notifies the Company of such pending disclosure and consults with the Company
prior to such disclosure concerning the advisability of seeking a protective
order or other means of preserving the confidentiality of the Confidential
Information.
(c) Subject to the terms and conditions of Section 2(b) and Section
14 hereof, any Inventions (as defined below) in whole or in part conceived, made
or reduced to practice by Executive (either solely or in conjunction with
others) during or after the Employment Period which are made through the use of
any of the Confidential Information or any of the Company's equipment,
facilities, supplies, trade secrets or time, or which relate to the Company's
business or the Company's actual or demonstrably anticipated research and
development, or which result from any work performed by Executive for the
Company will belong exclusively to the Company and will be deemed part of the
Confidential Information for purposes of this Agreement, whether or not fixed in
a tangible medium of expression. The term "Inventions," as used herein, means
any ideas, designs, concepts, techniques, inventions and discoveries, whether or
not patentable or protectable by copyright and whether or not reduced to
practice, including, but not limited to, devices, processes, drawings, works of
authorship, computer programs, software, source codes, object codes, interfaces
and networks (and all components of the foregoing), methods and formulas
together with any improvements thereon or thereto, derivative works therefrom
and know-how related thereto.
(i) Without limiting the foregoing, any such Inventions will
be deemed to be "works made for hire" and the Company will be deemed to be the
owner thereof, provided that in the event and to the extent such works are
determined not to constitute "works made for hire" as a matter of law, Executive
hereby irrevocably assigns and transfers to the Company all right, title and
interest in and to any such Inventions, including but not limited to all related
patents, copyrights and mask works and all applications therefor and filings and
notification with respect thereto.
(ii) Executive acknowledges and agrees that he will keep and
maintain adequate and current written records (in the form of notes, sketches,
drawings or such other form(s) as may be specified by the Company) of all
Inventions made by Executive during the Employment Period or thereafter
(including but not limited to information relating to all Inventions which
belong exclusively to the Company pursuant to the provisions of this Section
8(c)), which records will be available at all times to the Company and will
remain the sole property of the Company. In the event that (A) any Invention is
made, conceived of or reduced to practice by Executive, either solely or in
conjunction with others, during the Employment Period, or (B) any Invention is
made, conceived of or reduced to practice by Executive after the Employment
Period which belongs exclusively to the Company pursuant to the provisions of
this Section 8(c),
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Executive will promptly give notice and fully disclose in writing such Invention
to the Chairman of the Board and the Board of Directors of the Company.
(iii) Executive will assist the Company (at the Company's
expense), either during or subsequent to the Employment Period, to obtain and
enforce for the Company's benefit, patents, copyrights, and mask work protection
in any country for any and all Inventions made by Executive, in whole or in
part, the rights to which belong to or have been assigned to the Company
pursuant to the provisions of Section 8(c) hereof. Executive will be compensated
for such assistance at a reasonable rate not to exceed $800 per day for time
accounted for and actually employed in such assistance. Executive agrees to
execute all applications, assignments, instruments and papers and perform all
acts as the Company or its counsel may deem necessary or desirable to obtain any
patents, copyrights or mask work protection in such Inventions and otherwise to
protect the interests of the Company therein. In the event the Company is unable
to secure Executive's signature on any document necessary to apply for,
prosecute, obtain, or enforce any patent, copyright, or other right or
protection relating to any Invention, whether due to mental or physical
incapacity or any other cause, Executive hereby irrevocably designates and
appoints the Company and each of its duly authorized officers and agents as
Executive's agents and attorney-in- fact, to act for and in Executive's behalf
and stead to execute and file any such document and to do all other lawfully
permitted acts to further the prosecution, issuance, and enforcement of patents,
copyrights, or other right or protections with the same force and effect as if
executed and delivered by Executive.
(d) Subject to the terms and conditions of Section 2(b) and Section
14 hereof, all memoranda, notes, lists, records and other documents (and all
copies thereof) constituting Confidential Information (including information
relating to all Inventions which belong exclusively to the Company pursuant to
the provisions of Section 8(c) above) made or compiled by Executive or made
available to Executive during or after the Employment Period shall be the
Company's property, shall be kept confidential in accordance with the provisions
of this Section 8 and shall be delivered to the Company at any time on request
and in any event upon the termination of Executive's employment with the Company
for any reason.
9. Covenant Against Competition. Executive covenants and agrees that:
----------------------------
(a) During the Non-Compete Period (as hereinafter defined), Executive
shall not, directly or indirectly, in any Geographic Area (as hereinafter
defined): (i) engage for Executive's own account in any business competitive
with the Company Business (as hereinafter defined); (ii) render any services in
any capacity to any person or entity (other than the Company or its Affiliates)
engaged in any business competitive with the Company Business; or (iii) acquire
an interest in any person or entity engaged in any business competitive with the
Company Business (other than the Company) as a partner, shareholder, director,
officer, employee, principal, manager, member, agent, trustee, consultant or in
any other relationship or capacity; provided, however, Executive may own,
-------- -------
directly or indirectly, solely as a passive investment, securities of any such
entity which are traded on any national securities exchange if Executive (A) is
not a controlling person of,
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or a member of a group which controls, such entity, and (B) does not, directly
or indirectly, own 1% or more of any class of securities of such entity.
(b) During the Non-Compete Period, Executive shall not, without the
prior written consent of the Company, directly or indirectly, on behalf of
himself or any other person or entity solicit or encourage any employee of the
Company or any of its Affiliates to leave the employment of the Company or any
of its Affiliates, or hire any employee who has left the employment of the
Company or any of its Affiliates within one year of the termination of such
employee's employment with the Company or any of its Affiliates.
(c) During any portion of the Non-Compete Period during which
Executive is not employed by the Company, Executive shall not, in any Geographic
Area, and in connection with any business competitive with the Company's
Business (as hereinafter defined), directly or indirectly, (i) solicit or
encourage any customer or client of the Company to engage the services of
Executive or any person or entity (other than the Company) in which Executive is
a partner, shareholder, director, officer, employee, principal, member, manager,
agent, trustee, consultant or engaged in any other relationship or capacity, or
(ii) accept orders or business from, or agree to provide services to, any
customer or client of the Company, on behalf of Executive or any person or
entity (other than the Company) in which Executive is a partner, shareholder,
director, officer, employee, principal, member, manager, agent, trustee,
consultant or engaged in any other relationship or capacity.
(d) If any provision of Sections 8 or 9 is held to be unenforceable
because of the scope, duration, area of its applicability or otherwise, it is
the intention of the parties that the court making such determination shall
modify such scope, duration or area, or all of them so that the provision shall
be enforceable to the greatest extent permitted under the law, and that such
provision shall then be applicable in such modified form.
(e) As used in this Agreement:
(i) "Affiliate" shall mean any entity directly or indirectly
---------
controlling, controlled by, or under common control with the Company and any
entity in which the Company is a general partner, member, manager or holder of
greater than a 10% common equity, partnership or membership interest.
(ii) "Company Business" shall mean the business of the Company
----------------
as so defined at the time of the signing of this Agreement, or at the time of a
violation of this Section 9 is alleged to occur or, if such alleged occurrence
is after Executive's employment is terminated, the business of the Company at
the time such employment terminates.
(iii) "Geographic Area" shall mean the world.
---------------
(iv) "Non-Compete Period" shall mean the period during which
------------------
Executive is employed by the Company and for an additional period of two years
following
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the termination of Executive's employment with the Company. Such two year period
following Executive's termination of employment shall be reduced to a one year
period in the event the Executive's termination of employment by the Company
occurs for no specific reason or in the event Executive terminates his
employment with the Company for Good Reason, as defined in Section 6(d)(vi)
hereof.
(v) "Control" with respect to any person, shall mean
-------
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of such person, whether through the ownership of
voting securities or a partnership interest, by contract or otherwise, and for
example, including election of a majority of a board of directors of persons who
simultaneously serve on another affiliated board of directors.
10. Enforcement by Injunction. Executive acknowledges and agrees that the
-------------------------
Company will be irreparably damaged if Executive fails to comply with the
provisions of Sections 8 or 9 hereof, subject to the applicable terms and
conditions of this Agreement, including Section 2(b) and Section 14 hereof.
Accordingly, in the event of such a failure to comply with the terms and
conditions of Sections 8 or 9 hereof, the Company shall be entitled to (i) an
injunction or any other appropriate decree of specific performance (without the
necessity of posting any bond or other security in connection therewith) in case
of any breach or threatened breach of Executive's covenants under Sections 8 or
9, (ii) damages in an amount equal to all compensation, profits, monies,
accruals, increments or other benefits derived or received by Executive (or any
associated party deriving such benefits including but not limited to any future
employer of Executive) as a result of any such breach of Executive's covenants
under Sections 8 or 9, and (iii) indemnification against any other losses,
damages, costs and expenses, including actual attorneys' fees and court costs,
incurred by the Company in obtaining any damages and/or injunctive relief. Such
remedies shall not be exclusive and shall be in addition to any other remedy, at
law or in equity, which the Company may have for any breach or threatened breach
of Sections 8 or 9 by Executive.
11. Notices. Any and all notices or other communications required or
-------
permitted to be given under any of the provisions of this Agreement shall be in
writing and shall be deemed to have been duly given when personally delivered or
mailed by first class registered mail, return receipt requested, or by
commercial courier or delivery service, or by facsimile, addressed to the
parties at the addresses set forth below their signatures hereto (or at such
other address as any party may specify by notice to all other parties given as
aforesaid).
12. Indemnification. The Company shall indemnify Executive and hold
---------------
Executive harmless from and against any and all losses, claims, damages or
liabilities (including reasonable attorneys' fees), and all actions, claims or
proceedings in respect thereof, brought against Executive by any third party by
reason of the fact that Executive is or was a director, officer or employee of
the Company or any other business or entity for which Executive so serves at the
written request of the Company, if Executive acted, in good faith, for a purpose
which Executive reasonably believed to be in, or (in the case of service for
such other business or entity) not opposed to, the best interests of the Company
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and, in criminal proceedings, in addition, had no reasonable cause to believe
that Executive's conduct was unlawful; provided that the Company shall not be
liable under this Section 12 to the extent that any loss, claim, damage,
liability or expense is found by a court of competent jurisdiction to arise (i)
from the gross negligence or willful misconduct of Executive or (ii) out of or
relate to Executive's acts or omissions, negligent or otherwise, relating to any
of the outside business and investment activities of Executive described in
Section 2(b) above. In connection with the indemnity granted by the Company,
Executive agrees (i) to notify the Company promptly of the assertion against
Executive of any claims or the commencement of any action or proceeding for
which Executive may seek indemnity under this Agreement (provided that the
failure to so notify the Company shall not affect the Company's obligations
hereunder, except to the extent the Company is materially prejudiced by such
failure); and (ii) reasonably to cooperate with the Company and counsel selected
by the Company to represent Executive (which counsel shall be reasonably
acceptable to Executive). Expenses (including reasonable attorneys' fees and
disbursements) Executive incurs in defending any action, suit or proceeding
shall be paid by the Company from time to time promptly upon Executive's written
request in advance of the final disposition of the action, suit or proceeding
upon presentation of vouchers or other evidence of the incurrence of the expense
and upon receipt of an undertaking in writing by Executive to repay such amount
if it shall ultimately be determined that Executive is not entitled to be
indemnified thereunder.
13. Arbitration. Any dispute or controversy arising under this Agreement
-----------
or concerning Executive's employment with the Company (including, without
limitation, any controversy as to the arbitrability of any dispute) including
but not limited to any claims arising out of Title VII of the Civil Rights Act
of 1964, the Age Discrimination in Employment Act, the Americans with
Disabilities Act, and/or Massachusetts General Laws Chapter 151B, shall be
settled exclusively by arbitration to be held in Boston, Massachusetts, before a
single arbitrator in accordance with the rules of the American Arbitration
Association then in effect relating to the arbitration of employment disputes,
provided, however, that any claims arising out of Sections 8, 9 and/or 10 of
this Agreement shall be resolved through the courts. Judgment may be entered on
the arbitrator's award in any court having jurisdiction, and the parties consent
to the jurisdiction of the Massachusetts courts for that purpose.
14. Exclusions from Sections 8 and 9; Effect on Sections 2(a) and 2(b).
------------------------------------------------------------------
(a) Notwithstanding anything contained in Section 8 or Section 9
hereof to the contrary, the activities of Mirage Technologies Limited
Partnership and of its general partner, Mirage Technologies, Inc., and of the
Executive in connection therewith, shall not be deemed to be competitive with
the Company Business to the extent such activities are (1) based on prior
activities or intellectual properties owned by such two entities as of the date
this Agreement is signed, and including therein, but without limitation by
reference thereto, the Intellectual Property known generally as Mirada and
concerning which a patent was recently issued by the U.S. Patent and Trademark
Office, or (2) not included within the scope of the Lifef/x internet technology
related business plan of this Company, as such business plan is adopted in
writing by the Board of Directors of this Company either before or within ninety
(90) days after the date this Agreement is actually signed, and as it may be
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amended annually thereafter. In the event the Board of Directors of this Company
fails for any reason or for no reason to adopt such a business plan, such
Lifef/x business plan shall be deemed to be that plan set forth and described in
the Company's Private Placement Memorandum dated October 29, 1999, as previously
amended. In the event the Board of Directors fails to amend the business plan
for any reason or for no reason at the end of the first calendar year, the
business plan shall be that plan previously adopted pursuant to this Agreement's
terms and conditions.
(b) Subject to the terms and conditions of Sections 2(a) and 2(b) hereof,
and Section 14(a) hereof, and other applicable provisions hereof, the
Executive's personal activities and personal services in connection with MTP and
its general partner, MTI, and any other activities or personal services
performed in connection with any company or entity owned in whole or in part by,
controlled by, incubated by, started, spin off, spun out or otherwise related to
MTI and/or MTP, and in connection with Advanced Instrument System ("AIS"), which
AIS previously had a contract with Pfizer Pharmaceuticals for systems
development related to new drug compound target and selection processes, and in
connection with which Prof. Ian Hunter is in charge, and any uncompensated
limited employment at the M.I.T. Laboratory managed by Prof. Ian Hunter, shall
not be deemed to be competitive with the Company's Business in and of
themselves, and such limited permitted activities shall not by themselves alone
be deemed by the Company to be a failure by the Executive to comply with or to
constitute the breach by the Executive of this Agreement or in particular the
provisions of Section 2 hereof so long as such activities by Executive do not
interfere with Executive's availability to the Company hereunder, and his
performance of his full-time duties hereunder.
15. Miscellaneous.
-------------
(a) This writing constitutes the entire agreement of the parties with
respect to the subject matter hereof and may not be modified, amended or
terminated except by a written agreement signed by all of the parties hereto.
(b) This Agreement shall not be assignable by Executive, but it shall
be binding upon, and shall inure to the benefit of, Executive's heirs,
executors, administrators and legal representatives. This Agreement may be
assigned by the Company to any Affiliate of the Company or any successor to all
or substantially all of the Company's Lifef/x technology and shall be binding
upon and inure to the benefit of the Company and its successors and assigns.
(c) No waiver of any breach or default hereunder shall be considered
valid unless in writing, and no such waiver shall be deemed a waiver of any
subsequent breach or default of the same or similar nature.
(d) If any provision of this Agreement shall be held invalid or
unenforceable, such invalidity or unenforceability shall attach only to such
provision and shall not in any manner affect or render invalid or unenforceable
any other severable provision of this Agreement, and this Agreement shall be
carried out as if any such invalid or unenforceable provision were not contained
herein, unless the invalidity or
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unenforceability of such provision substantially impairs the benefits of the
remaining portions of this Agreement.
(e) The section headings contained herein are for the purposes of
convenience only and are not intended to define or limit the contents of said
sections.
(f) This Agreement may be executed in two or more counterparts, all
of which taken together shall be deemed one original.
(g) This Agreement shall be deemed to be a contract under the laws of
the Commonwealth of Massachusetts and for all purposes shall be construed and
enforced in, accordance with the internal laws of said Commonwealth.
(h) This Agreement shall not confer any rights or remedies upon any
person or entity other than the parties hereto and their respective successors
and permitted assigns.
(i) The Executive acknowledges that he has consulted with counsel and
is fully aware of his rights and obligations under this Agreement.
(j) The Executive represents and warrants that his employment by the
Company as described herein shall not conflict with and will not be constrained
by any prior employment or consulting agreement or other business or investment
relationship, and that he has previously obtained all necessary work permits,
green cards, and has satisfied all other requirements of applicable law for a
Canadian citizen to be employed in the United States.
(k) During his Employment Period, the Company agrees to use its
reasonable best efforts to obtain and to pay for Directors and Officers
Liability insurance from a solvent insurer in amounts and on terms which the
Company in its sole discretion may establish from time to time, and to provide
evidence of such insurance to the Executive once in each calendar year if
requested in writing by the Executive to do so.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
Lifef/x Networks, Inc.
/s/ Serge Lafontaine By: /s/ Lucille S. Salhany
- ----------------------------- -------------------------------
Dr. Serge Lafontaine Name: Lucille S. Salhany
-----------------------------
Title: CEO
----------------------------
Address:
Address: Lucille S. Salhany, CEO and Co-President
6 Mill Street Extension Lifef/x, Inc.
Lincoln, Massachusetts 01773 c/o Cambridge Technology Partners
8 Cambridge Center
Cambridge, MA 02142
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EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), is made and entered into to
be effective as of December 1, 1999, by and between Lifef/x Networks, Inc. (the
"Company"), a Delaware corporation doing business in Massachusetts, and Michael
S. Rosenblatt ("Executive"), an individual residing in Newton, Massachusetts.
The parties hereby agree as follows:
1. Employment; Term.
----------------
(a) The Company hereby employs Executive, and Executive hereby
accepts employment with the Company, upon the terms and conditions contained in
this Agreement. The term of Executive's employment hereunder (the "Employment
Period") shall commence on December 1, 1999 (the "Effective Date") and shall
continue for a period of two (2) years from and after the Effective Date, unless
sooner terminated as hereinafter provided.
(b) The Employment Period may be extended for two (2) successive one
year periods by mutual written agreement of the parties hereto. If either party
intends not to renew this Agreement upon the expiration of the Employment Period
then in effect, such party shall give the other party notice of such intention
not less than thirty (30) days prior to the expiration of such Employment
Period. Failure to provide notice of such intention shall not constitute either
a renewal of this Agreement or an extension of the Employment Period.
2. Duties.
------
(a) During the Employment Period, Executive shall serve as the
Chairman of the Board of Directors of the Company and as Co-President. Executive
shall report directly to the Board of Directors of the Company. Executive shall
faithfully perform for the Company the duties of Executive's office which shall
include such duties of an executive, technical, managerial or administrative
nature as may be specified and designated from time to time by the Board of
Directors of the Company. Subject to Section 2(b) below, Executive shall devote
substantially all of Executive's business time and effort to the performance of
Executive's duties for the Company hereunder.
(b) Notwithstanding anything to the contrary contained in Section
2(a) above, and subject to the provisions of Sections 9 and 14(a) and 14(b) and
other applicable provisions hereof, Executive shall be permitted to engage as an
officer, director, partner, stockholder, employee or as a consultant in the
management and business activities of Mirage Technologies, Inc. ("MTI"), and
which he owns in part as of the effective date hereof, and in whole as of the
date of execution hereof, and which is the general partner of Mirage
Technologies Limited Partnership ("MTP"), and in which Partnership Executive has
been a Limited Partner since 1995, and in addition in connection with
Executive's other personal investments and affairs, provided that such
activities do not, individually or
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in the aggregate, materially interfere or conflict with Executive's duties and
responsibilities to the Company, as reasonably determined by the Board of
Directors of the Company.
3. Compensation. Commencing on December 1, 1999, the Company shall pay
------------
to Executive a salary at an annual rate of $335,000. The salary payable pursuant
to this Section 3 (the "Base Salary") shall be payable in accordance with the
Company's payroll practices, as in effect from time to time. In addition to
Executive's Base Salary, Executive shall be entitled to annual consideration for
a bonus based on Executive's and the Company's performance, such bonus, if any,
to be as determined by the Compensation Committee as a subcommittee of the Board
of Directors, in its sole discretion.
4. Stock Option Grant. Following the execution of this Agreement and
------------------
subject to the approval of the Board of Directors of the Company's parent
company, Lifef/x, Inc. ("Parent"), the Company will cause Parent to grant
Executive an option (the "Option") to purchase 1,952,459 shares of Parent's
Common Stock, subject to the terms and conditions of Parent's stock option plan
and agreements currently under development by Parent. Twenty percent (20%) of
the Option will vest on the Effective Date and the balance will vest in equal
quarterly installments over a period of two (2) years until fully vested. The
Option exercise price shall be $3.00 per share for 1,911,511 shares, and fair
market value for 40,948 shares. The unvested balance of stock options shall vest
immediately in the event of the Executive's death or in the event of his
Permanent Disability, as defined herein, or in the event his employment
hereunder is terminated with the effect of the Company being obligated to pay
the Severance Compensation described in Section 7(c) hereof.
5. Expenses; Benefits.
------------------
(a) During the Employment Period, the Company agrees to reimburse
Executive, in accordance with the Company's policies as in effect and as
modified from time to time, for all reasonable and ordinary and necessary
business expenses paid or incurred by Executive in connection with the
performance of Executive's duties for the Company hereunder.
(b) During the Employment Period, Executive shall be entitled to
accrue vacation at a rate of 1.25 days per month for up to three weeks (i.e.,
fifteen days) of vacation annually, which vacation shall accrue at a rate of
1.25 days per month; provided that the maximum vacation accrual that Executive
may have at any time shall be fifteen (15) days. Once the Executive has accrued
the full fifteen (15) days vacation, all vacation accruals shall cease and shall
not resume unless and until Executive uses enough vacation time to fall below
the maximum accrual, at which point Executive shall start accruing vacation
again from that date forward until the maximum is reached again.
(c) During the Employment Period, Executive shall be entitled to
participate in and enjoy the benefits of any health, life, or disability
insurance, and of any retirement, pension, or profit-sharing plans, or other
similar plan or plans which may be instituted by the Company for the benefit of
its senior executive staff employees generally, upon such terms as may be
therein provided from time to time, and as modified or terminated from time to
time. During the initial six month period of this Agreement, the
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Executive shall be reimbursed for his reasonable expenses incurred for such
fringe benefit purposes until such time as the Company has established its own
plans and policies for such purpose. As each such plan or policy is established
by the Company in its sole discretion, this reimbursement obligation shall
terminate and be of no further legal force or effect. The failure of the
Executive to satisfy any eligibility requirements of such plans or policies,
waiting periods, or other requirements shall not increase the maximum
reimbursement obligation of the Company hereunder.
(d) During the Employment Period, the Company agrees to reimburse the
Executive, in accordance with the Company's policies as in effect from time to
time, the amount of $500 per month for automobile costs and expenses incurred by
Executive in the course of the performance of his duties hereunder.
6. Termination. Executive's employment hereunder may be terminated prior
-----------
to the expiration of the Employment Period only as follows:
(a) Automatically in the event of the death of Executive;
(b) At the option of the Company, by written notice to Executive or
Executive's personal representative in the event of the Permanent Disability (as
defined below) of Executive. As used herein, and subject to applicable law, the
term "Permanent Disability" shall mean a physical or mental incapacity or
disability which renders Executive unable to perform the essential functions of
his position, as determined by the Company, for a period of not less than one
hundred twenty (120) days in any calendar year. In the event that the Executive
resumes the performance of substantially all of his duties hereunder before the
termination of his employment under this subparagraph becomes effective, the
notice of termination shall automatically be deemed to have been revoked. No
compensation or benefits will be paid or provided to the Executive under this
Agreement on account of termination for Permanent Disability for periods
following the date when such a termination of employment is effective. The
Executive's rights under the benefit plans of the Company shall be determined
under the provisions of those plans. At the request of the Company, Executive
will submit to a medical examination by a physician acceptable to both parties
for the purpose of permitting the Company to determine whether Executive is
unable to perform the essential functions of his position;
(c) At the option of the Company, by written notice to Executive upon
the occurrence of any one or more of the following events:
(i) any action by Executive constituting breach of fiduciary
duty, fraud, embezzlement or theft in the course of Executive's employment
hereunder;
(ii) any conviction of or guilty plea or plea of nolo contendere
by Executive involving a felony or misdemeanor involving moral turpitude, and
which offense results in material harm to the Company, as determined by the
Board of Directors of the Company in its sole and reasonable discretion;
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(iii) gross neglect or willful refusal by Executive to perform
Executive's duties hereunder for a period of ten (10) days following notice
thereof by the Company;
(iv) material failure or refusal by Executive to comply with any
valid and legal directive of the Board of Directors of the Company; or
(v) a breach by Executive of any obligation under this
Agreement if the Company determines in its sole discretion that such breach is
not curable or, if curable, is not cured within thirty (30) days after written
notice thereof by the Company to Executive.
(d) At the option of Executive, by written notice to the Company at
any time:
(i) within one hundred twenty (120) days after the occurrence
of a material breach of any material obligation under this Agreement by the
Company if such breach is not curable or, if curable, is not cured within forty-
five (45) days after written notice thereof by Executive to the Company; or
(ii) within fifteen (15) days if the Company shall have failed
to pay Executive the Base Salary on its due date in accordance with Section 3
and such failure shall not have been cured within fifteen (15) days of such
failure; or
(iii) subject to the terms and conditions of Section 4 hereof, as
the result of the Company's material failure to issue its grant of the stock
options agreed to herein; or
(iv) in the event the Executive is requested by the Company to
change the location of his regular place of employment by the Company to a
location more than forty miles distant from the City of Cambridge,
Massachusetts; or
(v) in the event the Company initiates legal proceedings
pursuant to this Agreement seeking enforcement against the Executive of the
terms and conditions of Sections 8 or 9 hereof, or
(vi) in the event Good Reason exists, such Good Reason to
include only the following two listed circumstances, and in such event the
Executive's employment with the Company may be regarded as having been
constructively terminated by the Company, and the Executive may therefore
terminate his employment for Good Reason and as a result thereof, and subject to
the terms and conditions of this Agreement, thereupon become entitled to only
the benefit of Subsection 9(e)(iv), if, before the end of his Employment Period,
one or more of the following events shall occur (unless such event(s) applies
generally to all senior management of the Company or unless the Executive shall
have become Permanently Disabled):
(1) without the Executive's written consent, the
assignment to the Executive of any duties or the reduction of the Executive's
duties, either
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of which results in a significant diminution in the Executive's position or
responsibilities with the Company in effect immediately prior to such
assignment, and which is reasonably expected to continue for a period of at
least one month, or the removal of the Executive from his position and his
active and ongoing responsibilities and duties pursuant to this Agreement; or
(2) a material reduction by the Company in the kind or
level of employee benefits to which the Executive is entitled immediately prior
to such reduction with the result that the Executive's overall employee benefits
package is significantly reduced.
(e) The Company may terminate this Agreement at any time and for any
reason or for no reason, subject to the Company's obligations under Section
7(c).
7. Effect of Termination.
---------------------
(a) In the event of the Company's termination of Executive's
employment hereunder prior to the expiration of the Employment Period for any
reason, the Company shall have no liability or obligation to Executive other
than as specifically set forth in this Section 7.
(b) Upon the termination by the Company of Executive's employment
hereunder pursuant to the provisions of Section 6(a), 6(b), or 6(c) hereof, or
the termination by Executive of Executive's employment hereunder for any reason
other than as set forth in Section 6(d), Executive (or Executive's heirs or
legal representatives) shall be entitled to receive only such portion (if any)
of the Base Salary as may theretofore have accrued but be unpaid on the date of
such termination, plus any accrued and unpaid vacation pay which may be owing
through the date of termination, plus in the event of the Executive's Permanent
Disability hereunder, the Base Salary amount payable pursuant to Section 3
hereof for the period of time until the Company's disability insurance on the
Executive becomes payable, such maximum period of time in any event not to
exceed a maximum period of twelve months from the date of such disability.
(c) Upon the termination of Executive's employment hereunder either:
(i) by the Company for any reason other than pursuant to Sections 6(a), 6(b) or
6(c), including, without limitation, pursuant to Section 6(e), or (ii) by
Executive pursuant to Section 6(d), then Executive shall be entitled to receive
such portion of the Base Salary as may theretofore have accrued but be unpaid on
the date of such termination and any accrued and unpaid vacation pay which may
be owing through the date of termination, and the Company shall continue to pay
to Executive, as severance compensation (the "Severance Compensation"),
Executive's full Base Salary as provided in Section 3 above for the unexpired
period of the term of the Employment Period set forth in Section 1(a) hereof. At
the option of the Company, the Severance Compensation shall be payable (i) at
the same time as such compensation would have been paid to Executive had
Executive not been so terminated, or (ii) in one lump sum within thirty (30)
days of the termination of Executive's employment.
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(d) Upon the termination of Executive's employment hereunder for any
reason, Executive shall immediately surrender to the Company all Company
property in the possession, custody or control of Executive, including but not
limited to any computer hardware, software, computer disks and/or data storage
devices, as well as all notes, data, sketches, drawings, manuals, documents,
records, data bases, programs, blueprints, memoranda, specifications, customer
lists, financial reports, equipment and all other physical forms of expression
incorporating or containing any Confidential Information (as defined in Section
8 hereof), it being distinctly understood that all such writings, physical forms
of expression and other things are exclusive property of the Company.
8. Confidential Information and Inventions.
---------------------------------------
(a) Executive recognizes and acknowledges that during the course of
Executive's employment with the Company, Executive shall have access to
Confidential Information. Subject to the terms and conditions of Section 2(b)
and Section 14 hereof, "Confidential Information" means all information or
material not publicly known about the Company, including, without limitation,
any such information which relates to any of its products, services or any phase
of its operations, business or financial affairs. Confidential Information
includes, but is not limited to, the following types of information and other
information of a similar nature (whether or not reduced to writing): trade
secrets, inventions, drawings, file data, documentation, diagrams,
specifications, know-how, processes, formulas, models, flow charts, software in
various stages of development, source codes, object codes, research and
development procedures, test results, marketing techniques and materials,
marketing and development plans, price lists, pricing policies, business plans,
information relating to customers and/or suppliers' identities, characteristics
and agreements, financial information and projections and employee files
Confidential Information also includes any information described above which the
Company obtains from another party and which the Company treats and/or has an
obligation to treat as confidential or designates as Confidential Information,
whether or not owned or developed by the Company. Confidential Information shall
not include any information which is or becomes (i) generally available to the
public other than as a result of disclosure in violation of any agreement with
the Company or (ii) generally known in the industry in which the Company is or
may become involved other than as a result of disclosure in violation of any
agreement with the Company. (The term "Company," as used in this Section 8,
means not only Lifef/x Networks, Inc., but also any company, partnership or
entity which, directly or indirectly, controls, is controlled by or is under
common control with Lifef/x Networks, Inc.)
(b) Subject to the terms and conditions of Section 2(b) and Section
14 hereof, both during the Employment Period and at all times thereafter, all
Confidential Information which Executive may now possess, may obtain during or
after the Employment Period, or may create prior to the end of the Employment
Period will be held confidential by Executive, and Executive will not (nor will
Executive assist any other person to do so), directly or indirectly, (i) reveal,
report, publish or disclose such Confidential Information to any person, firm,
corporation, association or other entity for any reason or purpose whatsoever
(other than in the course of carrying out Executive's duties hereunder or as
expressly authorized by the Company), (ii) render any services to
6
<PAGE>
any person, firm, corporation, association or other entity to whom any such
Confidential Information, in whole or in part, has been disclosed or is
threatened to be disclosed by or at the instance of Executive, or (iii) use such
Confidential Information except for the benefit of the Company and in the course
of Executive's employment with the Company; provided, however that the foregoing
will not apply to the extent Executive is required to disclose any Confidential
Information by applicable law or legal process so long as Executive promptly
notifies the Company of such pending disclosure and consults with the Company
prior to such disclosure concerning the advisability of seeking a protective
order or other means of preserving the confidentiality of the Confidential
Information.
(c) Subject to the terms and conditions of Section 2(b) and Section
14 hereof, any Inventions (as defined below) in whole or in part conceived, made
or reduced to practice by Executive (either solely or in conjunction with
others) during or after the Employment Period which are made through the use of
any of the Confidential Information or any of the Company's equipment,
facilities, supplies, trade secrets or time, or which relate to the Company's
business or the Company's actual of demonstrably anticipated research and
development, or which result from any work performed by Executive for the
Company will belong exclusively to the Company and will be deemed part of the
Confidential Information for purposes of this Agreement, whether or not fixed in
a tangible medium of expression. The term "Inventions," as used herein, means
any ideas, designs, concepts, techniques, inventions and discoveries, whether or
not patentable or protectable by copyright and whether or not reduced to
practice, including, but not limited to, devices, processes, drawings, works of
authorship, computer programs, software, source codes, object codes, interfaces
and networks (and all components of the foregoing), methods and formulas
together with any improvements thereon or thereto, derivative works therefrom
and know-how related thereto.
(i) Without limiting the foregoing, any such Inventions will be
deemed to be "works made for hire" and the Company will be deemed to be the
owner thereof, provided that in the event and to the extent such works are
determined not to constitute "works made for hire" as a matter of law, Executive
hereby irrevocably assigns and transfers to the Company all right, title and
interest in and to any such Inventions, including but not limited to all related
patents, copyrights and mask works and all applications therefor and filings and
notification with respect thereto.
(ii) Executive acknowledges and agrees that he will keep and
maintain adequate and current written records (in the form of notes, sketches,
drawings or such other form(s) as may be specified by the Company) of all
Inventions made by Executive during the Employment Period or thereafter
(including but not limited to information relating to all Inventions which
belong exclusively to the Company pursuant to the provisions of this Section
8(c)), which records will be available at all times to the Company and will
remain the sole property of the Company. In the event that (A) any Invention is
made, conceived of or reduced to practice by Executive, either solely or in
conjunction with others, during the Employment Period, or (B) any Invention is
made, conceived of or reduced to practice by Executive after the Employment
Period which belongs exclusively to the Company pursuant to the provisions of
this Section 8(c),
7
<PAGE>
Executive will promptly give notice and fully disclose in writing such Invention
to the Chairman of the Board and the Board of Directors of the Company.
(iii) Executive will assist the Company (at the Company's
expense), either during or subsequent to the Employment Period, to obtain and
enforce for the Company's benefit, patents, copyrights, and mask work protection
in any country for any and all Inventions made by Executive, in whole or in
part, the rights to which belong to or have been assigned to the Company
pursuant to the provisions of Section 8(c) hereof. Executive will be compensated
for such assistance at a reasonable rate not to exceed $800 per day for time
accounted for and actually employed in such assistance. Executive agrees to
execute all applications, assignments, instruments and papers and perform all
acts as the Company or its counsel may deem necessary or desirable to obtain any
patents, copyrights or mask work protection in such Inventions and otherwise to
protect the interests of the Company therein. In the event the Company is unable
to secure Executive's signature on any document necessary to apply for,
prosecute, obtain, or enforce any patent, copyright, or other right or
protection relating to any Invention, whether due to mental or physical
incapacity or any other cause, Executive hereby irrevocably designates and
appoints the Company and each of its duly authorized officers and agents as
Executive's agents and attorney-in- fact, to act for and in Executive's behalf
and stead to execute and file any such document and to do all other lawfully
permitted acts to further the prosecution, issuance, and enforcement of patents,
copyrights, or other right or protections with the same force and effect as if
executed and delivered by Executive.
(d) Subject to the terms and conditions of Section 2(b) and Section
14 hereof, all memoranda, notes, lists, records and other documents (and all
copies thereof) constituting Confidential Information (including information
relating to all Inventions which belong exclusively to the Company pursuant to
the provisions of Section 8(c) above) made or compiled by Executive or made
available to Executive during or after the Employment Period shall be the
Company's property, shall be kept confidential in accordance with the provisions
of this Section 8 and shall be delivered to the Company at any time on request
and in any event upon the termination of Executive's employment with the Company
for any reason.
9. Covenant Against Competition. Executive covenants and agrees that:
----------------------------
(a) During the Non-Compete Period (as hereinafter defined), Executive
shall not, directly or indirectly, in any Geographic Area (as hereinafter
defined): (i) engage for Executive's own account in any business competitive
with the Company Business (as hereinafter defined); (ii) render any services in
any capacity to any person or entity (other than the Company or its Affiliates)
engaged in any business competitive with the Company Business; or (iii) acquire
an interest in any person or entity engaged in any business competitive with the
Company Business (other than the Company) as a partner, shareholder, director,
officer, employee, principal, manager, member, agent, trustee, consultant or in
any other relationship or capacity; provided, however, Executive may own,
-------- -------
directly or indirectly, solely as a passive investment, securities of any such
entity which are traded on any national securities exchange if Executive (A) is
not a controlling person of,
8
<PAGE>
or a member of a group which controls, such entity, and (B) does not, directly
or indirectly, own 1% or more of any class of securities of such entity.
(b) During the Non-Compete Period, Executive shall not, without the
prior written consent of the Company, directly or indirectly, on behalf of
himself or any other person or entity solicit or encourage any employee of the
Company or any of its Affiliates to leave the employment of the Company or any
of its Affiliates, or hire any employee who has left the employment of the
Company or any of its Affiliates within one year of the termination of such
employee's employment with the Company or any of its Affiliates.
(c) During any portion of the Non-Compete Period during which
Executive is not employed by the Company, Executive shall not, in any Geographic
Area, and in connection with any business competitive with the Company's
Business (as hereinafter defined), directly or indirectly, (i) solicit or
encourage any customer or client of the Company to engage the services of
Executive or any person or entity (other than the Company) in which Executive is
a partner, shareholder, director, officer, employee, principal, member, manager,
agent, trustee, consultant or engaged in any other relationship or capacity, or
(ii) accept orders or business from, or agree to provide services to, any
customer or client of the Company, on behalf of Executive or any person or
entity (other than the Company) in which Executive is a partner, shareholder,
director, officer, employee, principal, member, manager, agent, trustee,
consultant or engaged in any other relationship or capacity.
(d) If any provision of Sections 8 or 9 is held to be unenforceable
because of the scope, duration, area of its applicability or otherwise, it is
the intention of the parties that the court making such determination shall
modify such scope, duration or area, or all of them so that the provision shall
be enforceable to the greatest extent permitted under the law, and that such
provision shall then be applicable in such modified form.
(e) As used in this Agreement:
(i) "Affiliate" shall mean any entity directly or indirectly
---------
controlling, controlled by, or under common control with the Company and any
entity in which the Company is a general partner, member, manager or holder of
greater than a 10% common equity, partnership or membership interest.
(ii) "Company Business" shall mean the business of the Company
----------------
as so defined at the time of the signing of this Agreement, or at the time of a
violation of this Section 9 is alleged to occur or, if such alleged occurrence
is after Executive's employment is terminated, the business of the Company at
the time such employment terminates.
(iii) "Geographic Area" shall mean the world.
---------------
(iv) "Non-Compete Period" shall mean the period during which
------------------
Executive is employed by the Company and for an additional period of two years
following
9
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the termination of Executive's employment with the Company. Such two year period
following Executive's termination of employment shall be reduced to a one year
period in the event the Executive's termination of employment by the Company
occurs for no specific reason or in the event Executive terminates his
employment with the Company for Good Reason, as defined in Section 6(d)(vi)
hereof.
(v) "Control" with respect to any person, shall mean
-------
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of such person, whether through the ownership of
voting securities or a partnership interest, by contract or otherwise, and for
example, including election of a majority of a board of directors of persons who
simultaneously serve on another affiliated board of directors.
10. Enforcement by Injunction. Executive acknowledges and agrees that the
-------------------------
Company will be irreparably damaged if Executive fails to comply with the
provisions of Sections 8 or 9 hereof, subject to the applicable terms and
conditions of this Agreement, including Section 2(b) and Section 14 hereof.
Accordingly, in the event of such a failure to comply with the terms and
conditions of Sections 8 or 9 hereof, the Company shall be entitled to (i) an
injunction or any other appropriate decree of specific performance (without the
necessity of posting any bond or other security in connection therewith) in case
of any breach or threatened breach of Executive's covenants under Sections 8 or
9, (ii) damages in an amount equal to all compensation, profits, monies,
accruals, increments or other benefits derived or received by Executive (or any
associated party deriving such benefits including but not limited to any future
employer of Executive) as a result of any such breach of Executive's covenants
under Sections 8 or 9, and (iii) indemnification against any other losses,
damages, costs and expenses, including actual attorneys' fees and court costs,
incurred by the Company in obtaining any damages and/or injunctive relief Such
remedies shall not be exclusive and shall be in addition to any other remedy, at
law or in equity, which the Company may have for any breach or threatened breach
of Sections 8 or 9 by Executive.
11. Notices. Any and all notices or other communications required or
-------
permitted to be given under any of the provisions of this Agreement shall be in
writing and shall be deemed to have been duly given when personally delivered or
mailed by first class registered mail, return receipt requested, or by
commercial courier or delivery service, or by facsimile, addressed to the
parties at the addresses set forth below their signatures hereto (or at such
other address as any party may specify by notice to all other parties given as
aforesaid).
12. Indemnification. The Company shall indemnify Executive and hold
---------------
Executive harmless from and against any and all losses, claims, damages or
liabilities (including reasonable attorneys' fees), and all actions, claims or
proceedings in respect thereof, brought against Executive by any third party by
reason of the fact that Executive is or was a director, officer or employee of
the Company or any other business or entity for which Executive so serves at the
written request of the Company, if Executive acted, in good faith, for a purpose
which Executive reasonably believed to be in, or (in the case of service for
such other business or entity) not opposed to, the best interests of the Company
10
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and, in criminal proceedings, in addition, had no reasonable cause to believe
that Executive's conduct was unlawful; provided that the Company shall not be
liable under this Section 12 to the extent that any loss, claim, damage,
liability or expense: is found by a court of competent jurisdiction to arise (i)
from the gross negligence or willful misconduct of Executive or (ii) out of or
relate to Executive's acts or omissions, negligent or otherwise, relating to any
of the outside business and investment activities of Executive described in
Section 2(b) above. In connection with the indemnity granted by the Company,
Executive agrees (i) to notify the Company promptly of the assertion against
Executive of any claims or the commencement of any action or proceeding for
which Executive may seek indemnity under this Agreement (provided that the
failure to so notify the Company shall not affect the Company's obligations
hereunder, except to the extent the Company is materially prejudiced by such
failure); and (ii) reasonably to cooperate with the Company and counsel selected
by the Company to represent Executive (which counsel shall be reasonably
acceptable to Executive). Expenses (including reasonable attorneys' fees and
disbursements) Executive incurs in defending any action, suit or proceeding
shall be paid by the Company from time to time promptly upon Executive's written
request in advance of the final disposition of the action, suit or proceeding
upon presentation of vouchers or other evidence of the incurrence of the expense
and upon receipt of an undertaking in writing by Executive to repay such amount
if it shall ultimately be determined that Executive is not entitled to be
indemnified thereunder.
13. Arbitration. Any dispute or controversy arising under this Agreement
-----------
or concerning Executive's employment with the Company (including, without
limitation, any controversy as to the arbitrability of any dispute) including
but not limited to any claims arising out of Title VII of the Civil Rights Act
of 1964, the Age Discrimination in Employment Act, the Americans with
Disabilities Act, and/or Massachusetts General Laws Chapter 151B, shall be
settled exclusively by arbitration to be held in Boston, Massachusetts, before a
single arbitrator in accordance with the rules of the American Arbitration
Association then in effect relating to the arbitration of employment disputes,
provided, however, that any claims arising out of Sections 8, 9 and/or 10 of
this Agreement shall be resolved through the courts. Judgment may be entered on
the arbitrator's award in any court having jurisdiction, and the parties consent
to the jurisdiction of the Massachusetts courts for that purpose.
14. Exclusions from Sections 8 and 9: Effect on Sections 2(a) and 2(b).
------------------------------------------------------------------
(a) Notwithstanding anything contained in Section 8 or Section 9
hereof to the contrary, the activities of Mirage Technologies Limited
Partnership and of its general partner, Mirage Technologies, Inc., and of the
Executive in connection therewith, shall not be deemed to be competitive with
the Company Business to the extent such activities are (1) based on prior
activities or intellectual properties owned by such two entities as of the date
this Agreement is signed, and including therein, but without limitation by
reference thereto, the Intellectual Property known generally as Mirada and
concerning which a patent was recently issued by the U.S. Patent and Trademark
Office, or (2) not included within the Lifef/x internet technology related
business plan of this Company, as such business plan is adopted in writing by
the Board of Directors of this Company either before or within ninety (90) days
after the date this Agreement is actually signed, and as it may be
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amended annually thereafter. In the event the Board of Directors of this Company
fails for any reason or for no reason to adopt such a business plan, such
Lifef/x business plan shall be deemed to be that plan set forth and described in
the Company's Private Placement Memorandum dated October 29, 1999, as previously
amended. In the event the Board of Directors fails to amend the business plan
for any reason or for no reason at the end of the first calendar year, the
business plan shall be that plan previously adopted pursuant to this Agreement's
terms and conditions.
(b) Subject to the terms and conditions of Sections 2(a) and 2(b)
hereof, and Section 14(a) hereof, and other applicable provisions hereof, the
Executive's personal activities and personal services in connection with MTP and
its general partner, MTI, and any other activities or personal services
performed in connection with any company or entity owned in whole or in part by,
controlled by, incubated by, started, spin off, spun out or otherwise related to
MTI and/or MTP, shall not be deemed to be competitive with the Company's
Business in and of themselves, and such limited permitted activities shall not
by themselves alone be deemed by the Company to be a failure by the Executive to
comply with or to constitute the breach by the Executive of this Agreement or in
particular the provisions of Section 2 hereof so long as such activities by
Executive do not interfere with Executive's availability to the Company
hereunder, and his performance of his full-time duties hereunder.
15. Miscellaneous.
-------------
(a) This writing constitutes the entire agreement of the parties with
respect to the subject matter hereof and may not be modified, amended or
terminated except by a written agreement signed by all of the parties hereto.
(b) This Agreement shall not be assignable by Executive, but it shall
be binding upon, and shall inure to the benefit of, Executive's heirs,
executors, administrators and legal representatives. This Agreement may be
assigned by the Company to any Affiliate of the Company or any successor to all
or substantially all of the Company's Lifef/x technology and shall be binding
upon and inure to the benefit of the Company and its successors and assigns.
(c) No waiver of any breach or default hereunder shall be considered
valid unless in writing, and no such waiver shall be deemed a waiver of any
subsequent breach or default of the same or similar nature.
(d) If any provision of this Agreement shall be held invalid or
unenforceable, such invalidity or unenforceability shall attach only to such
provision and shall not in any manner affect or render invalid or unenforceable
any other severable provision of this Agreement, and this Agreement shall be
carried out as if any such invalid or unenforceable provision were not contained
herein, unless the invalidity or unenforceability of such provision
substantially impairs the benefits of the remaining portions of this Agreement.
(e) The section headings contained herein are for the purposes of
convenience only and are not intended to define or limit the contents of said
sections.
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(f) This Agreement may be executed in two or more counterparts, all
of which taken together shall be deemed one original.
(g) This Agreement shall be deemed to be a contract under the laws of
the Commonwealth of Massachusetts and for all purposes shall be construed and
enforced in accordance with the internal laws of said Commonwealth.
(h) This Agreement shall not confer any rights or remedies upon any
person or entity other than the parties hereto and their respective successors
and permitted assigns.
(i) The Executive acknowledges that he has consulted with counsel and
is fully aware of his rights and obligations under this Agreement.
(j) The Executive represents and warrants that his employment by the
Company as described herein shall not conflict with and will not be constrained
by any prior employment or consulting agreement or other business or investment
relationship, and that he has previously satisfied all requirements of
applicable law to be employed by the Company.
(k) During his Employment Period, the Company agrees to use its
reasonable best efforts to obtain and to pay for Directors and Officers
Liability insurance from a solvent insurer in amounts and on terms which the
Company in its sole discretion may establish from time to time, and to provide
evidence of such insurance to the Executive once in each calendar year if
requested in writing by the Executive to do so.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
Lifef/x Networks, Inc.
/s/ Michael Rosenblatt By: /s/ Lucille Salhany
- ----------------------------- ------------------------------
Michael Rosenblatt Name: Lucille S. Salhany
----------------------------
Address: Title: CEO
331 Dudley Road ---------------------------
Name and Address:
Lucille S. Salhany, CEO and Co-President
Lifef/x, Inc.
c/o Cambridge Technology Partners
8 Cambridge Center
Cambridge, MA 02142
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EXHIBIT 10.3
(Massachusetts Employees)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), is made and entered into to
be effective as of December 1, 1999, by and between Lifef/x Networks, Inc. (the
"Company"), a Delaware corporation doing business in Massachusetts, and Lucille
S. Salhany ("Executive"), an individual residing in Dover, Massachusetts.
The parties hereby agree as follows:
1. Employment; Term.
----------------
(a) The Company hereby employs Executive, and Executive hereby
accepts employment with the Company, upon the terms and conditions contained in
this Agreement. The term of Executive's employment hereunder (the "Employment
Period") shall commence on December 1, 1999 (the "Effective Date") and shall
continue for a period of two (2) years from and after the Effective Date, unless
sooner terminated as hereinafter provided.
(b) The Employment Period may be extended for two (2) successive one
year periods by mutual written agreement of the parties hereto. If either party
intends not to renew this Agreement upon the expiration of the Employment Period
then in effect, such party shall give the other party notice of such intention
not less than thirty (30) days prior to the expiration of such Employment
Period. Failure to provide notice of such intention shall not constitute either
a renewal of this Agreement or an extension of the Employment Period.
2. Duties.
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(a) During the Employment Period, Executive shall serve as the Chief
Executive Officer and Co-President of the Company. Executive shall report
directly to the Board of Directors of the Company. Executive shall faithfully
perform for the Company the duties of Executive's office which shall include
such duties of an executive, technical, managerial or administrative nature as
may be specified and designated from time to time by the Board of Directors of
the Company. Subject to Section 2(b) below, Executive shall devote substantially
all of Executive's business time and effort to the performance of Executive's
duties for the Company hereunder.
(b) Notwithstanding anything to the contrary contained in Section
2(a) above, and subject to the provisions of Sections 9 and 14(a) and 14(b) and
other applicable provisions hereof, Executive shall be permitted to engage as an
officer, director, stockholder, employee and as a consultant in the management
of J H Media, Inc., and in connection with Executive's other personal
investments and business affairs, as further described in Section 14(b) hereof,
provided that such activities do not, individually or in the aggregate,
materially interfere or conflict with Executive's duties and responsibilities to
the Company, as reasonably determined by the Chairman of the Board or the Board
of Directors of the Company.
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3. Compensation. Commencing on December 1, 1999, the Company shall pay
------------
to Executive a salary at an annual rate of $400,000. The salary payable pursuant
to this Section 3 (the "Base Salary") shall be payable in accordance with the
Company's payroll practices, as in effect from time to time. In addition to
Executive's Base Salary, Executive shall be entitled to annual consideration for
a bonus based on Executive's and the Company's performance, such bonus, if any,
to be as determined by the Compensation Committee as a subcommittee of the Board
of Directors, in its sole discretion.
4. Stock Option Grant. Following the execution of this Agreement and
------------------
subject to the approval of the Board of Directors of the Company's parent
company, Lifef/x, Inc. ("Parent"), the Company will cause Parent to grant
Executive an option (the "Option") to purchase 1,952,459 shares of Parent's
Common Stock, subject to the terms and conditions of Parent's stock option plan
and agreements currently under development by Parent. Twenty percent (20%) of
the Option will vest on the Effective Date and the balance will vest in equal
quarterly installments over a period of two (2) years until fully vested. The
Option exercise price shall be $1.50 per share. The unvested balance of stock
options shall vest immediately in the event of the Executive's death or in the
event of her Permanent Disability, as defined herein, or in the event her
employment hereunder is terminated with the effect of the Company being
obligated to pay the Severance Compensation described in Section 7(c) hereof.
5. Expenses; Benefits.
------------------
(a) During the Employment Period, the Company agrees to reimburse
Executive, in accordance with the Company's policies as in effect and as
modified from time to time, for all reasonable and ordinary and necessary
business expenses paid or incurred by Executive in connection with the
performance of Executive's duties for the Company hereunder.
(b) During the Employment Period, Executive shall be entitled to
accrue vacation at a rate of 1.25 days per month for up to three weeks (i.e.,
fifteen days) of vacation annually, which vacation shall accrue at a rate of
1.25 days per month; provided that the maximum vacation accrual that Executive
may have at any time shall be fifteen (15) days. Once the Executive has accrued
the full fifteen (15) days vacation, all vacation accruals shall cease and shall
not resume unless and until Executive uses enough vacation time to fall below
the maximum accrual, at which point Executive shall start accruing vacation
again from that date forward until the maximum is reached again.
(c) During the Employment Period, Executive shall be entitled to
participate in and enjoy the benefits of any health, life, or disability
insurance, and of any retirement, pension, or profit-sharing plans, or other
similar plan or plans which may be instituted by the Company for the benefit of
its senior executive staff employees generally, upon such terms as may be
therein provided from time to time, and as modified or terminated from time to
time. During the initial six month period of this Agreement, the Executive shall
be reimbursed for her reasonable expenses incurred for such fringe benefit
purposes until such time as the Company has established its own plans and
policies for such purpose. As each such plan or policy is established by the
Company in its sole discretion, this reimbursement obligation shall terminate
and be of no further legal force or
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effect. The failure of the Executive to satisfy any eligibility requirements of
such plans or policies, waiting periods, or other requirements shall not
increase the maximum reimbursement obligation of the Company hereunder.
(d) During the Employment Period, the Company agrees to reimburse the
Executive, in accordance with the Company's policies as in effect from time to
time, the amount of $500 per month for automobile costs and expenses incurred by
Executive in the course of the performance of her duties hereunder.
6. Termination. Executive's employment hereunder may be terminated prior
-----------
to the expiration of the Employment Period only as follows:
(a) Automatically in the event of the death of Executive;
(b) At the option of the Company, by written notice to Executive or
Executive's personal representative in the event of the Permanent Disability (as
defined below) of Executive. As used herein, and subject to applicable law, the
term "Permanent Disability" shall mean a physical or mental incapacity or
disability which renders Executive unable to perform the essential functions of
her position, as determined by the Company, for a period of not less than one
hundred twenty (120) days in any calendar year. In the event that the Executive
resumes the performance of substantially all of her duties hereunder before the
termination of her employment under this subparagraph becomes effective, the
notice of termination shall automatically be deemed to have been revoked. No
compensation or benefits will be paid or provided to the Executive under this
Agreement on account of termination for Permanent Disability for periods
following the date when such a termination of employment is effective. The
Executive's rights under the benefit plans of the Company shall be determined
under the provisions of those plans. At the request of the Company, Executive
will submit to a medical examination by a physician acceptable to both parties
for the purpose of permitting the Company to determine whether Executive is
unable to perform the essential functions of her position;
(c) At the option of the Company, by written notice to Executive upon
the occurrence of any one or more of the following events:
(i) any action by Executive constituting breach of fiduciary
duty, fraud, embezzlement or theft in the course of Executive's employment
hereunder;
(ii) any conviction of or guilty plea or plea of nolo contendere
by Executive involving a felony or misdemeanor involving moral turpitude, and
which offense results in material harm to the Company, as determined by the
Board of Directors of the Company in its sole and reasonable discretion;
(iii) gross neglect or willful refusal by Executive to perform
Executive's duties hereunder for a period of ten (10) days following notice
thereof by the Company;
(iv) material failure or refusal by Executive to comply with any
valid and legal directive of the Board of Directors of the Company; or
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(v) a breach by Executive of any obligation under this
Agreement if the Company determines in its sole discretion that such breach is
not curable or, if curable, is not cured within thirty (30) days after written
notice thereof by the Company to Executive.
(d) At the option of Executive, by written notice to the Company at
any time:
(i) within one hundred twenty (120) days after the occurrence
of a material breach of any material obligation under this Agreement by the
Company if such breach is not curable or, if curable, is not cured within forty-
five (45) days after written notice thereof by Executive to the Company; or
(ii) within fifteen (15) days if the Company shall have failed
to pay Executive the Base Salary on its due date in accordance with Section 3
and such failure shall not have been cured within fifteen (15) days of such
failure; or
(iii) subject to the terms and conditions of Section 4 hereof, as
the result of the Company's material failure to issue its grant of the stock
options agreed to herein; or
(iv) in the event the Executive is requested by the Company to
change the location of her regular place of employment by the Company to a
location more than forty miles distant from the City of Cambridge,
Massachusetts; or
(v) in the event the Company initiates legal proceedings
pursuant to this Agreement seeking enforcement against the Executive of the
terms and conditions of Sections 8 or 9 hereof; or
(vi) in the event Good Reason exists, such Good Reason to
include only the following two listed circumstances, and in such event the
Executive's employment with the Company may be regarded as having been
constructively terminated by the Company, and the Executive may therefore
terminate her employment for Good Reason and as a result thereof, and subject to
the terms and conditions of this Agreement, thereupon become entitled to only
the benefit of Subsection 9(e)(iv), if, before the end of her Employment Period,
one or more of the following events shall occur (unless such event(s) applies
generally to all senior management of the Company or unless the Executive shall
have become Permanently Disabled):
(1) without the Executive's written consent, the
assignment to the Executive of any duties or the reduction of the Executive's
duties, either of which results in a significant diminution in the Executive's
position or responsibilities with the Company in effect immediately prior to
such assignment, and which is reasonably expected to continue for a period of at
least one month, or the removal of the Executive from her position and her
active and ongoing responsibilities and duties pursuant to this Agreement; or
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(2) a material reduction by the Company in the kind or
level of employee benefits to which the Executive is entitled immediately prior
to such reduction with the result that the Executive's overall employee benefits
package is significantly reduced.
(e) The Company may terminate this Agreement at any time and for any
reason or for no reason, subject to the Company's obligations under Section
7(c).
7. Effect of Termination.
---------------------
(a) In the event of the Company's termination of Executive's
employment hereunder prior to the expiration of the Employment Period for any
reason, the Company shall have no liability or obligation to Executive other
than as specifically set forth in this Section 7.
(b) Upon the termination by the Company of Executive's employment
hereunder pursuant to the provisions of Section 6(a), 6(b), or 6(c) hereof, or
the termination by Executive of Executive's employment hereunder for any reason
other than as set forth in Section 6(d), Executive (or Executive's heirs or
legal representatives) shall be entitled to receive only such portion (if any)
of the Base Salary as may theretofore have accrued but be unpaid on the date of
such termination, plus any accrued and unpaid vacation pay which may be owing
through the date of termination, plus in the event of the Executive's Permanent
Disability hereunder, the Base Salary amount payable pursuant to Section 3
hereof for the period of time until the Company's disability insurance on the
Executive becomes payable, such maximum period of time in any event not to
exceed a maximum period of twelve months from the date of such disability.
(c) Upon the termination of Executive's employment hereunder either:
(i) by the Company for any reason other than pursuant to Sections 6(a), 6(b) or
6(c), including, without limitation, pursuant to Section 6(e), or (ii) by
Executive pursuant to Section 6(d), then Executive shall be entitled to receive
such portion of the Base Salary as may theretofore have accrued but be unpaid on
the date of such termination and any accrued and unpaid vacation pay which may
be owing through the date of termination, and the Company shall continue to pay
to Executive, as severance compensation (the "Severance Compensation"),
Executive's full Base Salary as provided in Section 3 above for the unexpired
period of the term of the Employment Period set forth in Section 1(a) hereof.
At the option of the Company, the Severance Compensation shall be payable (i) at
the same time as such compensation would have been paid to Executive had
Executive not been so terminated, or (ii) in one lump sum within thirty (30)
days of the termination of Executive's employment.
(d) Upon the termination of Executive's employment hereunder for any
reason, Executive shall immediately surrender to the Company all Company
property in the possession, custody or control of Executive, including but not
limited to any computer hardware, software, computer disks and/or data storage
devices, as well as all notes, data, sketches, drawings, manuals, documents,
records, data bases, programs, blueprints, memoranda, specifications, customer
lists, financial reports, equipment and all other physical forms of expression
incorporating or containing any Confidential Information (as
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defined in Section 8 hereof), it being distinctly understood that all such
writings, physical forms of expression and other things are exclusive property
of the Company.
8. Confidential Information and Inventions.
(a) Executive recognizes and acknowledges that during the course of
Executive's employment with the Company, Executive shall have access to
Confidential Information. Subject to the terms and conditions of Section 2(b)
and Section 14 hereof, "Confidential Information" means all information or
material not publicly known about the Company, including, without limitation,
any such information which relates to any of its products, services or any phase
of its operations, business or financial affairs. Confidential Information
includes, but is not limited to, the following types of information and other
information of a similar nature (whether or not reduced to writing): trade
secrets, inventions, drawings, file data, documentation, diagrams,
specifications, know-how, processes, formulas, models, flow charts, software in
various stages of development, source codes, object codes, research and
development procedures, test results, marketing techniques and materials,
marketing and development plans, price lists, pricing policies, business plans,
information relating to customers and/or suppliers' identities, characteristics
and agreements, financial information and projections and employee files.
Confidential Information also includes any information described above which the
Company obtains from another party and which the Company treats and/or has an
obligation to treat as confidential or designates as Confidential Information,
whether or not owned or developed by the Company. Confidential Information shall
not include any information which is or becomes (i) generally available to the
public other than as a result of disclosure in violation of any agreement with
the Company or (ii) generally known in the industry in which the Company is or
may become involved other than as a result of disclosure in violation of any
agreement with the Company. (The term "Company," as used in this Section 8,
means not only Lifef/x Networks, Inc., but also any company, partnership or
entity which, directly or indirectly, controls, is controlled by or is under
common control with Lifef/x Networks, Inc.)
(b) Subject to the terms and conditions of Section 2(b) and Section
14 hereof, both during the Employment Period and at all times thereafter, all
Confidential Information which Executive may now possess, may obtain during or
after the Employment Period, or may create prior to the end of the Employment
Period will be held confidential by Executive, and Executive will not (nor will
Executive assist any other person to do so), directly or indirectly, (i) reveal,
report, publish or disclose such Confidential Information to any person, firm,
corporation, association or other entity for any reason or purpose whatsoever
(other than in the course of carrying out Executive's duties hereunder or as
expressly authorized by the Company), (ii) render any services to any person,
firm, corporation, association or other entity to whom any such Confidential
Information, in whole or in part, has been disclosed or is threatened to be
disclosed by or at the instance of Executive, or (iii) use such Confidential
Information except for the benefit of the Company and in the course of
Executive's employment with the Company; provided, however that the foregoing
will not apply to the extent Executive is required to disclose any Confidential
Information by applicable law or legal process so long as Executive promptly
notifies the Company of such pending disclosure and consults with the
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<PAGE>
Company prior to such disclosure concerning the advisability of seeking a
protective order or other means of preserving the confidentiality of the
Confidential Information.
(c) Subject to the terms and conditions of Section 2(b) and Section
14 hereof, any inventions (as defined below) in whole or in part conceived, made
or reduced to practice by Executive (either solely or in conjunction with
others) during or after the Employment Period which are made through the use of
any of the Confidential Information or any of the Company's equipment,
facilities, supplies, trade secrets or time, or which relate to the Company's
business or the Company's actual or demonstrably anticipated research and
development, or which result from any work performed by Executive for the
Company will belong exclusively to the Company and will be deemed part of the
Confidential Information for purposes of this Agreement, whether or not fixed in
a tangible medium of expression. The term "Inventions," as used herein, means
any ideas, designs, concepts, techniques, inventions and discoveries, whether or
not patentable or protectable by copyright and whether or not reduced to
practice, including, but not limited to, devices, processes, drawings, works of
authorship, computer programs, software, source codes, object codes, interfaces
and networks (and all components of the foregoing), methods and formulas
together with any improvements thereon or thereto, derivative works therefrom
and know-how related thereto.
(i) Without limiting the foregoing, any such Inventions will.
be deemed to be "works made for hire" and the Company will be deemed to be the
owner thereof, provided that in the event and to the extent such works are
determined not to constitute "works made for hire" as a matter of law, Executive
hereby irrevocably assigns and transfers to the Company all right, title and
interest in and to any such Inventions, including but not limited to all related
patents, copyrights and mask works and all applications therefor and filings and
notification with respect thereto.
(ii) Executive acknowledges and agrees that she will keep and
maintain adequate and current written records (in the form of notes, sketches,
drawings or such other form(s) as may be specified by the Company) of all
Inventions made by Executive during the Employment Period or thereafter
(including but not limited to information relating to all Inventions which
belong exclusively to the Company pursuant to the provisions of this Section
8(c)), which records will be available at all times to the Company and will
remain the sole property of the Company. In the event that (A) any Invention is
made, conceived of or reduced to practice by Executive, either solely or in
conjunction with others, during the Employment Period, or (B) any Invention is
made, conceived of or reduced to practice by Executive after the Employment
Period which belongs exclusively to the Company pursuant to the provisions of
this Section 8(c), Executive will promptly give notice and fully disclose in
writing such Invention to the Chairman of the Board and the Board of Directors
of the Company.
(iii) Executive will assist the Company (at the Company's
expense), either during or subsequent to the Employment Period, to obtain and
enforce for the Company's benefit, patents, copyrights, and mask work protection
in any country for any and all Inventions made by Executive, in whole or in
part, the rights to which belong to or have been assigned to the Company
pursuant to the provisions of Section 8(c) hereof.
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Executive will be compensated for such assistance at a reasonable rate not to
exceed $800 per day for time accounted for and actually employed in such
assistance. Executive agrees to execute all applications, assignments,
instruments and papers and perform all acts as the Company or its counsel may
deem necessary or desirable to obtain any patents, copyrights or mask work
protection in such Inventions and otherwise to protect the interests of the
Company therein. In the event the Company is unable to secure Executive's
signature on any document necessary to apply for, prosecute, obtain, or enforce
any patent, copyright, or other right or protection relating to any Invention,
whether due to mental or physical incapacity or any other cause, Executive
hereby irrevocably designates and appoints the Company and each of its duly
authorized officers and agents as Executive's agents and attorney-in- fact, to
act for and in Executive's behalf and stead to execute and file any such
document and to do all other lawfully permitted acts to further the prosecution,
issuance, and enforcement of patents, copyrights, or other right or protections
with the same force and effect as if executed and delivered by Executive.
(d) Subject to the terms and conditions of Section 2(b) and Section
14 hereof, all memoranda, notes, lists, records and other documents (and all
copies thereof) constituting Confidential Information (including information
relating to all Inventions which belong exclusively to the Company pursuant to
the provisions of Section 8(c) above) made or compiled by Executive or made
available to Executive during or after the Employment Period shall be the
Company's property, shall be kept confidential in accordance with the provisions
of this, Section 8 and shall be delivered to the Company at any time on request
and in any event upon the termination of Executive's employment with the Company
for any reason.
9. Covenant Against Competition. Executive covenants and agrees that:
----------------------------
(a) During the Non-Compete Period (as hereinafter defined), Executive
shall not, directly or indirectly, in any Geographic Area (as hereinafter
defined): (i) engage for Executive's own account in any business competitive
with the Company Business (as hereinafter defined); (ii) render any services in
any capacity to any person or entity (other than the Company or its Affiliates)
engaged in any business competitive with the Company Business; or (iii) acquire
an interest in any person or entity engaged in any business competitive with the
Company Business (other than the Company) as a partner, shareholder, director,
officer, employee, principal, manager, member, agent, trustee, consultant or in
any other relationship or capacity; provided, however, Executive may own,
-------- -------
directly or indirectly, solely as a passive investment, securities of any such
entity which are traded on any national securities exchange if Executive (A) is
not a controlling person of, or a member of a group which controls, such entity,
and (B) does not, directly or indirectly, own 1% or more of any class of
securities of such entity.
(b) During the Non-Compete Period, Executive shall not, without the
prior written consent of the Company, directly or indirectly, on behalf of
himself or any other person or entity solicit or encourage any employee of the
Company or any of its Affiliates to leave the employment of the Company or any
of its Affiliates, or hire any employee who has left the employment of the
Company or any of its Affiliates within one
8
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year of the termination of such employee's employment with the Company or any of
its Affiliates.
(c) During any portion of the Non-Compete Period during which
Executive is not employed by the Company, Executive shall not, in any Geographic
Area, and in connection with any business competitive with the Company's
Business (as hereinafter defined), directly or indirectly, (i) solicit or
encourage any customer or client of the Company to engage the services of
Executive or any person or entity (other than the Company) in which Executive is
a partner, shareholder, director, officer, employee, principal, member, manager,
agent, trustee, consultant or engaged in any other relationship or capacity, or
(ii) accept orders or business from, or agree to provide services to, any
customer or client of the Company, on behalf of Executive or any person or
entity (other than the Company) in which Executive is a partner, shareholder,
director, officer, employee, principal, member, manager, agent, trustee,
consultant or engaged in any other relationship or capacity.
(d) If any provision of Sections 8 or 9 is held to be unenforceable
because of the scope, duration, area of its applicability or otherwise, it is
the intention of the parties that the court making such determination shall
modify such scope, duration or area, or all of them so that the provision shall
be enforceable to the greatest extent permitted under the law, and that such
provision shall then be applicable in such modified form.
(e) As used in this Agreement:
(i) "Affiliate" shall mean any entity directly or indirectly
---------
controlling, controlled by, or under common control with the Company and any
entity in which the Company is a general partner, member, manager or holder of
greater than a 10% common equity, partnership or membership interest.
(ii) "Company Business" shall mean the business of the Company
----------------
as so defined at the time of the signing of this Agreement, or at the time of a
violation of this Section 9 is alleged to occur or, if such alleged occurrence
is after Executive's employment is terminated, the business of the Company at
the time such employment terminates.
(iii) "Geographic Area" shall mean the world.
---------------
(iv) "Non-Compete Period" shall mean the period during which
------------------
Executive is employed by the Company and for an additional period of two years
following the termination of Executive's employment with the Company. Such two
year period following Executive's termination of employment shall be reduced to
a one year period in the event the Executive's termination of employment by the
Company occurs for no specific reason or in the event Executive terminates her
employment with the Company for Good Reason, as defined in Section 6(d)(vi)
hereof.
(v) "Control" with respect to any person, shall mean
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possession, direct or indirect, of the power to direct or cause the direction of
the management and
9
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policies of such person, whether through the ownership of voting securities or a
partnership interest, by contract or otherwise, and for example, including
election of a majority of a board of directors of persons who simultaneously
serve on another affiliated board of directors.
10. Enforcement by Injunction. Executive acknowledges and agrees that the
-------------------------
Company will be irreparably damaged if Executive fails to comply with the
provisions of Sections 8 or 9 hereof, subject to the applicable terms and
conditions of this Agreement, including Section 2(b) and Section 14 hereof.
Accordingly, in the event of such a failure to comply with the terms and
conditions of Sections 8 or 9 hereof, the Company shall be entitled to (i) an
injunction or any other appropriate decree of specific performance (without the
necessity of posting any bond or other security in connection therewith) in case
of any breach or threatened breach of Executive's covenants under Sections 8 or
9, (ii) damages in an amount equal to all compensation, profits, monies,
accruals, increments or other benefits derived or received by Executive (or any
associated party deriving such benefits including but not limited to any future
employer of Executive) as a result of any such breach of Executive's covenants
under Sections 8 or 9, and (iii) indemnification against any other losses,
damages, costs and expenses, including actual attorneys' fees and court costs,
incurred by the Company in obtaining any damages and/or injunctive relief Such
remedies shall not be exclusive and shall be in addition to any other remedy, at
law or in equity, which the Company may have for any breach or threatened breach
of Sections 8 or 9 by Executive.
11. Notices. Any and all notices or other communications required or
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permitted to be given under any of the provisions of this Agreement shall be in
writing and shall be deemed to have been duly given when personally delivered or
mailed by first class registered mail, return receipt requested, or by
commercial courier or delivery service, or by facsimile, addressed to the
parties at the addresses set forth below their signatures hereto (or at such
other address as any party may specify by notice to all other parties given as
aforesaid).
12. Indemnification. The Company shall indemnify Executive and hold
---------------
Executive harmless from and against any and all losses, claims, damages or
liabilities (including reasonable attorneys' fees), and all actions, claims or
proceedings in respect thereof, brought against Executive by any third party by
reason of the fact that Executive is or was a director, officer or employee of
the Company or any other business or entity for which Executive so serves at the
written request of the Company, if Executive acted, in good faith, for a purpose
which Executive reasonably believed to be in, or (in the case of service for
such other business or entity) not opposed to, the best interests of the Company
and, in criminal proceedings, in addition, had no reasonable cause to believe
that Executive's conduct was unlawful; provided that the Company shall not be
liable under this Section 12 to the extent that any loss, claim, damage,
liability or expense: is found by a court of competent jurisdiction to arise (i)
from the gross negligence or willful misconduct of Executive or (ii) out of or
relate to Executive's acts or omissions, negligent or otherwise, relating to any
of the outside business and investment activities of Executive described in
Section 2(b) above. In connection with the indemnity granted by the Company,
Executive agrees (i) to notify the Company promptly of the assertion against
Executive of any claims
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or the commencement of any action or proceeding for which Executive may seek
indemnity under this Agreement (provided that the failure to so notify the
Company shall not affect the Company's obligations hereunder, except to the
extent the Company is materially prejudiced by such failure); and (ii)
reasonably to cooperate with the Company and counsel selected by the Company to
represent Executive (which counsel shall be reasonably acceptable to Executive).
Expenses (including reasonable attorneys' fees and disbursements) Executive
incurs in defending any action, suit or proceeding shall be paid by the Company
from time to time promptly upon Executive's written request in advance of the
final disposition of the action, suit or proceeding upon presentation of
vouchers or other evidence of the incurrence of the expense and upon receipt of
an undertaking in writing by Executive to repay such amount if it shall
ultimately be determined that Executive is not entitled to be indemnified
thereunder.
13. Arbitration. Any dispute or controversy arising under this Agreement
-----------
or concerning Executive's employment with the Company (including, without
limitation, any controversy as to the arbitrability of any dispute) including
but not limited to any claims arising out of Title VII of the Civil Rights Act
of 1964, the Age Discrimination in Employment Act, the Americans with
Disabilities Act, and/or Massachusetts General Laws Chapter 151B, shall be
settled exclusively by arbitration to be held in Boston, Massachusetts, before a
single arbitrator in accordance with the rules of the American Arbitration
Association then in effect relating to the arbitration of employment disputes,
provided, however, that any claims arising out of Sections 8, 9 and/or 10 of
this Agreement shall be resolved through the courts. Judgment may be entered on
the arbitrator's award in any court having jurisdiction, and the parties consent
to the jurisdiction of the Massachusetts courts for that purpose.
14. Exclusions from Sections 8 and 9: Effect on Sections 2(a) and 2(b).
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(a) Notwithstanding anything contained in Section 8 or Section 9
hereof to the contrary, the activities of Executive in connection with her (1)
investment activities as of the date this Agreement is signed or (2) activities
as are not included within the scope of the Lifef/x internet technology related
business plan of this Company, as such business plan is adopted in writing by
the Board of Directors of this Company either before or within ninety (90) days
after the date this Agreement is signed, and as it may be amended annually
thereafter, shall to such extent not be deemed to be competitive with the
Company's Business. In the event the Board of Directors of this Company fails
for any reason or for no reason to adopt such a business plan, such Lifef/x
business plan shall be deemed to be that plan set forth and described in the
Company's Private Placement Memorandum dated October 29, 1999, as previously
amended. In the event the Board of Directors fails to amend the business plan
for any reason or for no reason at the end of the first calendar year, the
business plan shall be that plan previously adopted pursuant to this Agreement's
terms and conditions.
(b) Subject to the terms and conditions of Sections 2(a) and 2(b)
hereof, and Section 14(a) hereof, and other applicable provisions hereof, the
Executive's personal activities and personal services in connection with J H
Media, Inc., and her personal unrelated investment and business affairs shall
not be deemed to be competitive with the
11
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Company's Business in and of themselves, and such limited permitted activities
shall not by themselves alone be deemed by the Company to be a failure by the
Executive to comply with or to constitute the breach by the Executive of this
Agreement or in particular the provisions of Section 2 hereof so long as such
activities by Executive do not interfere with Executive's availability to the
Company hereunder, and her performance of her full-time duties hereunder.
15. Miscellaneous.
-------------
(a) This writing constitutes the entire agreement of the parties with
respect to the subject matter hereof and may not be modified, amended or
terminated except by a written agreement signed by all of the parties hereto.
(b) This Agreement shall not be assignable by Executive, but it shall
be binding upon, and shall inure to the benefit of, Executive's heirs,
executors, administrators and legal representatives. This Agreement may be
assigned by the Company to any Affiliate of the Company or any successor to all
or substantially all of the Company's Lifef/x technology and shall be binding
upon and inure to the benefit of the Company and its successors and assigns.
(c) No waiver of any breach or default hereunder shall be considered
valid unless in writing, and no such waiver shall be deemed a waiver of any
subsequent breach or default of the same or similar nature.
(d) If any provision of this Agreement shall be held invalid or
unenforceable, such invalidity or unenforceability shall attach only to such
provision and shall not in any manner affect or render invalid or unenforceable
any other severable provision of this Agreement, and this Agreement shall be
carried out as if any such invalid or unenforceable provision were not contained
herein, unless the invalidity or unenforceability of such provision
substantially impairs the benefits of the remaining portions of this Agreement.
(e) The section headings contained herein are for the purposes of
convenience only and are not intended to define or limit the contents of said
sections.
(f) This Agreement may be executed in two or more counterparts, all
of which taken together shall be deemed one original.
(g) This Agreement shall be deemed to be a contract under the laws of
the Commonwealth of Massachusetts and for all purposes shall be construed and
enforced in accordance with the internal laws of said Commonwealth.
(h) This Agreement shall not confer any rights or remedies upon any
person or entity other than the parties hereto and their respective successors
and permitted assigns.
(i) The Executive acknowledges that she has consulted with counsel
and is fully aware of her rights and obligations under this Agreement.
12
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(j) The Executive represents and warrants that her employment by the
Company as described herein shall not conflict with and will not be constrained
by any prior employment or consulting agreement or other business or investment
relationship, and that she has previously satisfied all requirements of
applicable law to be employed by the Company.
(k) During her Employment Period, the Company agrees to use its
reasonable best efforts to obtain and to pay for Directors and Officers
Liability insurance from a solvent insurer in amounts and on terms which the
Company in its sole discretion may establish from time to time, and to provide
evidence of such insurance to the Executive once in each calendar year if
requested in writing by the Executive to do so.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
/s/ Lucille Salhany Lifef/x Networks, Inc.
_______________________________
Lucille Salhany By: /s/ Michael S. Rosenblatt
36 Strawberry Hill Road ________________________________
Dover, Massachusetts 02030 Name: Michael S. Rosenblatt
______________________________
Title: Chairman and Co-President
_____________________________
Name and Address:
Michael S. Rosenblatt, Chairman and
Co-President
Lifef/x, Inc.
c/o Cambridge Technology Partners
8 Cambridge Center
Cambridge, MA 02142
13
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EXHIBIT 10.4
CONSULTING AGREEMENT
This Consulting Agreement (this "Agreement") is made and entered into as of
January 4, 2000, by and between Lifef/x Networks, Inc., a Delaware corporation
(the "Company"), and Ian W. Hunter ("Consultant"), both the Company and the
Consultant being sometimes referred to herein as the "parties," with reference
to the following facts:
A. Consultant possesses special skills, knowledge and qualifications
beneficial to the business of the Company.
B. The parties hereto desire to enter into an agreement under which
Consultant will provide services to the Company.
C. The parties intend that Consultant shall be an independent contractor
with and to the Company under this Agreement and not an employee of the Company.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Engagement and Term. The Company hereby engages the services of
-------------------
Consultant and Consultant accepts such engagement upon the terms and conditions
set forth herein for a term commencing on January 4, 2000 and terminating on the
first anniversary hereof (the "Term") unless such engagement is sooner
terminated as hereinafter provided. This Agreement may be extended for two (2)
additional one-year terms by mutual signed written agreement of the parties.
2. Duties. Consultant shall (a) provide consulting and engineering
------
services for the Company to design, build and implement all aspects of the
Company's "Lifef/x" products (as more fully described in the attached
description "Addendum "A"), (b) consult on all technical matters requested by
the Company, (c) assist in the search for one or more qualified candidates for
hiring consideration by the Company as directed by the Chief Executive Officer,
(d) search for qualified candidates who may be considered by the Company for
hire as employees or engagement as independent contractors and (e) perform such
other duties pertaining to the Company's business as the Company and Consultant
may reasonably agree from time to time, including, without limitation,
participating in demonstrations and presentations of the Company's "Lifef/x"
products to potential clients, investors and other parties. In addition to
Consultant's obligations hereunder, upon the Company's request, Consultant shall
prepare and deliver to the Company written reports describing in detail the
progress of the services performed under this Agreement.
3. Nature of Services. Consultant shall perform diligently and to the best
------------------
of its talents, skills and expertise, all of the services which Consultant is
required to perform under this Agreement and shall devote such time to the
performance of these duties on average one (1) business day per week for the
initial Term of this Agreement, plus such additional periods of time as
Consultant may reasonably determine to be necessary in order to accomplish the
assigned
<PAGE>
tasks. In the performance of services hereunder, Consultant shall hold the title
of Senior Scientific Consultant for such period of time as may be determined by
the Company in its sole and absolute discretion; provided, however, that
Consultant shall not have the power to bind the Company under any contract,
agreement or other arrangement with any third party. Consultant shall not
delegate the performance of any such services to any other person, firm or
corporation without the prior written consent of the Company, which consent the
Company may grant or withhold in its sole and absolute discretion. Subject to
the foregoing and the provisions of Section 7, Consultant shall have the right
to engage in any other gainful activities, ventures and businesses. Consultant's
services hereunder shall be performed at the Company's offices in the greater
Boston, Massachusetts area, unless the parties hereto from time to time mutually
agree otherwise. Notwithstanding the foregoing, Consultant hereby acknowledges
and agrees that Consultant shall be required, as part of the services to be
performed by Consultant hereunder, to travel to such locations in the United
States and Canada as the Company may direct from time to time, and to such
foreign locations as are mutually agreed to from time to time. All such travel
dates shall be mutually agreed to by the parties.
The Company shall have the right, at any time and from time to time, to
hire any other person, firm or entity to provide all or any portion of the
services which Consultant has agreed to provide to the Company hereunder.
Whether or not the Company has hired any such other person, firm or entity, the
Company may, by notice to Consultant, in its sole and absolute discretion and
from time to time, cause Consultant to cease providing any one or more services
hereunder and/or withdraw and/or change any request for services theretofore
made by the Company to Consultant.
4. Compensation. For so long as Consultant is engaged by the Company, the
------------
Company shall pay to Consultant and Consultant shall accept as payment in full
for all services rendered by Consultant to the Company hereunder a consulting
fee (the "Consulting Fee") equal to One Hundred Fifty Thousand Dollars
($150,000) per annum, payable bi-weekly in arrears.
5. Reimbursement of Expenses. The Company shall reimburse Consultant for
-------------------------
all out-of-pocket expenses authorized in advance by the Company's Board of
Directors or any Co-President of the Company and incurred by Consultant in the
performance of Consultant's duties hereunder; provided such expenses are
reasonably accounted for to the Company in a manner satisfactory to the Company.
6. Confidential Information and Inventions.
---------------------------------------
(a) Consultant recognizes and acknowledges that during the course
of Consultant's engagement by the Company, Consultant shall have access to
Confidential Information. "Confidential Information" means all information or
material not publicly known about the Company and which the Company treats or
designates as confidential, including, without limitation, any such information
which relates to any of its products, services or any phase of its operations,
business or financial affairs. Confidential Information includes, but is not
limited to, the following types of information and other information of a
similar nature (whether or not reduced to writing): trade secrets, inventions,
drawings, file data, documentation, diagrams, specifications, know-how,
processes, formulas, models, flow charts, software in various stages of
development, source codes, object codes, research and development
2
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procedures, test results, marketing techniques and materials, marketing and
development plans, price lists, pricing policies, business plans, information
relating to customers and/or suppliers' identities, characteristics and
agreements, financial information and projections and employee files.
Confidential Information also includes any information described above which the
Company obtains from another party and which the Company treats and/or has an
obligation to treat as confidential or designates as Confidential Information,
whether or not owned or developed by the Company. Confidential Information shall
not include any information which is or becomes (i) generally available to the
public other than as a result of disclosure in violation of this agreement with
the Company or (ii) generally known in the industry in which the Company is or
may become involved other than as a result of disclosure in violation of this
agreement with the Company. (The term "Company," as used in this Section 6,
means not only Lifef/x Networks, Inc., but also any company, partnership or
entity which, directly or indirectly, controls, is controlled by or is under
common control with Lifef/x Networks, Inc. The term "Consultant", as used in
this Section 6, means not only Ian W. Hunter, but also all employees of Ian W.
Hunter.)
(b) Both during the term hereof and at all times thereafter, all
Confidential Information which Consultant may now possess, may obtain during or
after the term hereof, or may create prior to the end of the term hereof will be
held confidential by Consultant, and Consultant will not (nor will Consultant
assist any other person to do so), directly or indirectly, (i) reveal, report,
publish or disclose such Confidential Information to any person, firm,
corporation, association or other entity for any reason or purpose whatsoever
(other than in the course of carrying out Consultant's duties hereunder or as
expressly authorized by the Company), (ii) render any services to any person,
firm, corporation, association or other entity to whom any such Confidential
Information, in whole or in part, has been disclosed or is threatened to be
disclosed by or at the instance of Consultant, or (iii) use such Confidential
Information except for the benefit of the Company and in the course of
Consultant's engagement by the Company; provided, however that the foregoing
will not apply to the extent Consultant is required to disclose any Confidential
Information by applicable law or legal process so long as Consultant promptly
notifies the Company of such pending disclosure and consults with the Company
prior to such disclosure concerning the advisability of seeking a protective
order or other means of preserving the confidentiality of the Confidential
Information.
(c) Any Inventions (as defined below) in whole or in part conceived,
made or reduced to practice by Consultant (either solely or in conjunction with
others) (i) during or after the Term hereof, which are made through the use of
any of the Confidential Information or any of the Company's equipment,
facilities, supplies, trade secrets or (ii) during the Term hereof, which relate
to the Company's business or the Company's actual or demonstrably anticipated
research and development, or (iii) during or after the Term hereof, which result
from any work performed by Consultant for the Company, will belong exclusively
to the Company and will be deemed part of the Confidential Information for
purposes of this Agreement, whether or not fixed in a tangible medium of
expression. The term "Inventions," as used in this Section 6, means any ideas,
designs, concepts, techniques, inventions and discoveries, whether or not
patentable or protectable by copyright and whether or not reduced to practice,
including, but not limited to, devices, processes, drawings, works of
authorship, computer programs, software, source codes, object codes, interfaces
and networks (and all components of the foregoing),
3
<PAGE>
methods and formulas together with any improvements thereon or thereto,
derivative works therefrom and know-how related thereto.
(i) Without limiting the foregoing, any such Inventions will be
deemed to be "works made for hire" and the Company will be deemed to be the
owner thereof, provided that in the event and to the extent such works are
determined not to constitute "works made for hire" as a matter of law,
Consultant hereby irrevocably assigns and transfers to the Company all right,
title and interest in and to any such Inventions, including but not limited to
all related patents, copyrights and mask works and all applications therefor and
filings and notification with respect thereto.
(ii) Consultant acknowledges that written records (in the form of
notes, sketches, drawings or such other form(s) as may be specified by the
Company) of all Inventions made by Consultant during the Term hereof or
thereafter which belong exclusively to the Company pursuant to the provisions of
this Section 6), which will be available at reasonable intervals on receipt from
the Company of notice or requests therefor to the Company at all times and will
remain the sole property of the Company. In the event that any Invention is
made, conceived of or reduced to practice by Consultant, either solely or in
conjunction with others, during the Term hereof, which belongs exclusively to
the Company pursuant to the provisions of this Section 6, Consultant will
promptly give notice and fully disclose in writing such Invention to the Co-
Presidents and the Board of Directors of the Company.
(iii) Consultant will assist the Company (at the Company's expense),
either during or subsequent to the term hereof, to obtain and enforce for the
Company's benefit, patents, copyrights, and mask work protection in any country
for any and all Inventions made by Consultant, in whole or in part, the rights
to which belong to or have been assigned to the Company pursuant to the
provisions of this Section 6. Consultant agrees to execute all applications,
assignments, instruments and papers and perform all acts as the Company or its
counsel may deem necessary or desirable to obtain any patents, copyrights or
mask work protection in such Inventions and otherwise to protect the interests
of the Company therein. In the event the Company is unable to secure
Consultant's signature on any document necessary to apply for, prosecute,
obtain, or enforce any patent, copyright, or other right or protection relating
to any Invention which is due to mental or physical incapacity, Consultant
hereby irrevocably designates and appoints the Company and each of its duly
authorized officers and agents as Consultant's agents and attorney-in-fact, to
act for and in Consultant's behalf and stead to execute and file any such
document and to do all other lawfully permitted acts to further the prosecution,
issuance, and enforcement of patents, copyrights, or other right or protections
with the same legal force and effect as if executed and delivered by Consultant.
(d) All memoranda, notes, lists, records and other documents (and all
copies thereof) constituting Confidential Information (including information
relating to all Inventions which belong exclusively to the Company pursuant to
the provisions of this Section 6) made or compiled by Consultant or made
available to Consultant during or after the Term hereof shall be the Company's
property, shall be kept confidential in accordance with the provisions of this
Section 6 and shall be delivered to the Company at any time on request and in
any event upon the termination of Consultant's engagement by the Company for any
reason.
4
<PAGE>
7. Competition and Solicitation of Business. During the Term of this
----------------------------------------
agreement and for an additional period of one year thereafter (collectively, the
"Restricted Period"), Consultant shall not (a) engage or own any interest in any
activities, ventures or businesses which directly or indirectly conflict or
compete with, or are substantially similar to, the activities, ventures and
businesses of the Company to the extent that such activities, ventures, and
businesses are included within the Business Plan of the Company as of the date
of execution of this Agreement, and as the parties hereto may subsequently
reasonably agree as to future amendments in the scope of such Business Plan in a
signed written instrument; (b) solicit or assist any other person or entity to
solicit any business (other than for the Company) from any present or past
customer of the Company; or (c) request or advise any present or future
customer, supplier or vendor of the Company to withdraw, curtail or cancel its
business dealings with the Company; or (d) commit any other act or assist others
to commit any other act which is intended to injure the business of the Company.
Notwithstanding anything to the contrary contained herein, Consultant may own
directly or indirectly, securities of any entity which are traded on any
national securities exchange if Consultant is not a controlling person of, or
member of a group which controls, such entity, and he does not directly or
indirectly own 5% or more of any class of securities issued by such entity.
8. Solicitation of Employees. Consultant shall not during the Restricted
-------------------------
Period, without the Company's prior written consent, directly or indirectly, (a)
solicit or encourage any employee of the Company to leave the employ of the
Company or (b) hire any employee or former employee of the Company if that
employee has left the employ of the Company within one year prior thereto, with
the exception of Serge Lafontaine, a current employee of the Company who may
continue his Post Doctoral fellowship under the direction of Consultant.
Notwithstanding the above, Serge Lafontaine's fellowship may in no way compete,
interfere or diminish Lafontaine's responsibilities to the Company and
Lafontaine's employment agreement with the Company overrides and controls any
understanding in such regard contained in this Agreement.
9. Solicitation of Consultants. Consultant shall not during the Restricted
---------------------------
Period, without the Company's prior written consent, directly or indirectly, (a)
solicit or encourage to cease work with the Company any consultant then under
contract with the Company or (b) hire any consultant or former consultant of the
Company if that consultant has ceased to be engaged by the Company within one
year prior thereto.
10. Use of Each Party's Name; Use of Facilities. The Company and the
-------------------------------------------
Consultant may make reasonable written use of or reference to the other party's
name in any marketing, public relations, advertising, display and for other
business purposes without the prior written consent of the other party hereto.
Consultant shall not make any use of the Company's facilities for any activity
unrelated to the business purposes and interests of the Company under this
Agreement without the Company's prior written consent, which consent may be
granted or withheld in the Company's sole and absolute discretion.
11. Survival. Consultant and Company agree that the obligations, covenants
--------
and agreements of Consultant and Company and the rights of the Company and
Consultant set forth in Sections 6, 7, 8, 9, 10 and 11 (the "Restrictive
Covenants") shall survive any termination or expiration of this Agreement.
5
<PAGE>
12. Rights and Remedies Upon Breach. If Consultant or Company breaches or
-------------------------------
threatens to commit a breach of any of the provisions of the Restrictive
Covenants, the Company or Consultant shall have the following rights and
remedies, each of which rights and remedies shall be independent of the other
and severally enforceable, and all of which rights and remedies shall be in
addition to, and not in lieu of, any other rights and remedies available to the
Company or Consultant under law or in equity.
(a) Specific Performance. The right and remedy to have the
--------------------
Restrictive Covenants specifically enforced by any court having equity
jurisdiction, all without the need to post a bond or any other security or to
prove any amount of actual damage or that money damages would not provide an
adequate remedy, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to the Company or Consultant and
that money damages will not provide adequate remedy to the Company or
Consultant.
(b) Damages. In the event any of the Restrictive Covenants are
-------
breached by the Consultant or the Company, the breaching party shall be liable
to the other party for all direct damages resulting therefrom, excluding,
however, any punitive and any consequential damages.
(c) Severability of Covenants/Blue Pencilling. If any court
-----------------------------------------
determines that any of the Restrictive Covenants, or any part thereof, is
invalid or unenforceable, the remainder of the Restrictive Covenants shall not
thereby be affected and shall be given full effect, without regard to the
invalid portions; and
(d) Enforceability in Jurisdictions. The Company and Consultant
-------------------------------
intend to and do hereby confer jurisdiction to enforce the Restrictive Covenants
upon the courts of any jurisdiction within the geographical scope of such
covenants. If the courts of any one or more of such jurisdictions hold the
Restrictive Covenants wholly unenforceable by reason of the breadth of such
scope or otherwise, it is the intention of the Company and Consultant that such
determination not bar or in any way affect the right of the Company or the
Consultant to the relief provided above in the courts of any other jurisdiction
within the geographical scope of such covenants, as to breaches of such
covenants in such other respective jurisdictions, such covenants as they relate
to each jurisdiction being, for this purpose, severable into diverse and
independent covenants.
13. Termination. In addition to any other termination provisions contained
-----------
herein, this agreement may be terminated:
(a) By either party for "cause" in the event of a material breach of
this Agreement by the other party which is not cured after thirty (30) days'
written notice from the non-breaching party specifying the nature of the breach;
(b) Upon the death or permanent disability of Consultant;
(c) At such time, if any, as the Company shall be adjudicated
insolvent or bankrupt, make an assignment for the benefit of creditors, shall
commence, approve or consent to a case or any proceeding under any bankruptcy,
reorganization or similar law, or have an involuntary case or proceeding in
bankruptcy or reorganization commenced against it, which is not dismissed within
90 days or ceases to conduct business for any reason whatsoever.
6
<PAGE>
Termination for any of these subsection (c) reasons shall be effective
automatically upon such event without notice to either party; or
(d) At the election of the Company or Consultant, by giving sixty
(60) days' written notice thereof to the other party.
Upon termination of this Agreement, Consultant shall not be obligated
to render any additional services to the Company and the Company shall not be
obligated to make any additional payments to Consultant, whether in the form of
Consulting Fees or otherwise; provided, however, the Company shall pay
Consultant for any uncompensated services theretofore rendered by Consultant.
14. Return of the Company's Property. If this Agreement is terminated for
--------------------------------
any of the reasons specified in Section 13, the Company shall have the right, at
its option, to require Consultant to vacate Consultant's offices, if any, on the
Company's premises prior to the effective date of termination and to cease all
activities on the Company's behalf. Upon the termination of Consultant's
engagement in any manner, Consultant shall immediately surrender to the Company
all notes, data, sketches, drawings, manuals, documents, records, data bases,
programs, computer diskettes, printouts, blueprints, memoranda, specifications,
customer lists, financial reports, equipment and all other physical forms of
expression incorporating or containing any Confidential Information, and all
lists, books and records of, or in connection with, the Company's business, and
all other property belonging to the Company, it being distinctly understood that
all such items are the property of the Company.
15. No Conflicting Agreements. Consultant represents and warrants to the
-------------------------
Company that to the best of his knowledge there are no agreements, commitments
or relationships to which Consultant is a party which would prevent Consultant's
timely and complete performance of the terms and conditions of this Agreement,
and Consultant knowingly shall not enter into any such agreement, commitment or
relationship during the term of this Agreement.
16. Indemnification.
---------------
(a) By Consultant. Consultant shall indemnify, defend and hold
-------------
harmless the Company, its officers, directors, shareholders, employees and
agents and their respective successors and assigns, from and against any and all
claims, demands, liabilities, losses, expenses, costs, obligations, recoveries
or damages of any nature whatsoever, whether accrued, absolute, contingent or
otherwise, including without limitation court costs and reasonable attorneys'
fees (whether or not suit is brought), arising out of or resulting from or
relating to any material breach by Consultant of any of Consultant's covenants
contained in this Agreement, or by any acts or omissions of Consultant. This
indemnification obligation shall survive any termination of this Agreement.
(b) By Company. Company shall indemnify, defend and hold harmless
---------
the Consultant and his heirs, successors and permitted and authorized assigns,
from and against any and all claims, demands, liabilities, losses, expenses,
costs, obligations, recoveries or damages of any nature whatsoever, whether
accrued, absolute, contingent or otherwise, including without limitation court
costs and reasonable attorneys' fees (whether or not suit is brought), arising
out
7
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of or resulting from or relating to any material breach by Company of any of
Company's covenants contained in this Agreement, or by any acts or omissions of
the Company. This indemnification obligation shall survive any termination of
this Agreement.
17. Mediation and Arbitration. Any dispute or controversy arising under
-------------------------
this Agreement or concerning Consultant's engagement by the Company (including,
without limitation, any controversy as to the availability of any dispute) which
the parties have been unable to resolve themselves shall be settled exclusively
by voluntary mediation by the parties before a jointly appointed mediator, such
appointment of the mediator by the parties to occur within 15 days after receipt
of written notice by either party from the other party hereto concerning
proceeding into mediation for such unresolved dispute. Such voluntary mediation
shall be concluded promptly in Boston, Massachusetts. In the event the parties
do not reach a voluntary agreement in mediation or in the event either party
declines to participate in mediation then such dispute shall be settled by
arbitration to be held in Boston, Massachusetts, before a single arbitrator in
accordance with the rules of the American Arbitration Association ("AAA") then
in effect relating to the arbitration of employment disputes, provided, however,
that any claims relating to the Restrictive Covenants shall be resolved through
the courts. In the event the parties fail to promptly reach agreement on the
appointment of the joint arbitrator within 30 days after receipt by either party
to this Agreement concerning such appointment, then such arbitrator shall be
chosen by the General Manager of the AAA office located in Boston,
Massachusetts. Judgment may be entered on the arbitrator's award in any court
having jurisdiction, and the parties consent to the jurisdiction of the
Massachusetts courts for that purpose.
18. Notices. All notices, requests and other communications of any kind
-------
which either party hereto may be required or desires to serve upon the other
party under the terms of this Agreement shall be in writing and shall be
delivered by courier or other means of personal service (including by means of a
nationally recognized courier service or a professional return receipt
requested, in all cases addressed to:
If to Consultant: Ian W. Hunter
6 Oakdale Lane
Lincoln, Massachusetts 01773
Fax No. (781) 259-3308
If to Company: Lifef/x Networks, Inc.
8 Cambridge Center
Cambridge, Massachusetts 02142
Fax No. (617) 551-5862
Attention: Lucille Salhany,
CEO and Co-President
All notices, requests and other communications shall be deemed given on the date
of actual receipt or delivery to the address set forth above. In case of
service by telecopy, a copy of such notice shall be personally delivered or sent
by registered or certified mail, in the manner set forth above, within three (3)
business days thereafter. Either party hereto may from time to time by notice
in writing served as set forth above designate a different address or a
different or additional person to which all such notices or communications
thereafter are to be given.
8
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19. Attorneys' Fees. In the event of any action, proceeding or arbitration
---------------
between the parties hereto to enforce any provision or right hereunder, the
unsuccessful party to such action or proceeding shall pay the successful party
all costs and expenses, including but not limited to, reasonable attorneys' fees
incurred therein by such successful party, which cost, expenses and attorneys'
fees shall be included in and as a part of any judgment or award rendered in
such action or proceeding.
20. Relationship and Authority. The relationship between the Company and
--------------------------
Consultant intended to be created by this Agreement is that of two separate and
independent contractors, and nothing herein contained shall be construed as
creating a relationship of employer and employee or principal and agent between
them. Consultant shall neither act nor make any representation that Consultant
is authorized to act as an employee, agent or officer of the Company.
21. Assignment. The services to be rendered and the duties to be performed
----------
by Consultant hereunder are of a unique and personal nature. Nothing contained
in this Agreement shall be construed to permit the assignment by Consultant of
any right or obligation under this Agreement and any such assignment is
expressly prohibited without the prior written consent of the Company, which may
be granted or withheld in the Company's sole and absolute discretion.
22. Section Headings. The headings of the several sections and paragraphs
----------------
of this Agreement are inserted solely for convenience of reference and are not a
part hereof and are not intended to govern, limit or aid in the construction of
any term or provision hereof.
23. Entire Agreement. This Agreement (including the exhibits hereto) and
----------------
the agreements, documents and instruments to be executed and delivered pursuant
hereto or thereto are intended to embody the final, complete and exclusive
agreement among the parties with respect to the subject matter hereof; are
intended to supersede all prior agreements, understandings and representations
written or oral, with respect thereto; and may not be contradicted by evidence
of any such prior to contemporaneous agreement, understanding or representation,
whether written or oral.
24. Engagement at Will. Any continuance of Consultant's engagement by the
------------------
Company and Consultant after the expiration of the Term of this Agreement shall
be deemed an engagement at will and shall be subject to termination with or
without cause by either Company or Consultant upon delivery of notice thereof to
the other party. In all other respects, any such continuance of engagement
shall be upon the terms and conditions as set forth herein or as otherwise
mutually agreed upon by the parties hereto.
25. Waiver; Modification. No provision of this Agreement may be amended,
--------------------
modified or waived except by an agreement in writing signed by the party against
whom the enforcement of any such waiver, amendment or modification is sought.
26. Severability and Interpretation. The provisions of this Agreement are
-------------------------------
severable, and in the event that any provision is declared invalid, this
Agreement shall be interpreted as if such invalid provision were not contained
herein. Rules of construction and interpretation and other legal fictions such
as, but not limited to, construction against the draftsman shall not be
9
<PAGE>
employed in the interpretation hereof, and all words and phrases shall be given
their common sense English language meaning.
27. Applicable Law and Venue. This Agreement shall constitute a contract
------------------------
under the internal laws of the Commonwealth of Massachusetts and shall be
governed and construed in accordance with the internal laws of said Commonwealth
and without regard to the conflicts of laws principles thereof. Subject to the
provisions of Section 17, and except as provided in Section 12, any action or
proceeding brought hereunder shall be brought in the state or federal courts
sitting in Boston, Massachusetts, the parties hereto hereby waiving any claim or
defense that such forum in not convenient or proper. Each party hereby agrees
that any such court shall have in personam jurisdiction over it, consents to
service of process in any manner authorized by Massachusetts law, and agrees
that a final judgment in any such action or proceeding, subject to any appeal
rights, shall be conclusive and may be enforced in other jurisdictions by suit
on the judgment or in any other manner specified by law.
28. Further Assurances. The Company and Consultant shall, whenever and as
------------------
often as reasonably requested to do so by the other party, execute, acknowledge
and deliver or cause to be executed, acknowledged or delivered, any and all
agreements and instruments as may be necessary, expedient or proper in the
opinion of the requesting party to carry out the intent and purposes of this
Agreement. The parties hereto acknowledge and agree in general covenants of
good faith and fair dealings with one another pursuant to the terms and
conditions of this Agreement.
29. Gender; Tense; etc. Where the context or construction herein permits
------------------
or requires, all words applied in the plural shall be deemed to include the
singular, and vice versa; the masculine shall include the feminine and neuter,
and vice versa; and the present tense shall include the past and future tenses,
and vice versa.
30. Counterparts. This Agreement may be executed simultaneously in any
------------
number of counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same agreement, and the parties may
employ facsimile signatures.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first set forth above.
Lifef/x Networks, Inc.,
a Delaware corporation
By: /s/ Michael Rosenblatt
_______________________
Its: Chairman and Co-
President
___________________
/s/ Ian Hunter
__________________________
Ian W. Hunter
10
<PAGE>
Addendum A
----------
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. 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.
Alternatively, the user can get animation commands streamed in real time for the
Web at bandwidths of 28.8Kbps or more after the Standin is downloaded to the
player.
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.
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. The first version will allow to use Text-To-Speech to read
text messages, and the second version will use recorded voice, which could be
recorded and saved for later delivery or streamed. When played back, the
Lifef/x standin lips and face will be correctly animated from the audio signal.
Lifef/x Email interfaces. Specific interfaces will be developed to end-user
- ------------------------
email programs such as Microsoft Outlook Express, Microsoft Outlook, Netscape
Mail, etc. These will allow users to use their usual email program and in
addition be able to send or receive messages that are to be delivered with the
Lifef/x standins.
Lifef/x Messaging (IM) Interfaces. Interfaces and modules will be added to
- ---------------------------------
Instant Messaging systems such that users will be able to use standins in the IM
conversations. These features will be added to existing IM systems.
11
<PAGE>
Lifef/x chat Room Interfaces. Similar to IM, Lifef/x interfaces to common chat
- ----------------------------
room interfaces will allow users to use standins in chat rooms.
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 Stands 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.
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, and
movement of the Standins and how they interact.
Lifef/x SDK. We plan to develop the Lifef/x SKD 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, screen savers, etc.
12
<PAGE>
LifeFX Development to be undertaken by Ian W. Hunter
1. Nonlinear System Identification (NLSYSID) for speech synchronization and
viseme generation
. Generation of NLSYSID Tools
. Preliminary test of nonlinear system identification for predicting mouth
positions
. Acquisition of accurate data for training the NLSYSID technique
. NLSYSID applied to training data set
. Verification of accuracy of NLSYSID to predict mouth opening, rounding and
position
2. NLSYSID applied to Vestibulo-Ocular Reflex
. Generation of NLSYSID GUI to test the NLSYSID technique
. Preliminary evaluation of NLSYSID for modeling the VOR
. Data acquisition of VOR data including eye and head position
. Accurate modeling of NLSYSID
. Verification of accuracy of VOR nonlinear model
3. Automation of Face Mapping
. GUI development for displaying images and controls
. Collection of anthropomorphic data for location of facial fiducial points
. Development of basic image processing functions
. Development of new cross-correlation based on hyperbolic transforms for
feature detection
. Application of NLSYSID for automating operator detection
. NLSYSID techniques for fitting basis functions (e.g. Hermite, B-Splines) to
face profile
4. Windows Media Software
. Creation of ASF streaming files from MPEG and AVI file formats
. ASX coding and embedding ASF streams with additional data (XML)
. Embedding private data in ASF streams
. Embedding commands and programs in ASF streams
5. Development of embedded behaviors and automatisms
. Module for automatic switching and time spanning of "attention" and subject
of mental focus, particularly in applications to vision control
. Generation of random head movements and rotations
13
<PAGE>
EXHIBIT 10.5
LIFEF/X, INC.
1999 LONG TERM INCENTIVE PLAN
-----------------------------
The purpose of the Lifef/x, Inc. 1999 Long Term Incentive Plan (the "Plan")
is to provide (i) designated employees of Fin Sports U.S.A., Inc. (the
"Company") and its subsidiaries and affiliates, (ii) certain advisors who
perform services for the Company or its subsidiaries and affiliates and (iii)
non-employee members of the Board of Directors of the Company (the "Board") with
the opportunity to receive grants of incentive stock options, nonqualified stock
options, stock appreciation rights, restricted stock and performance units. The
Company believes that the Plan will encourage the participants to contribute
materially to the growth of the Company, thereby benefiting the Company's
shareholders, and will align the economic interests of the participants with
those of the shareholders.
1. Administration
--------------
(a) Committee. The Plan shall be administered and interpreted by a
---------
committee appointed by the Board (the "Committee"). The Committee shall consist
of two or more persons appointed by the Board, all of whom may be "outside
directors" as defined under section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code") and related Treasury regulations and may be "non-
employee directors" as defined under Rule 16b-3 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). However, notwithstanding anything
in the Plan to the contrary, the Board must ratify or approve any grants made to
Non-Employee Directors (as defined below in Section 4(a)). References in the
Plan to the "Committee" shall be deemed to include the Board, with respect to
ratification or approval of grants made to Non-Employee Directors.
(b) Committee Authority. The Committee shall have the sole authority
-------------------
to (i) determine the individuals to whom grants shall be made under the Plan,
(ii) determine the type, size and terms of the grants to be made to each such
individual, (iii) determine the time when the grants will be made and the
duration of any applicable exercise or restriction period, including the
criteria for exercisability and the acceleration of exercisability and (iv) deal
with any other matters arising under the Plan.
(c) Committee Determinations. The Committee shall have full power
------------------------
and authority to administer and interpret the Plan, to make factual
determinations and to adopt or amend such rules, regulations, agreements and
instruments for implementing the Plan and for the conduct of its business as it
deems necessary or advisable, in its sole discretion. The Committee's
interpretations of the Plan and all determinations made by the Committee
pursuant to the powers vested in it hereunder shall be conclusively binding on
all persons having any interest in the Plan or in any awards granted hereunder.
All powers of the Committee shall be executed in its sole discretion, in the
best interest of the Company, not as a fiduciary, and in keeping with the
objectives of the Plan and need not be uniform as to similarly situated
individuals.
<PAGE>
2. Grants
------
Awards under the Plan may consist of grants of incentive stock options as
described in Section 5 ("Incentive Stock Options"), nonqualified stock options
as described in Section 5 ("Nonqualified Stock Options")(Incentive Stock Options
and Nonqualified Stock Options are collectively referred to as "Options"),
restricted stock as described in Section 6 (Restricted Stock"), stock
appreciation rights as described in Section 7 ("SARs"), and performance units as
described in Section 8 ("Performance Units") (hereinafter collectively referred
to as "Grants"). All Grants shall be subject to the terms and conditions set
forth herein and to such other terms and conditions consistent with this Plan as
the Committee deems appropriate and as are specified in writing by the Committee
to the individual in a grant instrument (the "Grant Instrument") or an amendment
to the Grant Instrument. The Committee shall approve the form and provisions of
each Grant Instrument. Grants under a particular Section of the Plan need not be
uniform as among the grantees.
3. Shares Subject to the Plan
--------------------------
(a) Shares Authorized. Subject to the adjustment specified below,
-----------------
the aggregate number of shares of common stock of the Company ("Company Stock")
that may be issued or transferred under the Plan is 5,529,375 shares. The
maximum aggregate number of shares of Company Stock that shall be subject to
Grants made under the Plan to any individual during any calendar year shall be
2,000,000 shares. The shares may be authorized but unissued shares of Company
Stock or reacquired shares of Company Stock, including shares purchased by the
Company on the open market for purposes of the Plan. If and to the extent
Options or SARs granted under the Plan terminate, expire, or are canceled,
forfeited, exchanged or surrendered without having been exercised, or if any
shares of Restricted Stock or Performance Units are forfeited, the shares
subject to such Grants shall again be available for purposes of the Plan.
(b) Adjustments. If there is any change in the number or kind of
-----------
shares of Company Stock outstanding (i) by reason of a stock dividend, spinoff,
recapitalization, stock split or combination or exchange of shares, (ii) by
reason of a merger, reorganization or consolidation in which the Company is the
surviving corporation, (iii) by reason of a reclassification or change in par
value, or (iv) by reason of any other extraordinary or unusual event affecting
the outstanding Company Stock as a class without the Company's receipt of
consideration, or if the value of outstanding shares of Company Stock is
substantially reduced as a result of a spinoff or the Company's payment of an
extraordinary dividend or distribution, the maximum number of shares of Company
Stock available for Grants, the maximum number of shares of Company Stock that
any individual participating in the Plan may be granted in any year, the number
of shares covered by outstanding Grants, the kind of shares issued under the
Plan, and the price per share or the applicable market value of such Grants
shall be appropriately adjusted by the Committee to reflect any increase or
decrease in the number of, or change in the kind or value of, issued shares of
Company Stock to preclude, to the extent practicable, the enlargement or
dilution of rights and benefits under such Grants; provided, however, that any
fractional shares resulting from such adjustment shall be eliminated. Any
adjustments determined by the Committee shall be final, binding and conclusive.
2
<PAGE>
4. Eligibility for Participation
-----------------------------
(a) Eligible Persons. All employees of the Company and its
----------------
subsidiaries and affiliates ("Employees"), including Employees who are officers
or members of the Board, and members of the Board who are not Employees ("Non-
Employee Directors") shall be eligible to participate in the Plan. Advisors who
perform services to the Company or any of its subsidiaries and affiliates ("Key
Advisors") shall be eligible to participate in the Plan if the Key Advisors
render bona fide services and such services are not in connection with the offer
or sale of securities in a capital-raising transaction.
(b) Selection of Grantees. The Committee shall select the Employees,
---------------------
Non-Employee Directors and Key Advisors to receive Grants and shall determine
the number of shares of Company Stock subject to a particular Grant in such
manner as the Committee determines. Employees, Key Advisors and Non-Employee
Directors who receive Grants under this Plan shall hereinafter be referred to as
"Grantees."
5. Granting of Options
-------------------
(a) Number of Shares. The Committee shall determine the number of
----------------
shares of Company Stock that will be subject to each Grant of Options to
Employees, Non-Employee Directors and Key Advisors.
(b) Type of Option and Price.
------------------------
(i) The Committee may grant Incentive Stock Options that are
intended to qualify as "incentive stock options" within the meaning of section
422 of the Code or Nonqualified Stock Options that are not intended so to
qualify or any combination of Incentive Stock Options and Nonqualified Stock
Options, all in accordance with the terms and conditions set forth herein.
Incentive Stock Options may be granted only to employees of the Company or a
parent or subsidiary corporation (within the meaning of section 424(f) of the
Code). Nonqualified Stock Options may be granted to Employees, Non-Employee
Directors and Key Advisors.
(ii) The purchase price (the "Exercise Price") of Company Stock
subject to an Option shall be determined by the Committee and may be less than,
greater than or equal to the Fair Market Value (as defined below) of a share of
Company Stock on the date the Option is granted; provided, however, that (x) the
Exercise Price of an Incentive Stock Option shall be equal to, or greater than,
the Fair Market Value of a share of Company Stock on the date the Incentive
Stock Option is granted and (y) an Incentive Stock Option may not be granted to
an Employee who, at the time of grant, owns stock possessing more than 10
percent of the total combined voting power of all classes of stock of the
Company or any parent or subsidiary of the Company, unless the Exercise Price
per share is not less than 110% of the Fair Market Value of Company Stock on the
date of grant.
(iii) If the Company Stock is publicly traded, then the Fair Market
Value per share shall be determined as follows: (x) if the principal trading
market for the Company Stock is a national securities exchange or the Nasdaq
National Market, the last reported sale price thereof on the relevant date or
(if there were no trades on that date) the latest preceding date
3
<PAGE>
upon which a sale was reported, or (y) if the Company Stock is not principally
traded on such exchange or market, the mean between the last reported "bid" and
"asked" prices of Company Stock on the relevant date, as reported on Nasdaq or,
if not so reported, as reported by the National Daily Quotation Bureau, Inc. or
as reported in a customary financial reporting service, as applicable and as the
Committee determines. If the Company Stock is not publicly traded or, if
publicly traded, is not subject to reported transactions or "bid" or "asked"
quotations as set forth above, the Fair Market Value per share shall be as
determined by the Committee.
(c) Option Term. The Committee shall determine the term of each
-----------
Option. The term of any Option shall not exceed ten years from the date of
grant. However, an Incentive Stock Option that is granted to an Employee who, at
the time of grant, owns stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the Company, or any parent or
subsidiary of the Company, may not have a term that exceeds five years from the
date of grant.
(d) Exercisability of Options. Options granted (i) to Employees
-------------------------
(other than officers. directors and consultants) shall be exercisable at the
rate of at least 20% per year over five years from the date of the Option and
(ii) to officers, directors, key employees or consultants may become fully
exercisable, at any time or during any period, in each case subject to
reasonable conditions, such as continued employment, consistent with the Plan,
as may be determined by the Committee and specified in the Grant Instrument or
an amendment to the Grant Instrument. The Committee may accelerate the
exercisability of any or all outstanding Options at any time for any reason.
(e) Restrictions Upon Exercise of Options. Upon a Grantee's exercise
-------------------------------------
of an Option, the Company may require that the shares of Company Stock issued to
such Grantee pursuant to such Option be subject to any transfer restrictions
then in effect between the Company and any other holder of Company Stock. Such
transfer restrictions may include, but are not limited to, the prohibition
against the issue, sale, offer to sell, grant of an option for the sale of,
assignment, transfer, pledge, hypothecation or any other encumbrance or
disposition of shares of Company Stock by the Grantee.
(f) Termination of Employment, Disability or Death.
----------------------------------------------
(i) Except as provided below, an Option may only be exercised
while the Grantee is employed by the Company as an Employee, Key Advisor or
member of the Board. In the event that a Grantee ceases to be employed by the
Company for any reason other than a "disability," death or "termination for
cause," any Option which is otherwise exercisable by the Grantee shall terminate
unless exercised within 90 days after the date on which the Grantee ceases to be
employed by the Company (or within such other period of time as may be specified
by the Committee), but in any event no later than the date of expiration of the
Option term. Any of the Grantee's Options that are not otherwise exercisable as
of the date on which the Grantee ceases to be employed by the Company shall
terminate as of such date.
(ii) In the event the Grantee ceases to be employed by the Company
on account of a "termination for cause" by the Company, any Option held by the
Grantee shall terminate as of the date the Grantee ceases to be employed by the
Company.
4
<PAGE>
(iii) In the event the Grantee ceases to be employed by the Company
because the Grantee is "disabled", any Option which is otherwise exercisable by
the Grantee shall terminate unless exercised within one year after the date on
which the Grantee ceases to be employed by the Company (or within such other
period of time as may be specified by the Committee), but in any event no later
than the date of expiration of the Option term. Any of the Grantee's Options
which are not otherwise exercisable as of the date on which the Grantee ceases
to be employed by the Company shall terminate as of such date.
(iv) If the Grantee dies while employed by the Company or within 90
days after the date on which the Grantee ceases to be employed on account of a
termination of employment specified in Section 5(e)(i) above (or within such
other period of time as may be specified by the Committee), any Option that is
otherwise exercisable by the Grantee shall terminate unless exercised within one
year after the date on which the Grantee ceases to be employed by the Company
(or within such other period of time as may be specified by the Committee), but
in any event no later than the date of expiration of the Option term. Any of the
Grantee's Options that are not otherwise exercisable as of the date on which the
Grantee ceases to be employed by the Company shall terminate as of such date.
(v) For purposes of Sections 5(e), 6, 7 and 8:
(A) "Company," when used in the phrase "employed by the
Company," shall mean the Company and its parent and subsidiary corporations
and affiliates.
(B) "Employed by the Company" shall mean employment or service
as an Employee, Key Advisor or member of the Board (so that, for purposes
of exercising Options and SARs and satisfying conditions with respect to
Restricted Stock and Performance Units, a Grantee shall not be considered
to have terminated employment or service until the Grantee ceases to be an
Employee, Key Advisor and member of the Board), unless the Committee
determines otherwise.
(C) "Disability" shall mean a Grantee's becoming disabled within
the meaning of section 22(e)(3) of the Code.
(D) "Termination for cause" shall mean, except to the extent
specified otherwise by the Committee, a finding by the Committee that the
Grantee has breached his or her employment, service, noncompetition,
nonsolicitation or other similar contract with the Company, or has been
engaged in disloyalty to the Company, including, without limitation, fraud,
embezzlement, theft, commission of a felony or dishonesty in the course of
his or her employment or service, or has disclosed trade secrets or
confidential information of the Company to persons not entitled to receive
such information. Notwithstanding the foregoing, if the Grantee has an
employment agreement with the Company defining "termination for cause,"
then such definition shall supercede the foregoing definition.
(vi) In the event a Grantee's employment is terminated for cause,
in addition to the immediate termination of all Grants, the Grantee shall
automatically forfeit all shares underlying any exercised portion of an Option
for which the Company has not yet
5
<PAGE>
delivered the share certificates, upon refund by the Company of the Exercise
Price paid by the Grantee for such shares.
(g) Exercise of Options. A Grantee may exercise an Option that has
-------------------
become exercisable, in whole or in part, by delivering a notice of exercise to
the Company with payment of the Exercise Price. The Grantee shall pay the
Exercise Price for an Option as specified by the Committee (x) in cash, (y) by
delivering shares of Company Stock owned by the Grantee for the period necessary
to avoid a charge to the Company's earnings for financial reporting purposes
(including Company Stock acquired in connection with the exercise of an Option,
subject to such restrictions as the Committee deems appropriate) and having a
Fair Market Value on the date of exercise equal to the Exercise Price or (z) by
such other method as the Committee may approve, including payment through a
broker in accordance with procedures permitted by Regulation T of the Federal
Reserve Board. Shares of Company Stock used to exercise an Option shall have
been held by the Grantee for the requisite period of time to avoid adverse
accounting consequences to the Company with respect to the Option. The Grantee
shall pay the Exercise Price and the amount of any withholding tax due (pursuant
to Section 9) at the time of exercise.
(h) Limits on Incentive Stock Options. Each Incentive Stock Option
---------------------------------
shall provide that, if the aggregate Fair Market Value of the stock on the date
of the grant with respect to which Incentive Stock Options are exercisable for
the first time by a Grantee during any calendar year, under the Plan or any
other stock option plan of the Company or a parent or subsidiary, exceeds
$100,000, then the option, as to the excess, shall be treated as a Nonqualified
Stock Option. An Incentive Stock Option shall not be granted to any person who
is not an employee of the Company or a parent or subsidiary corporation (within
the meaning of section 424(f) of the Code).
6. Restricted Stock Grants
-----------------------
The Committee may issue or transfer shares of Company Stock to an Employee,
Non-Employee Director or Key Advisor under a Grant of Restricted Stock, upon
such terms as the Committee deems appropriate. The following provisions are
applicable to Restricted Stock:
General Requirements. Shares of Company Stock issued or transferred pursuant to
- --------------------
Restricted Stock Grants may be issued or transferred for consideration or for no
consideration, as determined by the Committee. The Committee may establish
conditions under which restrictions on shares of Restricted Stock shall lapse
over a period of time or according to such other criteria as the Committee deems
appropriate. The period of time during which the Restricted Stock will remain
subject to restrictions will be designated in the Grant Instrument as the
"Restriction Period."
(a) Number of Shares. The Committee shall determine the number of
----------------
shares of Company Stock to be issued or transferred pursuant to a Restricted
Stock Grant and the restrictions applicable to such shares.
(b) Requirement of Employment. If the Grantee ceases to be employed
-------------------------
by the Company (as defined in Section 5(e)) during a period designated in the
Grant Instrument as the Restriction Period, or if other specified conditions are
not met, the Restricted Stock Grant shall
6
<PAGE>
terminate as to all shares covered by the Grant as to which the restrictions
have not lapsed, and those shares of Company Stock must be immediately returned
to the Company. The Committee may, however, provide for complete or partial
exceptions to this requirement as it deems appropriate.
(c) Restrictions on Transfer and Legend on Stock Certificate. During
--------------------------------------------------------
the Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Restricted Stock except as permitted under
Section 11. Each certificate for a share of Restricted Stock shall contain a
legend giving appropriate notice of the restrictions in the Grant. The Grantee
shall be entitled to have the legend removed from the stock certificate covering
the shares subject to restrictions when all restrictions on such shares have
lapsed. The Committee may determine that the Company will not issue certificates
for shares of Restricted Stock until all restrictions on such shares have
lapsed, or that the Company will retain possession of certificates for shares of
Restricted Stock until all restrictions on such shares have lapsed.
(d) Right to Vote and to Receive Dividends. Unless the Committee
--------------------------------------
determines otherwise, during the Restriction Period, the Grantee shall have the
right to vote shares of Restricted Stock and to receive any dividends or other
distributions paid on such shares, subject to any restrictions deemed
appropriate by the Committee.
(e) Lapse of Restrictions. All restrictions imposed on Restricted
---------------------
Stock shall lapse upon the expiration of the applicable Restriction Period and
the satisfaction of all conditions imposed by the Committee. The Committee may
determine, as to any or all Restricted Stock Grants, that the restrictions shall
lapse without regard to any Restriction Period.
7. Stock Appreciation Rights
-------------------------
(a) General Requirements. The Committee may grant stock appreciation
--------------------
rights ("SARs") to an Employee, Non-Employee Director, or Key Advisor separately
or in tandem with any Option (for all or a portion of the applicable Option).
Tandem SARs may be granted either at the time the Option is granted or at any
time thereafter while the Option remains outstanding; provided, however, that,
in the case of an Incentive Stock Option, SARs may be granted only at the time
of the Grant of the Incentive Stock Option. The Committee shall establish the
base amount of the SAR at the time the SAR is granted. Unless the Committee
determines otherwise, the base amount of each SAR shall be equal to the per
share Exercise Price of the related Option or, if there is no related Option,
the Fair Market Value of a share of Company Stock as of the date of Grant of the
SAR.
(b) Tandem SARs. In the case of tandem SARs, the number of SARs
-----------
granted to a Grantee that shall be exercisable during a specified period shall
not exceed the number of shares of Company Stock that the Grantee may purchase
upon the exercise of the related Option during such period. Upon the exercise of
an Option, the SARs relating to the Company Stock covered by such Option shall
terminate. Upon the exercise of SARs, the related Option shall terminate to the
extent of an equal number of shares of Company Stock.
(c) Exercisability. An SAR shall be exercisable during the period
--------------
specified by the Committee in the Grant Instrument and shall be subject to such
vesting and other
7
<PAGE>
restrictions as may be specified in the Grant Instrument, provided, that SARs
granted to Employees (other than officers, directors or consultants) shall be
exercisable at the rate of at least 20% per year over five years from the date
granted. The Committee may accelerate the exercisability of any or all
outstanding SARs at any time for any reason. SARs may only be exercised while
the Grantee is employed by the Company or during the applicable period after
termination of employment as described in Section 5(e). A tandem SAR shall be
exercisable only during the period when the Option to which it is related is
also exercisable. No SAR may be exercised for cash by an officer or director of
the Company or any of its subsidiaries who is subject to Section 16 of the
Exchange Act, except in accordance with Rule 16b-3 under the Exchange Act.
(d) Value of SARs. When a Grantee exercises SARs, the Grantee shall
-------------
receive in settlement of such SARs an amount equal to the value of the stock
appreciation for the number of SARs exercised, payable in cash, Company Stock or
a combination thereof. The stock appreciation for an SAR is the amount by which
the Fair Market Value of the underlying Company Stock on the date of exercise of
the SAR exceeds the base amount of the SAR as described in Subsection (a).
(e) Form of Payment. The Committee shall determine whether the
---------------
appreciation in an SAR shall be paid in the form of cash, shares of Company
Stock, or a combination of the two, in such proportion as the Committee deems
appropriate. For purposes of calculating the number of shares of Company Stock
to be received, shares of Company Stock shall be valued at their Fair Market,
Value on the date of exercise of the SAR. If shares of Company Stock are to be
received upon exercise of an SAR, cash shall be delivered in lieu of any
fractional share.
8. Performance Units
-----------------
(a) General Requirements. The Committee may grant performance units
--------------------
("Performance Units") to an Employee or Key Advisor. Each Performance Unit shall
represent the right of the Grantee to receive an amount based on the value of
the Performance Unit, if performance goals established by the Committee are met.
A Performance Unit shall be based on the Fair Market Value of a share of Company
Stock or on such other measurement base as the Committee deems appropriate. The
Committee shall determine the number of Performance Units to be granted and the
requirements applicable to such Units.
(b) Performance Period and Performance Goals. When Performance Units
----------------------------------------
are granted, the Committee shall establish the performance period during which
performance shall be measured (the "Performance Period"), performance goals
applicable to the Units ("Performance Goals") and such other conditions of the
Grant as the Committee deems appropriate. Performance Goals may relate to the
financial performance of the Company or its operating units, the performance of
Company Stock, individual performance, or such other criteria as the Committee
deems appropriate.
(c) Payment with respect to Performance Units. At the end of each
-----------------------------------------
Performance Period, the Committee shall determine to what extent the Performance
Goals and other conditions of the Performance Units are met and the amount, if
any, to be paid with respect
8
<PAGE>
to the Performance Units. Payments with respect to Performance Units shall be
made in cash, in Company Stock, or in a combination of the two, as determined by
the Committee.
(d) Requirement of Employment. If the Grantee ceases to be employed
-------------------------
by the Company (as defined in Section 5(e)) during a Performance Period, or if
other conditions established by the Committee are not met, the Grantee's
Performance Units shall be forfeited. The Committee may, however, provide for
complete or partial exceptions to this requirement as it deems appropriate.
9. Qualified Performance-Based Compensation.
----------------------------------------
(a) Designation as Qualified Performance-Based Compensation. The
-------------------------------------------------------
Committee may determine that Performance Units or Restricted Stock granted to an
Employee shall be considered "qualified performance-based compensation" under
Section 162(m) of the Code. The provisions of this Section 9 shall apply to
Grants of Performance Units and Restricted Stock that are to be considered
"qualified performance-based compensation" under Section 162(m) of the Code.
(b) Performance Goals. When Performance Units or Restricted Stock
-----------------
that are to be considered "qualified performance-based compensation" are
granted, the Committee shall establish in writing (i) the objective performance
goals that must be met in order for restrictions on the Restricted Stock to
lapse or amounts to be paid under the Performance Units, (ii) the Performance
Period during which the performance goals must be met, (iii) the threshold,
target and maximum amounts that may be paid if the performance goals are met,
and (iv) any other conditions, including without limitation, provisions relating
to death, disability, other termination of employment or Reorganization, that
the Committee deems appropriate and consistent with the Plan and Section 162(m)
of the Code. The performance goals may relate to the Employee's business unit or
the performance of the Company and its subsidiaries as a whole, or any
combination of the foregoing. The Committee shall use objectively determinable
performance goals based on one or more of the following criteria: stock price,
earnings per share, net earnings, operating earnings, return on assets,
shareholder return, return on equity, growth in assets, unit volume, sales,
market share, or strategic business criteria consisting of one or more
objectives based on meeting specific revenue goals, market penetration goals,
geographic business expansion goals, cost targets or goals relating to
acquisitions or divestitures.
(c) Establishment of Goals. The Committee shall establish the
----------------------
performance goals in writing either before the beginning of the Performance
Period or during a period ending no later than the earlier of (i) 90 days after
the beginning of the Performance Period or (ii) the date on which 25% of the
Performance Period has been completed, or such other date as may be required or
permitted under applicable regulations under Section 162(m) of the Code. The
performance goals shall satisfy the requirements for "qualified performance-
based compensation," including the requirement that the achievement of the goals
be substantially uncertain at the time they are established and that the goals
be established in such a way that a third party with knowledge of the relevant
facts could determine whether and to what extent the performance goals have been
met. The Committee shall not have discretion to increase the amount of
compensation that is payable upon achievement of the designated performance
goals.
9
<PAGE>
(d) Maximum Payment. If Restricted Stock, or Performance Units
---------------
measured with respect to the Fair Market Value of the Company Stock, are
granted, not more than 1,000,000 shares of the Company Stock may be granted to
an Employee under the Performance Units or Restricted Stock for any Performance
Period. If Performance Units are measured with respect to other criteria, the
maximum amount that may be paid to an Employee with respect to a Performance
Period is $2,000,000.
(e) Announcement of Grants. The Committee shall certify and announce
----------------------
the results for each Performance Period to all Grantees immediately following
the announcement of the Company's financial results for the Performance Period.
If and to the extent that the Committee does not certify that the performance
goals have been met, the grants of Restricted Stock or Performance Units for the
Performance Period shall be forfeited.
10. Withholding of Taxes
--------------------
(a) Required Withholding. All Grants under the Plan shall be subject
--------------------
to applicable federal (including FICA), state and local tax withholding
requirements. The Company shall have the right to deduct from all Grants paid in
cash, or from other wages paid to the Grantee, any federal, state or local taxes
required by law to be withheld with respect to such Grants. In the case of
Options and other Grants paid in Company Stock, the Company may require the
Grantee or other person receiving such shares to pay to the Company the amount
of any such taxes that the Company is required to withhold with respect to such
Grants, or the Company may deduct from other wages paid by the Company the
amount of any withholding taxes due with respect to such Grants.
(b) Election to Withhold Shares. If the Committee so permits, a
---------------------------
Grantee may elect to satisfy the Company's income tax withholding obligation
with respect to an Option, SAR, Restricted Stock or Performance Units paid in
Company Stock by having shares withheld up to an amount that does not exceed the
Grantee's maximum marginal tax rate for federal (including FICA), state and
local tax liabilities. The election must be in a form and manner prescribed by
the Committee and shall be subject to the prior approval of the Committee.
11. Transferability of Grants. Except as provided below, only the Grantee
-------------------------
may exercise rights under a Grant during the Grantee's lifetime. A Grantee may
not transfer those rights except by will or by the laws of descent and
distribution. When a Grantee dies, the personal representative or other person
entitled to succeed to the rights of the Grantee ("Successor Grantee") may
exercise such rights. A Successor Grantee must furnish proof satisfactory to the
Company of his or her right to receive the Grant under the Grantee's will or
under the applicable laws of descent and distribution.
12. Reorganization of the Company.
-----------------------------
(a) Reorganization. As used herein, a "Reorganization" shall be
--------------
deemed to have occurred if the shareholders of the Company approve (or, if
shareholder approval is not required, the Board approves) an agreement providing
for (i) the merger or consolidation of the Company with another corporation
where the shareholders of the Company, immediately prior to the merger or
consolidation, will not beneficially own, immediately after the merger or
10
<PAGE>
consolidation, shares entitling such shareholders to more than 50% of all votes
to which all shareholders of the surviving corporation would be entitled in the
election of directors (without consideration of the rights of any class of stock
to elect directors by a separate class vote), (ii) the sale or other disposition
of all or substantially all of the assets of the Company, or (iii) a liquidation
or dissolution of the Company.
(b) Assumption of Grants. Upon a Reorganization where the Company is
--------------------
not the surviving corporation (or survives only as a subsidiary of another
corporation), unless the Committee determines otherwise, all outstanding Options
and SARs that are not exercised shall be assumed by, or replaced with comparable
options or rights by, the surviving corporation.
(c) Other Alternatives. Notwithstanding the foregoing, in the event
------------------
of a Reorganization, the Committee may take one or both of the following
actions: the Committee may (i) require that Grantees surrender their outstanding
Options and SARs in exchange for a payment by the Company, in cash or Company
Stock as determined by the Committee, in an amount equal to the amount by which
the then Fair Market Value of the shares of Company Stock subject to the
Grantee's unexercised Options and SARs exceeds the Exercise Price of the Options
or the base amount of the SARs, as applicable, or (ii) after accelerating all
vesting and giving Grantees an opportunity to exercise their outstanding Options
and SARs, terminate any or all unexercised Options and SARs at such time as the
Committee deems appropriate. Such surrender or termination shall take place as
of the date of the Reorganization or such other date as the Committee may
specify.
(d) Limitations. Notwithstanding anything in the Plan to the
-----------
contrary, in the event of a Reorganization, the Committee shall not have the
right to take any actions described in the Plan (including without limitation
actions described in Subsection (b) above) that would make the Reorganization
ineligible for pooling of interests accounting treatment or that would make the
Reorganization ineligible for desired tax treatment if, in the absence of such
right, the Reorganization would qualify for such treatment and the Company
intends to use such treatment with respect to the Reorganization.
13. Change of Control of the Company.
--------------------------------
(a) As used herein, a "Change of Control" shall be deemed to have
occurred if:
(i) Any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act) other than Safeguard Scientifics, Inc., Mirage Technologies
Limited Partnership, or any of their subsidiaries or affiliates] becomes a
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing a majority of the
voting power of the then outstanding securities of the Company except where the
acquisition is approved by the Board; or
(ii) Any person has commenced a tender offer or exchange offer for
a majority of the voting power of the then outstanding shares of the Company.
(b) Notice and Acceleration. Upon a Change of Control, unless the
-----------------------
Committee determines otherwise, (i) the Company shall provide each Grantee with
outstanding
11
<PAGE>
Grants written notice of such Change of Control, (ii) all outstanding Options
and SARs shall automatically accelerate and become fully exercisable, (iii) the
restrictions and conditions on all outstanding Restricted Stock shall
immediately lapse, and (iv) Grantees holding Performance Units shall receive a
payment in settlement of such Performance Units, in an amount determined by the
Committee, based on the Grantee's target payment for the Performance Period and
the portion of the Performance Period that precedes the Change of Control.
(c) Other Alternatives. Notwithstanding the foregoing, subject to
------------------
subsection (d) below, in the event of a Change of Control, the Committee may
take one or both of the following actions: the Committee may (i) require that
Grantees surrender their outstanding Options and SARs in exchange for a payment
by the Company, in cash or Company Stock as determined by the Committee, in an
amount equal to the amount by which the then Fair Market Value of the shares of
Company Stock subject to the Grantee's unexercised Options and SARs exceeds the
Exercise Price of the Options or the base amount of the SARs, as applicable, or
(ii) after giving Grantees an opportunity to exercise their outstanding Options
and SARs, terminate any or all unexercised Options and SARs at such time as the
Committee deems appropriate. Such surrender or termination shall take place as
of the date of the Change of Control or such other date as the Committee may
specify.
(d) Committee. The Committee making the determinations under this
---------
Section 13 following a Change of Control must be comprised of the same members
as those on the Committee immediately before the Change of Control. If the
Committee members do not meet this requirement, the automatic provisions of
Subsection (b) of this Section shall apply in the case of such a Change of
Control, and the Committee shall not have discretion to vary them.
(e) Limitations. Notwithstanding anything in the Plan to the
-----------
contrary, in the event of a Change of Control, the Committee shall not have the
right to take any actions described in the Plan (including without limitation
actions described in Subsection (c) above) that would make the Change of Control
ineligible for pooling of interests accounting treatment or that would make the
Change of Control ineligible for desired tax treatment if, in the absence of
such right, the Change of Control would qualify for such treatment and the
Company intends to use such treatment with respect to the Change of Control.
14. Disposition of Operating Unit
-----------------------------
In the event that the division, subsidiary or other affiliated entity for
which a Grantee performs services is sold or transferred, whether such
transaction is effectuated by the transfer of stock, assets, by merger or
otherwise, in a transaction which does not constitute a Change of Control of the
Company, the Committee may, but shall not be required, to take any one or more
of the following actions as to outstanding Awards held by such Grantees: (i)
provide that such Awards shall be assumed, or substantially equivalent Awards
shall be substituted, by the acquiring or succeeding corporation (or an
affiliate thereof) on such terms as the Committee determines to be appropriate,
(ii) upon written notice to Participants, provide that all unexercised Options
or SARs shall terminate immediately prior to the consummation of such
transaction unless exercised by the Participant within a specified period
following the date of such notice, (iii) require that Grantees surrender their
outstanding Options and SARs in exchange for a payment by the Company, in cash
or Company Stock as determined by the Committee, in an
12
<PAGE>
amount equal to the amount by which the then Fair Market Value of the shares of
Company Stock subject to the Grantee's unexercised Options and SARs exceeds the
Exercise Price of the Options or the base amount of the SARs, as applicable, or
(iv) make such other adjustments, if any, as the Committee determines to be
necessary or advisable to provide each such Grantee with a benefit substantially
similar to that to which the Grantee would have been entitled had such event not
occurred.
15. Requirements for Issuance or Transfer of Shares
-----------------------------------------------
(a) Shareholder's Agreement. The Committee may require that a
-----------------------
Grantee execute a shareholder's agreement, with such terms as the Committee
deems appropriate, with respect to any Company Stock distributed pursuant to
this Plan.
(b) Limitations on Issuance or Transfer of Shares. No Company Stock
---------------------------------------------
shall be issued or transferred in connection with any Grant hereunder unless and
until all legal requirements applicable to the issuance or transfer of such
Company Stock have been complied with to the satisfaction of the Committee. The
Committee shall have the right to condition any Grant made to any Grantee
hereunder on such Grantee's undertaking in writing to comply with such
restrictions on his or her subsequent disposition of such shares of Company
Stock as the Committee shall deem necessary or advisable as a result of any
applicable law, regulation or official interpretation thereof, and certificates
representing such shares may be legended to reflect any such restrictions.
Certificates representing shares of Company Stock issued or transferred under
the Plan will be subject to such stop-transfer orders and other restrictions as
may be required by applicable laws, regulations and interpretations, including
any requirement that a legend be placed thereon.
16. Amendment and Termination of the Plan
-------------------------------------
(a) Amendment. The Board may amend or terminate the Plan at any
---------
time.
(b) Termination of Plan. The Plan shall terminate on the day
-------------------
immediately preceding the tenth anniversary of its effective date, unless the
Plan is terminated earlier by the Board or is extended by the Board with the
approval of the shareholders.
(c) Termination and Amendment of Outstanding Grants. A termination
-----------------------------------------------
or amendment of the Plan that occurs after a Grant is made shall not materially
impair the rights of a Grantee unless the Grantee consents. The termination of
the Plan shall not impair the power and authority of the Committee with respect
to an outstanding Grant. Whether or not the Plan has terminated, an outstanding
Grant may be terminated or amended in accordance with the Plan or, may be
amended by agreement of the Company and the Grantee consistent with the Plan.
(d) Governing Document. The Plan shall be the controlling document.
------------------
No other statements, representations, explanatory materials or examples, oral or
written, may amend the Plan in any manner. The Plan shall be binding upon and
enforceable against the Company and its successors and assigns.
13
<PAGE>
17. Funding of the Plan
-------------------
This Plan shall be unfunded. The Company shall not be required to establish
any special or separate fund or to make any other segregation of assets to
assure the payment of any Grants under this Plan. In no event shall interest be
paid or accrued on any Grant, including unpaid installments of Grants.
18. Rights of Participants
----------------------
Nothing in this Plan shall entitle any Employee, Key Advisor or other
person to any claim or right to be granted a Grant under this Plan. Neither this
Plan nor any action taken hereunder shall be construed as giving any individual
any rights to be retained by or in the employ of the Company or any other
employment rights.
19. No Fractional Shares
--------------------
No fractional shares of Company Stock shall be issued or delivered pursuant
to the Plan or any Grant. The Committee shall determine whether cash, other
awards or other property shall be issued or paid in lieu of such fractional
shares or whether such fractional shares or any rights thereto shall be
forfeited or otherwise eliminated.
20. Information to Participants
---------------------------
Participants in the Plan shall receive financial statements of the Company
at least annually, except to the extent that issuance is limited to key
employees whose duties in connection with the Company assure them access to
equivalent information.
21. Headings
--------
Section headings are for reference only. In the event of a conflict between
a title and the content of a Section, the content of the Section shall control.
22. Effective Date of the Plan
--------------------------
Subject to the approval of the Company's shareholders within 12 months
after the Effective Date, the Plan shall be effective on December 14, 1999.
23. Miscellaneous
-------------
(a) Grants in Connection with Corporate Transactions and
----------------------------------------------------
Otherwise. Nothing contained in this Plan shall be construed to (i) limit the
- ---------
right of the Committee to make Grants under this Plan in connection with the
acquisition, by purchase, lease, merger, consolidation or otherwise, of the
business or assets of any corporation, firm or association, including Grants to
employees thereof who become Employees of the Company, or for other proper
corporate purposes, or (ii) limit the right of the Company to grant stock
options or make other awards outside of this Plan. Without limiting the
foregoing, the Committee may make a Grant to an employee of another corporation
who becomes an Employee by reason of a corporate merger, consolidation,
acquisition of stock or property, reorganization or liquidation involving
14
<PAGE>
the Company or any of its subsidiaries in substitution for a stock option or
restricted stock grant made by such corporation. The terms and conditions of the
substitute grants may vary from the terms and conditions required by the Plan
and from those of the substituted stock incentives. The Committee shall
prescribe the provisions of the substitute grants.
(b) Compliance with Law. The Plan, the exercise of Options and SARs
-------------------
and the obligations of the Company to issue or transfer shares of Company Stock
under Grants shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. With respect to persons
subject to section 16 of the Exchange Act, it is the intent of the Company that
the Plan and all transactions under the Plan comply with all applicable
provisions of Rule 16b-3 or its successors under the Exchange Act. The Committee
may revoke any Grant if it is contrary to law or modify a Grant to bring it into
compliance with any valid and mandatory government regulation. The Committee may
also adopt rules regarding the withholding of taxes on payments to Grantees. The
Committee may, in its sole discretion, agree to limit its authority under this
Section.
(c) Governing Law. The validity, construction, interpretation and
-------------
effect of the Plan and Grant Instruments issued under the Plan shall exclusively
be governed by and determined in accordance with the law of State of California.
15
<PAGE>
[FOR ASSUMED OPTION OBLIGATIONS]
LIFEF/X, INC.
1999 LONG TERM INCENTIVE PLAN
STOCK OPTION GRANT
This STOCK OPTION GRANT ("Stock Option Grant"), dated as of December 14,
1999 (the "Date of Grant"), is delivered by LIFEF/X, INC. (the "Company") to
_______________ (the "Grantee").
RECITALS
A. In conjunction with the merger of the Company's subsidiary, PTM
Acquisition Corp., into Pacific Title/Mirage, Inc. ("Pacific Title") (such
transaction hereinafter being referred to as the "Merger") resulting in Pacific
Title becoming a wholly owned subsidiary of the Company, which is effective as
of the date hereof, the Company has agreed to assume the stock option
obligations of Pacific Title, pursuant to which agreement, holders of options
to purchase Pacific Title common stock ("Pacific Title Options") are, effective
as of the Merger Date, and without any action on their part, entitled to receive
from the Company, options to purchase shares of common stock of the Company, the
number of such shares and the option exercise price, to be determined in
conformity with the conversion ratio for the Pacific Title common stock applied
in the Merger, and their existing Pacific Title Options are automatically
cancelled and, consequently, are totally null and void.
B. The 1999 Long Term Incentive Plan (the "Plan") provides for the grant
of options to purchase shares of common stock of the Company.
C. The Company has decided to make a stock option grant to the Grantee as
an inducement for the Grantee to promote the best interests of the Company and
its stockholders and in satisfaction of the Company's assumption obligation set
forth in the Recital A above.
D. It is the intention of the Company that the stock option being issued
hereunder be considered as being issued in a transaction to which section 424 of
the Internal Revenue Code of 1986, as amended (the "Code") applies, such that,
if and to the extent the Grantee's Pacific Title Option was an "incentive stock
option" within the meaning of Code Section 422 immediately prior to the Merger,
the option granted hereunder may also constitute an incentive stock option.
NOW THEREFORE, the Company, intending to be legally bound hereby, agrees as
follows:
1. Grant of Option.
---------------
<PAGE>
(a) Subject to the terms and conditions set forth in this Stock
Option Grant and in the Plan, the Company hereby grants to the Grantee a stock
option (the "Option") to purchase ___________ shares of common stock of the
Company ("Shares") at an option price of $_____ per Share. The Option shall
become vested and exercisable according to Paragraph 2 below.
(b) If and to the extent the Grantee's Pacific Title Option was an
incentive stock option immediately prior to the Merger, the Option is intended
to be an incentive stock option under Code Section 422. The Grantee should
consult with his or her tax advisor regarding the tax consequences of the
Option.
2. Vesting of Option. The Option shall become vested and, except as set
-----------------
forth below, exercisable as of the following vesting dates, if the Grantee is
employed by the Company (as defined in the Plan) as of the applicable vesting
date.
Vesting Date Vested Shares
------------ -------------
Immediately _______
________, _____ _______
________, _____ _______
________, _____ _______
3. Term of Option.
--------------
(a) The Option shall expire on _____________ (the "Expiration Date"),
unless it is terminated at an earlier date pursuant to the provisions of this
Stock Option Grant or the Plan. [NOTE: The expiration date MUST remain the same
expiration date specified in the Pacific Title Option Agreement, otherwise ISO
treatment is lost.]
(b) The Option shall automatically terminate upon the happening of
the first of the following events:
(i) The expiration of the 90-day period after the Grantee
ceases to be employed by the Company, if the termination is for any reason other
than disability (as defined in the Plan), death or cause (as defined in the
Plan);
(ii) The expiration of the one-year period after the Grantee
ceases to be employed by the Company (as defined in the Plan) on account of the
Grantee's disability (as defined in the Plan);
(iii) The expiration of the one-year period after the Grantee
ceases to be employed by the Company, if the Grantee dies while employed by the
Company or dies within 90 days after the Grantee ceases to be so employed or
provide such services on account of a termination described in subparagraph (i)
above; or
(iv) The date on which the Grantee ceases to be employed by the
Company for cause (as defined in the Plan).
2
<PAGE>
Notwithstanding the foregoing, in no event may the Option be exercised after the
Expiration Date. Any portion of the Option that is not vested at the time the
Grantee ceases to be employed by the Company shall immediately terminate.
In the event a Grantee ceases to be employed by the Company for cause, the
Grantee shall automatically forfeit all shares underlying any exercised portion
of an Option for which the Company has not yet delivered the share certificates
upon refund by the Company of the exercise price paid by the Grantee for such
shares.
As used herein, all references to employment with the Company shall include (but
shall not be limited to) employment with Pacific Title.
4. Exercise Procedures.
-------------------
(a) Subject to the provisions of Paragraphs 2 and 3 above, the
Grantee may exercise part or all of the vested Option by giving the Company
written notice of intent to exercise in the manner provided in Paragraph 13
below, specifying the number of Shares as to which the Option is to be
exercised. On the delivery date, the Grantee shall pay the exercise price (i) in
cash, (ii) subject to the limitations described in the Plan, by delivering
Shares of the Company (duly endorsed for transfer or accompanied by stock powers
signed in blank) which shall be valued at their fair market value on the date of
delivery or, (iii) by such other method as the committee established by the
Company's board of directors to administer the Plan (the "Committee") may
approve, including payment through a broker in accordance with procedures
permitted by Regulation T of the Federal Reserve Board. The Committee may impose
from time to time such limitations as it deems appropriate on the use of Shares
of the Company to exercise the Option.
(b) The obligation of the Company to deliver Shares upon exercise of
the Option shall be subject to all applicable laws, rules, and regulations and
such approvals by governmental agencies as may be deemed appropriate by the
Committee, including such actions as Company counsel shall deem necessary or
appropriate to comply with relevant securities laws and regulations. The Company
may require that the Grantee (or other person exercising the Option after the
Grantee's death) represent that the Grantee is purchasing Shares for the
Grantee's own account and not with a view to or for sale in connection with any
distribution of the Shares, or such other representation as the Committee deems
appropriate. All obligations of the Company under this Stock Option Grant shall
be subject to the rights of the Company as set forth in the Plan to withhold
amounts required to be withheld for any taxes, if applicable. Subject to
Committee approval, the Grantee may elect to satisfy any income tax withholding
obligation of the Company with respect to the Option by having Shares withheld
up to an amount that does not exceed the applicable withholding tax rate for
federal (including FICA), state and local tax liabilities.
5. Change of Control. In the event of a Change of Control, the Option
-----------------
shall automatically vest and become exercisable in full.
6. Restrictions on Exercise. Only the Grantee may exercise the Option
------------------------
during the Grantee's lifetime. After the Grantee's death, the Option shall be
exercisable (subject to the
3
<PAGE>
limitations specified in the Plan) solely by the legal representatives of the
Grantee, or by the person who acquires the right to exercise the Option by will
or by the laws of descent and distribution, to the extent that the Option is
exercisable pursuant to this Stock Option Grant.
7. Grant Subject to Plan Provisions. This grant is made pursuant to the
--------------------------------
Plan, a copy of which is attached hereto, and the terms of which are
incorporated herein by reference, and in all respects shall be interpreted in
accordance with the Plan. The grant and exercise of the Option are subject to
the provisions of the Plan and to interpretations, regulations and
determinations concerning the Plan established from time to time by the
Committee in accordance with the provisions of the Plan, including, but not
limited to, provisions pertaining to (i) rights and obligations with respect to
withholding taxes, (ii) the registration, qualification or listing of the
Shares, (iii) capital or other changes of the Company and (iv) other
requirements of applicable law. Shares issued upon exercise of the Option may be
subject to transfer and other restrictions as described in Paragraph 14. The
Committee shall have the authority to interpret and construe the Option pursuant
to the terms of the Plan, and its decisions shall be conclusive as to any
questions arising hereunder.
8. No Employment Rights. The grant of the Option shall not confer upon
--------------------
the Grantee any right to be retained by or in the employ of the Company and
shall not interfere in any way with the right of the Company to terminate the
Grantee's employment or service at any time. The right of the Company to
terminate at will the Grantee's employment or service at any time for any reason
is specifically reserved. No policies, procedures or statements of any nature by
or on behalf of the Company (whether written or oral, and whether or not
contained in any formal employee manual or handbook) shall be construed to
modify this Stock Option Grant or to create express or implied obligations to
the Grantee of any nature.
9. No Stockholder Rights. Neither the Grantee, nor any person entitled
---------------------
to exercise the Grantee's rights in the event of the Grantee's death, shall have
any of the rights and privileges of a stockholder with respect to the Shares
subject to the Option until certificates for Shares have been issued upon the
exercise of the Option.
10. No Disclosure. The Grantee acknowledges that the Company has no duty
-------------
to disclose to the Grantee any material information regarding the business of
the Company or affecting the value of the Shares before or at the time of a
termination of the Grantee's employment, including without limitation any plans
regarding a public offering or merger involving the Company.
11. Assignment and Transfers. The rights and interests of the Grantee
------------------------
under this Stock Option Grant may not be sold, assigned, encumbered or otherwise
transferred except, in the event of the death of the Grantee, by will or by the
laws of descent and distribution. In the event of any attempt by the Grantee to
alienate, assign, pledge, hypothecate, or otherwise dispose of the Option or any
right hereunder, except as provided for in this Stock Option Grant, or in the
event of the levy or any attachment, execution or similar process upon the
rights or interests hereby conferred, the Company may terminate the Option by
notice to the Grantee, and the Option and all rights hereunder shall thereupon
become null and void. The rights and protections of the Company hereunder shall
extend to any successors or assigns of the Company and to the
4
<PAGE>
Company's parents, subsidiaries, and affiliates. This Stock Option Grant may be
assigned by the Company without the Grantee's consent.
12. Applicable Law. The validity, construction, interpretation and effect
--------------
of this instrument shall be governed by and determined in accordance with the
laws of the State of California.
13. Notice. Any notice to the Company provided for in this instrument
------
shall be addressed to the Company in care of the Chief Financial Officer at the
Company's headquarters and any notice to the Grantee shall be addressed to such
Grantee at the current address shown on the payroll of the Company, or to such
other address as the Grantee may designate to the Company in writing. Any notice
shall be delivered by hand, sent by telecopy or enclosed in a properly sealed
envelope addressed as stated above, registered and deposited, postage prepaid,
in a post office regularly maintained by the United States Postal Service.
14. Transfer Restrictions. The Grantee hereby acknowledges and agrees
---------------------
that upon exercise of the Option, the Company may require the Grantee to
execute one or more shareholders agreements or other agreements with respect
to the Shares acquired upon exercise which may, among other things, restrict
the Grantee ability to transfer the Shares.
15. Designation as Incentive Stock Option. If and to the extent the
-------------------------------------
Grantee's Pacific Title Option was an incentive stock option under Section 422
of the Code immediately prior to the Merger, the following shall apply:
(a) This Option is designated an incentive stock option under Code
Section 422. If the aggregate fair market value of the stock on the date of the
grant with respect to which incentive stock options are exercisable for the
first time by the Grantee during any calendar year, under the Plan or any other
stock option plan of the Company or a parent or subsidiary, exceeds $100,000,
then the Option, as to the excess, shall be treated as a nonqualified stock
option that does not meet the requirements of Section 422. If and to the extent
that the Option fails to qualify as an incentive stock option under the Code,
the Option shall remain outstanding according to its terms as a nonqualified
stock option.
(b) The Grantee understands that favorable incentive stock option
treatment is available only if the Option is exercised while the Grantee is an
employee of the Company or a parent or subsidiary or within a time specified in
the Code after the Grantee ceases to be an employee. The Grantee should consult
with his or her tax adviser regarding the tax consequences of the Option.
16. Notice to Company of Disqualifying Disposition. If and to the extent
----------------------------------------------
the Grantee's Pacific Title Option was an incentive stock option under
Section 422 of the Code immediately prior to the Merger, the following shall
apply: By accepting an incentive stock option under the Plan, Grantee agrees to
notify the Company in writing immediately after he or she makes a disposition
(as described in the Code and regulations thereunder) of any stock acquired
pursuant to the exercise of incentive stock options granted under the Plan. A
disqualifying disposition is generally any disposition occurring within two
years of the date of
5
<PAGE>
incentive stock option was granted or within one year of the date the incentive
stock option was exercised, whichever period ends later.
IN WITNESS WHEREOF, the Company has caused its duly authorized officer to
execute and attest this Stock Option Grant, effective as of the Date of Grant.
LIFEF/X, INC.
By:
_____________________________
Its:______________________
Accepted:
________________________
________, Grantee
6
<PAGE>
CERTIFICATE OF SECRETARY
The undersigned hereby certifies that he is the duly authorized
Secretary of Lifef/x, Inc. (the "Corporation"), a Nevada corporation, and that
the following amendments to the Corporation's 1999 Long Term Incentive Plan were
approved by Written Consent of the Board of Directors dated as of March 14,
2000. Such amendments are subject to stockholder approval within 12 months from
such date.
AMENDMENTS TO OPTION PLAN
-------------------------
WHEREAS, it is deemed to be in the best interests of this Corporation
and its stockholders to amend its 1999 Long Term Incentive Plan (the
"Plan") to (a) increase the aggregate number of shares of its
authorized, unissued common stock available for issuance upon the
exercise of options granted under the Plan by 2,452,475 shares, from
5,529,375 shares (the "Existing Option Pool") to 7,981,850 shares in
the aggregate, (b) authorize and empower the Committee (as defined in
the Plan) to waive the requirements under the Plan, that the holder of
an Option maintain an ongoing relationship with the Corporation,
including, without limitation, the requirement under Section 5(f) of
the Plan that the holder of an Option may only exercise such Option
while employed by the Corporation as an Employee, Key Advisor or
member of the Board (as such terms are defined in the Plan) and (c)
amend Section 4(a) of the Plan to read in its entirety as set forth in
Exhibit A hereto;
---------
WHEREAS, in connection with the above-described increase in the
aggregate number of shares available for issuance upon the exercise of
options granted under the Plan, it is deemed to be in the best
interests of this Corporation and its stockholders to increase the
number of shares of its authorized, unissued common stock reserved for
issuance upon the exercise of options granted under the Plan by
2,452,475 shares, from 5,529,375 shares to 7,981,850 shares in the
aggregate;
NOW, THEREFORE, BE IT RESOLVED, that the aggregate number of shares of
this Corporation's authorized, unissued common stock available for
issuance upon the exercise of options granted under the Plan be, and
hereby is, increased by 2,452,475 shares, from 5,529,375 shares to
7,981,850 shares in the aggregate;
RESOLVED FURTHER, that the aggregate number of shares of this
Corporation's authorized, unissued common stock reserved for issuance
upon the exercise of options granted under the Plan be, and hereby is,
increased by 2,452,475 shares, from 5,529,375 shares to 7,981,850
shares in the aggregate;
RESOLVED FURTHER, that the Plan be and hereby is amended to authorize
and empower the Committee (as defined in the Plan) to waive the
requirements under the Plan, that the holder of an Option maintain an
ongoing relationship with the Corporation,
<PAGE>
including, without limitation, the requirement under Section 5(f) of
the Plan that the holder of an Option may only exercise such Option
while employed by the Corporation as an Employee, Key Advisor or
member of the Board (as such terms are defined in the Plan);
RESOLVED FURTHER, that Section 4(a) of the Plan be and hereby is
amended to read in its entirety as set forth in Exhibit A hereto;
---------
RESOLVED FURTHER, that the foregoing amendments to the Plan be
submitted to this Corporation's stockholders for approval;
RESOLVED FURTHER, that any options granted in excess of the Existing
Option Pool, any waivers of ongoing relationship requirements with the
Corporation and any extensions of exercise periods of nonqualified
stock options be, and hereby are, conditioned upon the approval of the
amendments to the Plan by at least a majority of this Corporation's
stockholders;
RESOLVED FURTHER, that any action or actions heretofore taken by
Lucille Salhany, Michael Rosenblatt or Richard Guttendorf on behalf of
this Corporation in connection with the foregoing resolutions are
hereby ratified and approved as the actions of this Corporation;
RESOLVED FURTHER, that any officer of this Corporation, acting alone,
be and hereby is authorized, empowered and directed, for and on behalf
of this Corporation, to take such further action and execute and
deliver any additional agreements, instruments, certificates,
securities filings, including a proxy statement or information
statement, or other documents, and to make any other filings and to
take any additional steps as any such officer deems necessary or
appropriate to effectuate the purposes of the foregoing resolutions.
2
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Secretary as of March 14, 2000.
/s/ Richard Guttendorf
-----------------------------------
Richard A. Guttendorf, Secretary
3
<PAGE>
EXHIBIT A
AMENDMENT TO SECTION 4(a) OF OPTION PLAN
----------------------------------------
4. Eligibility for Participation
-----------------------------
(a) Eligible Persons. All employees of the Company and its parent and
----------------
subsidiaries ("Employees"), including Employees who are officers or members of
the Board, and members of the Board who are not Employees ("Non-Employee
Directors") shall be eligible to participate in the Plan. Advisors who perform
services to the Company or any of its subsidiaries and affiliates ("Key
Advisors") shall be eligible to participate in the Plan if the Key Advisors
render bona fide services and such services are not in connection with the offer
or sale of securities in a capital-raising transaction.
<PAGE>
EXHIBIT 10.7
INDEMNIFICATION AGREEMENT
-------------------------
THIS INDEMNIFICATION AGREEMENT, dated as of December 14, 1999 (this
"Agreement"), is made and entered into by and among Safeguard Scientifics, Inc.,
a Pennsylvania corporation ("Safeguard"), Lifef/x Networks, Inc., a Delaware
corporation formerly known as Pacific Title/Mirage, Inc. ("Transferor"), and PTM
Productions, Inc., a Delaware corporation ("Transferee"), with reference to the
following:
A. Pursuant to an Agreement and Plan of Merger of even date herewith by
and among Transferor, Lifef/x, Inc., a Nevada corporation formerly known as FIN
Sports U.S.A., Inc. ("Parent"), and a newly formed wholly-owned subsidiary of
Parent ("Subsidiary"), Subsidiary will be merged with and into Transferor, with
Transferor being the surviving corporation and becoming a wholly-owned
subsidiary of Parent (the "Merger").
B. Transferor currently has three active operating divisions consisting of
the "Lifef/x Division", the "Optical Division", and the "Scanning and Recording
Division", and a now-defunct operating division known as the "Digital Division".
C. The Merger is being undertaken as part of a plan of reorganization of
Transferor to fund and exploit the Lifef/x technology of the Lifef/x Division.
D. Concurrently with the execution hereof, Transferor, Transferee, and
Safeguard Delaware, Inc., a Delaware corporation ("SDI"), have entered into that
certain Assignment and Assumption Agreement of even date herewith (the
"Assignment and Assumption Agreement") pursuant to which, among other things,
Transferor has agreed to transfer to Transferee (the "Spin-Off") substantially
all of its assets and liabilities other than those relating primarily to its
Lifef/x Division (the "Spin-Off Assets and Liabilities") and Transferee has
agreed to indemnify Transferor for certain liabilities and obligations in
connection therewith.
E. Inasmuch as the Spin-Off was not consummated prior to the Merger,
Safeguard is willing to indemnify Transferor for liabilities and obligations in
connection with the Optical Division and the Scanning and Recording Division
(including, without limitation, shortfalls in connection with the operation
thereof), the Gower Lease (as hereinafter defined), the equipment leases
relating to Transferor's Digital Division, and the indebtedness outstanding
under the loan facilities provided to Transferor by Silicon Valley Bank ("SVB"),
in accordance with the terms and conditions set forth herein. In consideration
for such indemnification, Transferor is willing to grant to Safeguard a security
interest in all the assets to be transferred to Transferee in connection with
the Spin-Off and certain proceeds from such assets.
F. Transferee is willing to indemnify Safeguard for any of its losses
incurred in connection with its indemnification obligations to Transferor
hereunder in consideration for, among other things, amounts advanced or to be
advanced by Safeguard with respect to the Spin-Off Assets and Liabilities being
held in trust for Transferee by Transferor.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants set forth herein, the parties hereby agree as follows:
1. Indemnification by Safeguard.
----------------------------
(a) Indemnification. Effective as of the date of this Agreement
---------------
(the "Effective Date"), Safeguard shall indemnify, defend and hold harmless
Transferor and its stockholders, directors, officers, employees, agents,
attorneys and representatives (collectively, the "Transferor Indemnified
Parties"), from and against any and all Losses (as hereinafter defined) which
may be incurred or suffered by any or all of the Transferor Indemnified Parties
and which have arisen or resulted from or may arise out of or result from the
Spin Off Assets and Liabilities and the operation of the Optical Division,
Scanning and Recording Division and the Digital Division, including without
limitation, (i) any and all amounts due and payable in the ordinary course to
the lessor under that certain Standard Industrial/Commercial Single-Tenant
Lease-Net dated December 12, 1997 by and between A&G LLC and Transferor
relating to that certain premises located at 1149 North Gower Street, Los
Angeles, California (the "Gower Lease"), (ii) any and all amounts due and
payable to the lessors under the equipment leases relating to Transferor's
Optical Division, Scanning and Recording Division, and Digital Division, (iii)
shortfalls in the ordinary course day to day operations of Transferor's Optical
Division and Scanning and Recording Division under contracts and other
arrangements entered into in the ordinary course of business of such Divisions
(collectively, the "Day to Day Operations") and (iv) all indebtedness
outstanding under that certain Loan and Security Agreement dated as of October
31, 1997, as amended, and the documents and instruments executed in connection
therewith (collectively, the "Loan Documents") by and between Transferor and
SVB. All such indemnification obligations are hereinafter collectively referred
to as the "Safeguard Indemnification Obligations". As used herein, "Losses"
shall mean all losses, liabilities, damages, awards, judgments, assessments,
fines, sanctions, penalties, charges, costs, expenses, payments, however
suffered or characterized, all interest thereon, all costs and expenses of
investigating any claim, lawsuit or arbitration and any appeal therefrom, all
actual attorneys', accountants', and expert witness' fees and expenses
(including without limitation all disbursements) incurred in connection
therewith, whether or not such claim, lawsuit or arbitration is ultimately
defeated and, subject to the other provisions of this Section 1(a), all amounts
paid incident to any compromise or settlement of any such claim, lawsuit or
arbitration. Notwithstanding anything to the contrary contained herein,
Safeguard shall have no obligation to indemnify the Transferor Indemnified
Parties for Losses to the extent that such Losses relate to (i) assets used in
Transferor's Lifef/x business, or (ii) liabilities that arose or resulted from
or may arise or result from Transferor's Lifef/x business (collectively, the
"Excluded Safeguard Indemnification Obligations"). Each of Transferor and
Safeguard shall use its best efforts to reach mutual agreement on the amount and
allocation of the Excluded Safeguard Indemnification Obligations. If such
parties are unable to reach such mutual agreement, the dispute shall be
submitted to binding arbitration in Los Angeles, California. Such arbitration
shall be conducted by the
2
<PAGE>
American Arbitration Association, whose rules applicable to commercial disputes
shall be in force.
(b) Notice. If any Transferor Indemnified Party receives notice of
------
any claim, action or proceeding with respect to which Safeguard is obligated to
provide indemnification pursuant to Section 1(a), the Transferor Indemnified
Party shall promptly give Safeguard written notice thereof, which notice shall
specify in reasonable detail, if known, the amount or an estimate of the amount
of the liability arising therefrom and the basis of the claim. Such notice shall
be a condition precedent to any liability of Safeguard for indemnification
hereunder, but the failure of the Transferor Indemnified Party to give prompt
notice of a claim shall not adversely affect the Transferor Indemnified Party's
right to indemnification hereunder unless the defense of that claim is
materially prejudiced by such failure.
(c) Third-Party Claims. Safeguard shall have the right to conduct
------------------
and control at its own cost, through its own counsel, the defense, compromise or
settlement of any third-party claim, action or suit involving a Transferor
Indemnified Party as to which indemnification is sought, and such Transferor
Indemnified Party shall cooperate at no cost and furnish any records,
information and testimony and attend any conferences, discovery proceedings,
hearings, trials and appeals as Safeguard may reasonably request. The Transferor
Indemnified Party shall be entitled at any time to participate in (but not
direct) the defense of any such claim, action or proceeding through its own
counsel and at its own expense. The Transferor Indemnified Party shall not
compromise or settle any third-party claim that is subject to indemnification
under this Agreement without the prior written consent of Safeguard, which shall
not be unreasonably withheld or delayed.
2. Indemnification by Transferee.
-----------------------------
(a) Indemnification. Effective as of the Effective Date, Transferee
---------------
shall indemnify, defend and hold harmless Safeguard and its affiliates,
stockholders, directors, officers, employees, agents, attorneys and
representatives (collectively, the "Safeguard Indemnified Parties"), from and
against any and all Losses (as hereinafter defined) which may be incurred or
suffered by any or all of the Safeguard Indemnified Parties and which have
arisen or resulted from or may arise out of or result from the Security
Agreement (as hereinafter defined) or from the Safeguard Indemnification
Obligations (collectively, the "Transferee Indemnification Obligations"). As
used herein, "Losses" shall mean all losses, liabilities, damages, awards,
judgments, assessments, fines, sanctions, penalties, charges, costs, expenses,
payments, however suffered or characterized, all interest thereon, all costs and
expenses of investigating any claim, lawsuit or arbitration and any appeal
therefrom, all actual attorneys', accountants', and expert witness' fees and
expenses (including without limitation all disbursements) incurred in connection
therewith, whether or not such claim, lawsuit or arbitration is ultimately
defeated and, subject to the other provisions of this Section 2(a), all amounts
paid incident to any compromise or settlement of any such claim, lawsuit or
arbitration.
(b) Notice. If any Safeguard Indemnified Party receives notice of
------
any claim, action or proceeding with respect to which Transferee is obligated to
provide indemnification pursuant to Section 2(a), the Safeguard Indemnified
Party shall promptly give Transferee written notice thereof, which notice shall
specify in reasonable detail, if known, the
3
<PAGE>
amount or an estimate of the amount of the liability arising therefrom and the
basis of the claim. Such notice shall be a condition precedent to any liability
of Transferee for indemnification hereunder, but the failure of the Safeguard
Indemnified Party to give prompt notice of a claim shall not adversely affect
the Safeguard Indemnified Party's right to indemnification hereunder unless the
defense of that claim is materially prejudiced by such failure.
(c) Third-Party Claims. Safeguard (or Transferee, if Safeguard
------------------
elects not to exercise such rights) shall have the right to conduct and control
at its own cost, through its own counsel, the defense, compromise or settlement
of any third-party claim, action or suit involving a Safeguard Indemnified Party
as to which indemnification is sought, and such Safeguard Indemnified Party
shall cooperate at no cost and furnish any records, information and testimony
and attend any conferences, discovery proceedings, hearings, trials and appeals
as Safeguard (or Transferee, if applicable) may reasonably request; provided,
however, that if Safeguard elects to conduct and control a third-party claim as
set forth above, all costs and expenses incurred by Safeguard in connection with
such conduct and control shall be reimbursed to Safeguard by Transferee. The
Safeguard Indemnified Party shall be entitled at any time to participate in (but
not direct) the defense of any such claim, action or proceeding through its own
counsel and at its own expense. The Safeguard Indemnified Party shall not
compromise or settle any third-party claim that is subject to indemnification
under this Agreement without the prior written consent of Safeguard (or
Transferee, if applicable), which shall not be unreasonably withheld or delayed.
3. Security Interest. As security for (a) the prompt and full
-----------------
performance of the Transferee Indemnification Obligations, (b) the prompt
repayment and full performance of any and all of Transferor's and Transferee's
obligations to SDI, with respect to all loans and advances made by SDI to
Transferor during the period from October 1, 1999 to the Closing Date (as
defined in the Assignment and Assumption Agreement), and (c) the prompt
repayment and full performance of any and all of Transferee's obligations to
Safeguard or SDI evidenced by a promissory note and arising from and after the
Closing Date, Transferee shall, on the Closing Date, pursuant to the terms of a
security agreement substantially in the form attached hereto as Exhibit "A" (the
"Security Agreement"), grant to Safeguard, as agent for itself and on behalf of
SDI, a security interest in the Collateral (as defined in the Security
Agreement). Transferee shall, on the Closing Date, execute and deliver to
Safeguard, as agent, any and all financing statements or other documents or
instruments necessary or appropriate to perfect the security interests granted
to Safeguard, as agent, pursuant to the Security Agreement. Transferee hereby
acknowledges that the assets transferred to Transferee in connection with the
Spin-Off shall remain subject to the security interest granted pursuant to the
Security Agreement.
4. Subordination. The liens and security interests granted to SVB under
-------------
the Loan Documents are superior and have priority over the liens and security
interests granted to Safeguard, as agent, under the Security Agreement.
5. Conditions Precedent. On or before the Effective Date and as a
--------------------
condition precedent to the occurrence thereof, each of Safeguard and Transferor
shall have executed and delivered all other certificates, documents, instruments
and writings reasonably required to be delivered by it on or before the
Effective Date pursuant to this Agreement or otherwise reasonably required in
connection herewith.
4
<PAGE>
6. Further Assurances. Each of the parties hereto shall, at any time and
------------------
from time to time after the date hereof, upon request of the other parties,
execute, acknowledge and deliver all such further acts, deeds, assignments,
transfers, conveyances, and assurances, and take all such further actions, as
shall be necessary or desirable to give effect to the transactions contemplated
hereby.
7. Notices. All notices, requests and other communications hereunder
-------
shall be in writing and shall be delivered by courier or other means of personal
service (including by means of a nationally recognized courier service or
professional messenger service), or sent by telex or telecopy or mailed first
class, postage prepaid, by certified mail, return receipt requested, in all
cases, addressed to:
Safeguard: Safeguard Scientifics, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne PA 19087 Attn: Steve Rosard, Esq.
Facsimile: (610) 293-0601
Transferor: Lifef/x Networks, Inc.
(f/k/a Pacific Title/Mirage, Inc.)
8 Cambridge Center
Cambridge, MA 02142-1401
Attn: Mr. Richard Guttendorf
Facsimile: (617) 551-5848
Transferee: PTM Productions, Inc.
c/o Safeguard Scientifics, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087-1945
Attn: Steve Rosard, Esq. & Mr. Richard Guttendorf
Facsimile: (610) 293-0601
All notices, requests and other communications shall be deemed given
on the date of actual receipt or delivery as evidenced by written receipt,
acknowledgment or other evidence of actual receipt or delivery (or attempted
delivery) to the address specified above. In case of service by telecopy, a copy
of such notice shall be personally delivered or sent by registered or certified
mail, in the manner set forth above, within three (3) business days thereafter.
Any party hereto may from time to time by notice in writing served as set forth
above designate a different address or a different or additional person to which
all such notices or communications thereafter are to be given.
8. Choice of Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of California.
5
<PAGE>
9. Third Party Beneficiaries. This Agreement is entered into for
-------------------------
the sole protection and benefit of the parties hereto and their respective
successors and permitted assigns, and no other person shall be a direct or
indirect beneficiary of, or shall have any direct or indirect cause of action or
claim in connection with, this Agreement, nor is anything in this Agreement
intended to relieve or discharge the obligation or liability of any third
persons to any party to this Agreement. Notwithstanding anything to the contrary
contained herein, each of the Safeguard Indemnified Parties (other than
Safeguard) and its heirs, successors and permitted assigns, and each of the
Transferor Indemnified Parties (other than Transferor) and its heirs, successors
and permitted assigns, shall be deemed to be a third-party beneficiary of this
Agreement but solely with respect to Sections 1 and 2 hereof, respectively.
10. Waiver. The waiver or failure of either party to exercise in any
------
respect any right provided for in this Agreement shall not be deemed a waiver of
any further right under this Agreement.
11. Severability. If any provision of this Agreement is invalid,
------------
illegal or unenforceable under any applicable statute or rule of law, it is to
that extent to be deemed omitted. The remainder of the Agreement shall be valid
and enforceable to the maximum extent possible.
12. Assignment. This Agreement and the covenants and agreements
----------
herein contained shall inure to the benefit of and shall bind the respective
parties hereto and their respective successors and permitted assigns. Either
party may assign its interest under this Agreement with the prior written
consent of the other party hereto, which consent shall not be unreasonably
withheld or delayed.
13. Gender. Any of the terms defined in this Agreement may, unless
------
the context otherwise requires, be used in the singular or the plural and in any
gender depending on the reference, and all references in this Agreement to a
person or entity shall be deemed to include that person's heirs, personal
representatives, administrators, successors and permitted assigns.
14. Entire Agreement. This Agreement is intended to embody the
----------------
final, complete and exclusive agreement among the parties with respect to the
subject matter hereof and is intended to supersede all prior agreements,
understandings and representations written or oral, with respect thereto, and
may not be contradicted by evidence of any such prior or contemporaneous
agreement, understanding or representation, whether written or oral.
15. Arbitration. The sole and exclusive jurisdiction, venue and
-----------
means for resolving any controversy or claim arising out of, relating to or
concerning this Agreement (including, without limitation, the agreement to
arbitrate contained in this Section 15), the compliance by any party herewith,
any claim in tort, or any claim for violation of any federal, state or local
statute, ordinance or regulation, shall be binding arbitration in Los Angeles
County, California. The arbitration shall be conducted by the American
Arbitration Association, whose rules applicable to commercial disputes shall be
in force, and judgment or the award rendered by the arbitrator may be entered by
any court having jurisdiction thereof. There shall be one arbitrator to be
mutually selected by the parties to the arbitration. The fees of the arbitrator,
6
<PAGE>
administrative fees, and the other fees and costs of the arbitration, including,
but not limited to, the cost of any record or transcripts of the arbitration,
shall be advanced by the parties to the arbitration in equal portions, and, in
addition thereto, each such party shall advance the fees of its own attorneys,
the expenses of its witnesses and all other expenses connected with presenting
its case. THE PARTIES HERETO WAIVE THE RIGHT TO A TRIAL BY JURY IN CONNECTION
WITH ANY ARBITRABLE CONTROVERSY OR CLAIM.
16. Attorneys' Fees. Without limiting the enforceability of Section
---------------
15 above, if any action or proceeding is commenced in arbitration or otherwise
by any party to enforce its rights under this Agreement or to collect damages as
a result of the breach of any of the provisions of this Agreement, the
prevailing party in such action or proceeding, including any bankruptcy,
insolvency or appellate proceedings, shall be entitled to recover all reasonable
costs and expenses, including, without limitation, reasonable attorneys' fees
and court costs and other amounts advanced in accordance with Section 15 above,
in addition to any other relief awarded by the arbitrator or court.
17. Amendments. This Agreement shall not be altered, modified or
----------
amended except by a written instrument signed by each of the parties hereto.
18. Headings. The captions and headings used in this Agreement are
--------
for convenience only and shall not be construed as a part of this Agreement.
19. Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
SAFEGUARD:
---------
SAFEGUARD SCIENTIFICS, INC.,
a Pennsylvania corporation
By: /s/ Steven Rosard
________________________________________
Name: Steven J. Rosard
______________________________________
Title: Vice President
_____________________________________
TRANSFEROR:
----------
LIFEF/X NETWORKS, INC.
(F/K/A PACIFIC TITLE/MIRAGE, INC.),
a Delaware corporation
By: /s/ Richard A. Guttendorf
________________________________________
Richard A. Guttendorf
Chief Financial Officer and Secretary
TRANSFEREE:
----------
PTM PRODUCTIONS, INC.,
a Delaware corporation
By: /s/ Richard A. Guttendorf
________________________________________
Richard A. Guttendorf
President
[INDEMNIFICATION AGREEMENT]
<PAGE>
EXHIBIT 10.8
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT, dated as of March 20, 2000 (this
"Agreement"), is made and entered into by and among PTM Productions, Inc., a
Delaware corporation ("Obligor") and Safeguard Scientifics, Inc., a Pennsylvania
corporation ("Safeguard", and, in its capacity as agent, "Secured Party"), as
agent for itself and on behalf of Safeguard Delaware, Inc., a Delaware
corporation ("SDI"), with reference to the following:
A Prior to the execution hereof, SDI, Obligor and Lifef/x Networks,
Inc., a Delaware corporation formerly known as Pacific Title/Mirage, Inc.
("Lifef/x") entered into that certain Assignment and Assumption Agreement dated
as of December 14, 1999 (the "Assignment and Assumption Agreement") pursuant to
which, among other things, Lifef/x agreed to transfer to Obligor substantially
all of its assets and liabilities other than those relating primarily to its
Lifef/x Division, and Obligor agreed to indemnify Lifef/x for certain
liabilities and obligations in connection therewith.
B Concurrently with the execution of the Assignment and Assumption
Agreement, Safeguard, Obligor and Lifef/x entered into that certain
Indemnification Agreement dated as of December 14, 1999 (the "Indemnification
Agreement"), pursuant to which, among other things, (i) Safeguard agreed to
indemnify Lifef/x for certain liabilities and obligations, and (ii) Obligor
agreed to indemnify Safeguard and its affiliates for any of its losses incurred
as a result of such indemnification obligations.
C Pursuant to the terms of the Indemnification Agreement, Obligor
agreed to grant Safeguard, as agent for itself and on behalf of SDI, a security
interest in the Collateral (as hereinafter defined) as contemplated by this
Agreement.
D Capitalized terms used herein but not otherwise defined herein shall
have the meanings ascribed to them in the Indemnification Agreement, and if not
defined therein, in the Assignment and Assumption Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained and contained in the Indemnification Agreement, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Obligor hereby agrees as follows:
SECTION 1. Grant of Security Interest. Obligor hereby grants to Secured
--------------------------
Party a continuing security interest in Obligor's right, title and interest in
and to all of the Assets and all proceeds, replacements, products, additions,
accessions and substitutions of such Assets (collectively, the "Collateral"),
and Secured Party hereby acknowledges that the Collateral does not include the
Excluded Assets. Nothing in this Agreement shall be deemed to constitute an
assumption by Secured Party of any liability or obligation of Obligor with
respect to any of the Collateral.
SECTION 2. Security for Obligations. This Agreement secures, and the
------------------------
Collateral is security for the prompt payment or performance in full when due,
whether at stated maturity, by acceleration or otherwise (including the payment
of amounts which would become due but for
<PAGE>
the operation of the automatic stay under Section 362(a) of the Bankruptcy Code,
11 U.S.C. (S) 362(a)), of (a) the Transferee Indemnification Obligations, (b)
any and all of Obligor's and Lifef/x's obligations to SDI with respect to all
loans and advances made by SDI to Lifef/x during the period from October 1, 1999
to the Closing Date, and (c) any and all of Obligor's obligations to Safeguard
or SDI evidenced by a promissory note and arising from and after the Closing
Date. All such obligations shall collectively be referred to herein as the
"Secured Obligations".
It is the intention of Obligor that the continuing grant of security
interests provided for herein shall remain as security for the payment and
performance of the Secured Obligations, whether now existing or hereinafter
incurred by future advances or otherwise, and whether or not contemplated by the
parties at the date hereof. No notice of the continuing grant of such security
interests, therefore, shall be required to be stated on the face of any document
representing any such Secured Obligation nor shall it otherwise be necessary to
identify any such Secured Obligation as being secured hereby.
SECTION 3. Subordination. The liens and security interests granted to
-------------
Silicon Valley Bank under that certain Loan and Security Agreement dated as of
October 31, 1997 by and between Silicon Valley Bank ("SVB") and Lifef/x, as
assumed on the Closing Date by Obligor, and the documents and instruments
executed in connection therewith including, without limitation, those executed
on the Closing Date, are superior and have priority over the liens and security
interests granted to Secured Party hereunder. Secured Party hereby agrees to
execute and deliver all subordination, intercreditor or similar agreements
requested by SVB to reflect the foregoing.
SECTION 4. Representations and Warranties. Obligor represents and warrants
------------------------------
that Obligor has full power, authority and legal right to grant to Secured Party
a security interest in the Collateral pursuant to this Agreement, and the
execution and delivery of this Agreement have been duly authorized by Obligor.
SECTION 5. Affirmative Covenants. Obligor covenants that until such time
---------------------
as all of the Secured Obligations are paid or satisfied in full, unless Secured
Party shall otherwise consent in writing:
(a) Delivery of Collateral. With respect to any Collateral as to
----------------------
which Secured Party's security interest need or may be perfected by, or the
priority thereof need be assured by, possession of such Collateral, Obligor
shall upon written demand of Secured Party deliver possession of same in pledge
to Secured Party, endorsed or accompanied by such instruments of assignment or
transfer as Secured Party may specify and stamped or marked in such manner as
Secured Party may specify;
(b) Payment of Taxes. Obligor shall pay or cause to be paid all
----------------
taxes and other levies with respect to the Collateral when the same become due
and payable except to the extent contested in good faith and bonded;
(c) Use and Maintenance of Collateral. Obligor shall comply with all
---------------------------------
laws, statutes and regulations pertaining to its use and ownership of the
Collateral and its conduct of its business; properly care for and maintain all
of the Collateral in good condition, free of misuse,
2
<PAGE>
abuse, waste and deterioration, reasonable wear and tear of intended use
excepted; and keep accurate and complete books and records pertaining to the
Collateral;
(d) Insurance. Obligor shall, at its own expense, keep the
---------
Collateral insured against loss by fire, theft and other extended coverage
hazards for the full value thereof;
(e) Inspection. Obligor shall give Secured Party such information as
----------
may reasonably be requested concerning the Collateral and shall at all
reasonable times and upon reasonable notice permit Secured Party and its agents
and representatives to enter upon any premises upon which the Collateral is
located for the purpose of inspecting the Collateral. Furthermore, Secured Party
shall at all reasonable times on reasonable notice have full access to and the
right to audit any and all of Obligor's books and records pertaining to the
Collateral and to confirm and verify the value of the Collateral; and
(f) Further Assurances. Obligor agrees that at any time and from
------------------
time to time, at the expense of Obligor, Obligor will promptly execute and
deliver all further instruments and documents, and take all further action, that
may be necessary or desirable, or that Secured Party may reasonably request, in
order to perfect and to protect any security interest granted or purported to be
granted hereby with respect to any Collateral.
SECTION 6. Negative Covenants.
------------------
Obligor covenants that until such time as all of the Secured Obligations
are paid or satisfied in full, except as otherwise contemplated by the
Assignment and Assumption Agreement, without the prior written consent of
Secured Party:
(a) Sale or Hypothecation of Collateral. Obligor shall not directly
-----------------------------------
or indirectly, whether voluntarily, involuntarily, by operation of law or
otherwise (i) sell, assign, transfer, exchange, lease, lend, grant any option
with respect to, return or dispose of any of the Collateral (other than in the
ordinary course of Obligor's business), or any of Obligor's rights therein, or
enter into any agreement to take any of the foregoing actions, nor (ii) create
or permit to exist any lien on or with respect to any of the Collateral, except
for the lien in favor of Secured Party and any other liens existing on the date
hereof; and
(b) Location of Collateral; Changes of Name. Obligor shall not,
---------------------------------------
without giving to Secured Party at least thirty (30) days' prior written notice,
(i) cause or allow any of the Collateral to be moved; (ii) move its principal
place of business or the location of its books or records; (iii) change its
name, its trade or fictitious business name(s), business structure or its form
of doing business; or (iv) liquidate, merge or consolidate with or into any
other business organization.
SECTION 7. Secured Party Appointed Attorney-in-Fact. Obligor hereby
----------------------------------------
appoints Secured Party Obligor's attorney-in-fact with full authority in the
place and stead of Obligor and in the name of Obligor or otherwise, at any time
following the occurrence and during the continuance of an Event of Default, in
Secured Party's sole and absolute discretion, to take any action and to execute
any instrument which Secured Party may deem necessary or advisable to accomplish
the purposes of this Agreement. Obligor acknowledges that the foregoing grant of
power of attorney is coupled with an interest and is irrevocable.
3
<PAGE>
SECTION 8. Remedies upon Default. If any default with respect to the
---------------------
Secured Obligations shall have occurred and be continuing:
(a) Notification to Third Parties. Secured Party may notify any
-----------------------------
purchaser of Collateral or any other person of Secured Party's interest in the
Collateral and instruct any such persons to make payments thereon directly to
Secured Party.
(b) Compromise of Claims. Secured Party may in good faith grant
--------------------
extensions, compromise claims and settle Collateral for less than face value.
(c) Other Rights Against the Obligor. Secured Party may exercise in
--------------------------------
respect of the Collateral, in addition to other rights and remedies provided for
herein or otherwise available to it, all the rights and remedies of a secured
party under the Uniform Commercial Code as adopted in the State of California
(the "Code"), and Secured Party may also without notice except as specified
below sell the Collateral or any part thereof in one or more parcels at public
or private sale, for cash, on credit or for future delivery, and upon such other
terms as Secured Party in its sole and absolute discretion may deem commercially
reasonable. Obligor agrees that, to the extent notice of sale shall be required
by law, at least ten (10) business days' notice to Obligor of the time and place
of any public sale or the time after which any private sale is to be made shall
constitute reasonable notification. Secured Party shall not be obligated to make
any sale of Collateral regardless of notice of sale having been given. Secured
Party may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned. At any such public
or private sale, Secured Party may be the purchaser of the Collateral.
(d) Application of Proceeds. Any cash held by Secured Party as
-----------------------
Collateral and all cash proceeds received by Secured Party in respect of any
sale of, collection from, or other realization upon all or any part of the
Collateral may, in the discretion of Secured Party, be held by Secured Party as
Collateral for, and/or then or at any time thereafter applied (after payment of
any amounts payable to Secured Party pursuant to Section 10 hereof) in whole or
in part by Secured Party against all or any part of the Secured Obligations in
such order as Secured Party shall elect. After such application and after
payment by Secured Party of any other amount required by law, including, without
limitation Section 9-504(1)(c) of the Code, any surplus of such cash or cash
proceeds held by Secured Party and remaining after payment in full of all the
Secured Obligations shall be paid over to Obligor or to whomsoever may be
lawfully entitled to receive such surplus. In a like manner, Obligor shall pay
to Secured Party, without demand, whatever amount of the Secured Obligations
remains unpaid after the Collateral has been sold and the proceeds applied as
aforesaid, together with interest thereon from the date of demand at an interest
rate of ten percent (10%) per annum, which interest shall also constitute a part
of the Secured Obligations.
(e) Other Rights. Secured Party shall not be obligated to resort to
------------
its rights or remedies with respect to any other security for or guaranty or
payment of the Secured Obligations before resorting to its rights and remedies
against Obligor or the Collateral hereunder. All rights and remedies of Secured
Party shall be cumulative and not in the alternative.
4
<PAGE>
SECTION 9. Amendments, Waiver. No amendment or waiver of any provision of
------------------
this Agreement nor consent to any departure by Obligor herefrom shall in any
event be effective unless the same shall be in writing and signed by Secured
Party, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 10. Notices. All notices, demands and requests of any kind which
-------
either party may be required or desires to serve upon the other hereunder shall
be in writing and shall be delivered and be effective in accordance with the
notice provision of the Indemnification Agreement.
SECTION 11. Continuing Security Interest; Assignment of Obligations. This
-------------------------------------------------------
Agreement shall create a continuing security interest in the Collateral and
shall (a) remain in full force and effect until indefeasible payment in full of
the Secured Obligations, (b) be binding upon Obligor, its successors and
assigns, (c) inure, together with the rights and remedies of Secured Party
hereunder, to the benefit of Secured Party and its successors, transferees and
assigns, (d) constitute, along with the Assignment and Assumption Agreement, the
Indemnification Agreement, and the documents and agreements executed in
connection therewith, the entire agreement between Obligor and Secured Party,
and (e) be severable in the event that one or more of the provisions herein is
determined to be illegal or unenforceable. Without limiting the generality of
the foregoing clause (c), Secured Party may assign or otherwise transfer any
Secured Obligation to any other person or entity, and such other person or
entity shall thereupon become vested with all the benefits in respect thereof
granted to Secured Party herein or otherwise. Upon the payment in full of the
Secured Obligations, Secured Party, at expense of Obligor, shall release the
security interests in the Collateral granted herein and execute such termination
statements as may be necessary therefor, to the extent that such Collateral
shall not have been sold or otherwise applied pursuant to the terms hereof.
SECTION 12. Return of Collateral. Subject to any duty imposed by law or
--------------------
otherwise to the holder of any subordinate lien on the Collateral known to
Secured Party, and subject to the direction of a court of competent
jurisdiction, upon the indefeasible payment in full of the Secured Obligations,
Obligor shall be entitled to the return of all Collateral in the possession of
Secured Party.
SECTION 13. Governing Law; Terms. This Agreement shall be governed by, and
--------------------
construed in accordance with, the laws of the State of California. Unless
otherwise defined herein, in the Assignment and Assumption Agreement, or in the
Indemnification Agreement, terms defined in the Code are used herein as therein
defined.
SECTION 14. Arbitration. The sole and exclusive jurisdiction, venue and
-----------
means for resolving any controversy or claim arising out of, relating to or
concerning this Agreement (including, without limitation, the agreement to
arbitrate contained in this Section 14), the compliance by any party herewith,
any claim in tort, or any claim for violation of any federal, state or local
statute, ordinance or regulation, shall be binding arbitration in Los Angeles
County, California. The arbitration shall be conducted by the American
Arbitration Association, whose rules applicable to commercial disputes shall be
in force, and judgment or the award rendered by the arbitrator may be entered by
any court having jurisdiction thereof. There shall be one arbitrator to be
mutually selected by the parties to the arbitration. The fees of the arbitrator,
5
<PAGE>
administrative fees, and the other fees and costs of the arbitration, including,
but not limited to, the cost of any record or transcripts of the arbitration,
shall be advanced by the parties to the arbitration in equal portions, and, in
addition thereto, each such party shall advance the fees of its own attorneys,
the expenses of its witnesses and all other expenses connected with presenting
its case. THE PARTIES HERETO WAIVE THE RIGHT TO A TRIAL BY JURY IN CONNECTION
WITH ANY ARBITRABLE CONTROVERSY OR CLAIM.
SECTION 15. Miscellaneous. No failure or delay on the part of any of the
-------------
parties to exercise any power, right or privilege under this Agreement shall
impair any such power, right or privilege, or be construed to be a waiver of any
default or an acquiescence therein, nor shall any single or partial exercise of
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege. No provision of this Agreement may be
changed, waived, discharged or terminated except by an instrument in writing
signed by the party against whom enforcement of the change, waiver, discharge or
termination is sought. This Agreement may be executed in any number of
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same instrument. Any of the terms defined
in this Agreement may, unless the context otherwise requires, be used in the
singular or the plural and in any gender depending on the reference. Each of the
parties shall execute such further documents and other papers and perform such
further acts as may be reasonably required or desirable to carry out the
provisions hereof and the transactions contemplated herein. The descriptive
headings are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
SECURED PARTY:
SAFEGUARD SCIENTIFICS, INC.,
a Pennsylvania corporation, as agent
By: /s/ Steven Rosard
__________________________________
Name: Steven J. Rosard
________________________________
Title: Vice President
_______________________________
OBLIGOR:
-------
PTM PRODUCTIONS, INC.,
a Delaware corporation
By: /s/ Richard Guttendorf
__________________________________
Richard Guttendorf
President
[SECURITY AGREEMENT]
<PAGE>
EXHIBIT 10.9
ASSIGNMENT AND ASSUMPTION AGREEMENT
-----------------------------------
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement") is made and
entered into as of December 14, 1999, by and among Lifef/x Networks, Inc., a
Delaware corporation formerly known as Pacific Title/Mirage, Inc.
("Transferor"), PTM Productions, Inc., a Delaware corporation ("Transferee"),
and solely with respect to Section 4 below, Safeguard Delaware, Inc., a Delaware
corporation ("SDI"), with reference to the following facts:
A. Transferee is a newly formed Delaware corporation that intends, among
other things, to operate Transferor's Optical and Scanning and Recording
Divisions (collectively, the "Business").
B. Transferor wishes to transfer to Transferee substantially all of its
assets, other than those relating primarily to its Lifef/x Division, in
consideration for Transferee's assumption of substantially all its liabilities,
other than those relating primarily to its Lifef/x Division and Transferee's
indemnification of Transferor for certain liabilities.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Assignment. Upon the satisfaction, or waiver, if applicable, of
---------
all of the conditions precedent set forth in Section 8 hereof (the "Closing
Date"), Transferor shall assign, transfer, convey and deliver to Transferee, and
Transferee shall accept from Transferor, all of Transferor's right, title and
interest in and to all of the business, goodwill, assets, properties and rights
of every nature, kind and description throughout the world, whether tangible or
intangible, wherever located and whether or not carried or reflected on the
books and records of Transferor, which are owned by Transferor or in which
Transferor has any interest, except only the Excluded Assets (as defined below)
and any of the foregoing which relate primarily to the Excluded Assets
(collectively, the "Assets"). The Assets shall include, but not be limited to,
the following:
(a) all real property interests of Transferor including, without
limitation, the real property described on Schedule 1(a) hereto, and all of the
rights arising out of the ownership thereof or appurtenant thereto, together
with all buildings, houses, barns, sheds, warehouses, storage facilities, mobile
homes, farming-related furnishings, fixtures, attachments and improvements
located thereon or attached thereto; roads, bridges, canals, ditches, dams,
dikes, headgates, standpipes, paved areas, storage areas, airstrips and
reservoirs, enclosures, located thereon or attached thereto; all of Transferor's
rights arising out of the ownership or use of any of the foregoing (including
air, water, oil and mineral rights); and all subleases, franchises, licenses,
permits, easements and rights-of-way which are appurtenant to any of the
foregoing (collectively, the "Real Property");
(b) all inventories, including, without limitation, inventories
of raw materials, work in progress, storehouse stocks, materials, supplies,
finished goods and consigned goods, whether located on the premises of
Transferor, in transit to or from such premises, in storage facilities or
otherwise;
<PAGE>
(c) all machinery, equipment, rolling stock, trucks, automobiles,
furniture, supplies, spare parts, tools, stores and other tangible personal
property, including, without limitation, two (2) Kodak Lightning II Laser Film
Recorders (collectively, the "Tangible Personal Property");
(d) all intangible properties owned by Transferor or in which
Transferor has any interest, including, without limitation, (i) all foreign and
domestic registered and unregistered trademarks, service marks, trade names and
slogans, all applications therefor, and all associated goodwill, including,
without limitation, Transferor's right, title and interest in and to the name
"Pacific Title/Mirage, Inc." and any similar names or trade names relating to
the Business; (ii) all statutory, common law and registered copyrights (whether
foreign or domestic), all applications therefor and all associated goodwill;
(iii) all foreign and domestic patents and patent applications, all associated
technical information, shop rights, know-how, trade secrets, processes,
operating, maintenance and other manuals, drawings and specifications, process
flow diagrams and related data, and all associated goodwill; (iv) all "software"
and documentation thereof (including all electronic data processing systems and
program specifications, source codes, input data and report layouts and format,
record file layouts, diagrams, functional specifications, narrative
descriptions, and flow charts), including, without limitation, the domain name
"pactitle.com" registered by Transferor with Network Solutions, Inc. through CRL
Network Services, Inc.; and (v) all other inventions, discoveries, improvements,
processes, formulae (secret or otherwise), data, drawings, specifications, trade
secrets, confidential information, know-how, ideas and intellectual property
rights (including those in the possession of third parties, but which are the
property of Transferor), and all drawings, records, books or other tangible
media embodying the foregoing;
(e) all prepaid items (including, without limitation, insurance
deposits, personal property taxes, real property taxes, municipal or local tax
payments or deposits, and utility deposits), deferred charges, reserve accounts
and other security and similar deposits owned by Transferor or in which
Transferor has any interest;
(f) all licenses, permits, consents, authorizations,
certificates, registrations and other approvals granted or issued to Transferor
or in which Transferor has any interest (including the right to use);
(g) that certain Standard Industrial/Commercial Single-Tenant
Lease-Net dated December 12, 1997 by and between A&G LLC and Transferor relating
to certain premises located at 1149 North Gower Street, Los Angeles, California
(as amended, the "Gower Lease");
(h) that certain Letter of Intent dated December 8, 1999 from
Transferor to A&G LLC relating to the sale of certain of Transferor's assets
(the "A&G LOI");
(i) all contracts (written and oral, including, without
limitation, employment contracts and relationships, whether at-will or
otherwise, and collective bargaining and other union agreements), agreements,
warranties, guaranties, indentures, bonds, personal property leases (including,
without limitation, vehicle leases), operating leases, capital equipment
2
<PAGE>
leases (including, without limitation, all leases that relate to Transferor's
Digital Division), subleases, plans, licenses, purchase orders, sales orders,
commitments or binding arrangements of any nature whatsoever, express or
implied, written or unwritten, and all amendments thereto, entered into by or
binding upon Transferor or to which any of its properties may be subject
(collectively, with the Gower Lease and the A&G LOI, the "Contracts and Other
Agreements");
(j) Transferor's 401(k) Plan (as hereinafter defined) and in
accordance with Section 6 below;
(k) all accounts, notes, accounts receivable, contract rights,
drafts, and other forms of claims, demands, instruments, receivables and rights
to the payment of money or other forms of consideration, whether for goods sold
or leased, services performed or to be performed, or otherwise, owned by
Transferor or in which Transferor has any interest (together with all
guarantees, security agreements and rights and interests securing the same);
(l) all cash and cash equivalents, bank accounts, certificates of
deposit, bankers' acceptances, United States government (or agency) securities,
other securities or ownership interests in other entities owned by Transferor or
in which Transferor has any interest;
(m) all books and records, ledgers, employee records, customer
lists, files, correspondence, tax returns, tax and financial records and
reports, and other written records of every kind owned by Transferor or in which
Transferor has any interest (collectively, the "Books and Records");
(n) all rights of Transferor under express or implied warranties
from suppliers or contractors with respect to the Assets;
(o) all of Transferor's claims, causes of action, choses in
action, rights of recovery and rights of set-off of any kind, including, without
limitation, those relating to or arising out of that certain terminated Asset
Purchase Agreement dated as of June 23, 1999 between Transferor and American
International Industries, Inc.;
(p) all of Transferor's rights to receive mail and other
communications;
(q) all certifications and approvals from all certifying agencies
issued to Transferor and all rights to all data and records held by certifying
agencies;
(r) all goodwill attributable to Transferor's business;
(s) all rights or entitlements to income tax refunds or income
tax credits; and
(t) all other properties, tangible and intangible, not otherwise
referred to above which are owned by Transferor or in which it has any interest.
3
<PAGE>
2. Excluded Assets. Notwithstanding anything in this Agreement to the
---------------
contrary, the following shall be excluded from the Assets purchased hereunder
and shall not constitute Assets (collectively, the "Excluded Assets"):
(a) all assets set forth on Schedule 2(a) hereto, all of which
relate to Transferor's Lifef/x Division;
(b) all of Transferor's right, title and interest in and to the
name "Lifef/x", "Lifef/x Networks", and any similar names or trade names
relating to Transferor's Lifef/x Division;
(c) all proceeds from the private offering by Lifef/x, Inc., a
Nevada corporation formerly known as Fin Sports U.S.A., Inc., which closed on
December 14, 1999;
(d) all stock option plans and stock options;
(e) all prepaid items (including, without limitation, insurance
deposits, personal property taxes, real property taxes, municipal or local tax
payments or deposits, and utility deposits), deferred charges, reserve accounts
and other security and similar deposits owned by Transferor or in which
Transferor has any interest, to the extent the same relate primarily to the
Excluded Assets;
(f) all books and records, ledgers, employee records, customer
lists, files, correspondence, tax returns, tax and financial records and
reports, and other written records of every kind owned by Transferor or in which
Transferor has any interest, to the extent the same relate primarily to the
Excluded Assets;
(g) all of Transferor's claims, causes of action, choses in
action, rights of recovery and rights of set-off of any kind, to the extent the
same relate primarily to the Excluded Assets;
(h) all rights of Transferor under express or implied warranties
from suppliers or contractors, to the extent the same relate primarily to the
Excluded Assets;
(i) all of Transferor's rights to receive mail and other
communications, to the extent the same relate primarily to the Excluded Assets;
(j) all certifications and approvals from all certifying agencies
issued to Transferor and all rights to all data and records held by certifying
agencies, to the extent the same relate primarily to the Excluded Assets; and
(k) all goodwill attributable primarily to the Excluded Assets.
4
<PAGE>
3. Assumption of Liabilities and Obligations.
-----------------------------------------
(a) Assumed Liabilities. As consideration for the assignment,
-------------------
transfer, conveyance and delivery of the Assets to Transferee, effective on the
Closing Date, Transferee shall assume and agree to pay and perform all of
Transferor's liabilities and obligations relating to and arising under or in
connection with the Assets, whether arising or accruing prior to, on or after
the Closing Date, including, without limitation, all liabilities and obligations
relating to (i) the Safeguard Loans (as hereinafter defined), (ii) the
Transferred Employees (as hereinafter defined), (iii) the 401(k) Plan (and in
accordance with Section 6 below), and (iv) all management fees owing to
Safeguard Scientifics, Inc., a Delaware corporation ("SSI"), and its affiliates
and Mirage Technologies Limited Partnership (collectively, the "Assumed
Liabilities"). Notwithstanding anything to the contrary set forth herein,
Transferee shall not be deemed to have assumed any liability or obligation
whatsoever with respect to the Excluded Assets or Transferor's Lifef/x Division,
all of which are retained by Transferor.
(b) Liens Existing on the Closing Date. The Assets and Assumed
----------------------------------
Liabilities transferred in accordance herewith shall be transferred subject to
all liens and encumbrances existing on the Closing Date, including, without
limitation, the liens in favor of Silicon Valley Bank and the liens in favor of
SDI and SSI, the latter of which were granted in accordance with that certain
Indemnification Agreement of even date herewith by and among Transferee,
Transferor and SSI (collectively, the "Liens"). Transferee hereby acknowledges
and agrees that the Assets and the Assumed Liabilities will be transferred
subject to the Liens.
4. Safeguard Loans. During the period from October 1, 1999 to the
---------------
Closing Date, SDI and its affiliates have made, and may make additional, loans
and advances (collectively, the "Safeguard Loans") to Transferor, some or all of
which are or will be evidenced by promissory notes (collectively, the "Safeguard
Notes"). To effectuate the assumption by Transferee of the Safeguard Loans
outstanding on the Closing Date as set forth in Section 3 above, on the Closing
Date (a) SDI shall return to Transferor all outstanding Safeguard Notes (marked
"canceled") evidencing the outstanding Safeguard Loans (collectively, the
"Canceled Safeguard Notes"), and (b) Transferee shall execute and deliver to SDI
new Safeguard Notes to replace the Safeguard Notes canceled pursuant to this
Section 4 (collectively, the "New Safeguard Notes"). The New Safeguard Notes
shall be in form and substance satisfactory to Transferee and SDI.
5. Transfer of Employees. On the Closing Date, Transferee shall hire
---------------------
all of Transferor's employees (collectively, the "Transferred Employees"), other
than those working primarily for Transferor's Lifef/x Division. Transferor's
union employees shall be employed by Transferee pursuant to the terms and
conditions of the collective bargaining agreements pursuant to which such
employees were employed immediately prior to the Closing Date. Transferor's
nonunion employees, including, without limitation, Phillip Feiner ("Feiner") and
Kenneth Smith ("Smith"), shall be employed by Transferee on substantially the
same or similar terms and conditions as those provided to such employees
immediately prior to the Closing Date.
5
<PAGE>
6. 401(k) Matters.
--------------
(a) Assumption. Effective as of the Closing Date, (i) Transferee
----------
shall adopt and assume sponsorship of Transferor's 401(k) plan (the "401(k)
Plan") from Transferor, with full authority with respect thereto, including
without limitation, the authority to maintain, amend and terminate the 401(k)
Plan, and (ii) Transferee shall assume and agree to perform and discharge all of
the duties and obligations of the employer sponsor under the 401(k) Plan and to
pay, and be solely responsible, for all of the liabilities and obligations of
any kind (whether absolute, contingent or otherwise) of the employer sponsor
thereunder in respect of, arising under or required to be performed with respect
to the 401(k) Plan and its participants. As soon as practicable following the
Closing Date, Transferee shall amend the 401(k) Plan to reflect that effective
as of the Closing Date, Transferee is the "Employer" maintaining the 401(k)
Plan.
(b) Continuity of Trust Fund. The 401(k) Plan's existing trust
------------------------
fund (the "Trust Fund") shall continue to hold all of the 401(k) Plan's assets
and fund all of the benefits payable under the Plan and the existing trustees of
the Trust Fund shall not be changed as a result of this Agreement.
Notwithstanding the foregoing, at any time and from time to time hereafter,
Transferee shall have the exclusive power to change the Trustee or the
investment policy of the Trust Fund.
(c) Plan Contributions. Transferor shall make all 401(k) Plan
------------------
contributions earned by 401(k) Plan participants from Transferor prior to the
Closing. Transferee shall make all other 401(k) Plan contributions for the
current 401(k) Plan year.
(d) Cooperation. Transferor shall promptly provide Transferee
-----------
with all information and take such other reasonable steps following the Closing
Date as Transferee may request in order to facilitate the proper administration
of the 401(k) Plan and the continued qualification of the 401(k) Plan under
Section 401 of the Internal Revenue Code of 1986, as amended.
(e) No Undertaking to Maintain the 401(k) Plan for Any Stated
---------------------------------------------------------
Period of Time. While Transferee shall continue the 401(k) Plan in force after
- --------------
the assumption provided for in this Agreement, it reserves the right to amend
the 401(k) Plan at any time and from time to time and to terminate the 401(k)
Plan at any future date.
7. Indemnification.
---------------
(a) Indemnification. As further consideration for Transferor's
---------------
agreement to assign, transfer, convey and deliver the Assets to Transferee,
effective as of the date of this Agreement, Transferee shall indemnify, defend
and hold harmless Transferor and its stockholders, directors, officers,
employees, agents, attorneys and representatives (collectively, the "Indemnified
Parties"), from and against any and all Losses (as hereinafter defined) which
may be incurred or suffered by any or all of the Indemnified Parties and which
have arisen or resulted from or may arise out of or result from the Assets or
the Assumed Liabilities. As used herein, "Losses" shall mean all losses,
liabilities, damages, awards, judgments, assessments, fines, sanctions,
penalties, charges, costs, expenses, payments, however suffered or
characterized, all interest thereon, all costs and expenses of investigating any
claim, lawsuit or
6
<PAGE>
arbitration and any appeal therefrom, all actual attorneys', accountants', and
expert witness' fees and expenses (including without limitation all
disbursements) incurred in connection therewith, whether or not such claim,
lawsuit or arbitration is ultimately defeated and, subject to the other
provisions of this Section 7(a), all amounts paid incident to any compromise or
settlement of any such claim, lawsuit or arbitration. Notwithstanding anything
to the contrary contained herein, Transferee shall have no obligation to
indemnify the Indemnified Parties for Losses which have arisen or resulted from
or may arise out of or result from the Assets or the Assumed Liabilities to the
extent that (i) such Assets have been used in Transferor's Lifef/x business, or
(ii) such Assumed Liabilities arose or resulted from or may arise or result from
Transferor's Lifef/x business (collectively, the "Excluded Indemnification
Obligations"). Each of Transferor and Transferee shall use its best efforts to
reach mutual agreement on the amount and allocation of the Excluded
Indemnification Obligations. If such parties are unable to reach such mutual
agreement, the dispute shall be submitted to binding arbitration in Los Angeles,
California. Such arbitration shall be conducted by the American Arbitration
Association, whose rules applicable to commercial disputes shall be in force.
(b) Notice. If any Indemnified Party receives notice of any
------
claim, action or proceeding with respect to which Transferee is obligated to
provide indemnification pursuant to Section 7(a) above, the Indemnified Party
shall promptly give Transferee written notice thereof, which notice shall
specify in reasonable detail, if known, the amount or an estimate of the amount
of the liability arising therefrom and the basis of the claim. Such notice shall
be a condition precedent to any liability of Transferee for indemnification
hereunder, but the failure of the Indemnified Party to give prompt notice of a
claim shall not adversely affect the Indemnified Party's right to
indemnification hereunder unless the defense of that claim is materially
prejudiced by such failure.
(c) Third-Party Claims. Transferee shall have the right to
------------------
conduct and control at its own cost, through its own counsel, the defense,
compromise or settlement of any third-party claim, action or suit involving an
Indemnified Party as to which indemnification is sought, and such Indemnified
Party shall cooperate at no cost and furnish any records, information and
testimony and attend any conferences, discovery proceedings, hearings, trials
and appeals as Transferee may reasonably request. The Indemnified Party shall be
entitled at any time to participate in (but not direct) the defense of any such
claim, action or proceeding through its own counsel and at its own expense. The
Indemnified Party shall not compromise or settle any third-party claim that is
subject to indemnification under this Agreement without the prior written
consent of Transferee, which shall not be unreasonably withheld or delayed.
8. Condition Precedent. Each of the following shall occur on or
-------------------
before the Closing Date and is a condition precedent to the occurrence thereof:
(a) Transferor shall have obtained or satisfied all consents,
approvals, authorizations, notices, filings, exemptions or other requirements
(whether prescribed by the organizational documents of the parties, applicable
law or required pursuant to any material Contract or Other Agreement or
otherwise) necessary, appropriate, and material for the transfer of the Assets
and the assumption of the Assumed Liabilities contemplated hereby;
7
<PAGE>
(b) Transferor shall have executed and delivered to Transferee
bills of sale, endorsements, assignments, deeds and other instruments of
conveyance and transfer with respect to the Assets effecting the sale, transfer,
assignment and conveyance of the Assets to Transferee, including, without
limitation, the General Bill of Sale, Assignment and Assumption Agreement in the
form attached hereto as Exhibit "A" (the "Bill of Sale") and any and all
documents (including, without limitation, documents relating to title insurance)
reasonably requested or required in connection with the transfer of ownership of
the Real Property (collectively, the "Assignment Documents");
(c) SDI shall have returned to Transferor the Canceled Safeguard
Notes;
(d) Transferee shall have executed and delivered to SDI the New
Safeguard Notes;
(e) Transferee shall have executed and delivered to Transferor
such undertakings of assumption as Transferor may reasonably request to reflect
Transferee's assumption of the Assumed Liabilities, including, without
limitation, the Bill of Sale (collectively, with the New Safeguard Notes, the
"Assumption Documents");
(f) Transferor and Transferee shall have executed and delivered
the License Agreement substantially in the form attached hereto as Exhibit "B";
and
(g) Each of Transferor and Transferee shall have executed and
delivered all other certificates, documents, instruments and writings reasonably
required to be delivered by it on or before the Closing Date pursuant to this
Agreement or otherwise reasonably required in connection herewith.
9. Failure to Obtain Consents. This Agreement shall not constitute an
--------------------------
assignment of any claim, asset, right, contract, permit or license if the
attempted assignment thereof without the consent of the other party thereto
would constitute a breach thereof or in any way adversely and materially affect
the rights of Transferor thereunder. If such consent is not obtained, or if any
attempted assignment thereof would be ineffective or would adversely and
materially affect the rights of Transferor thereunder so that Transferee would
not in fact receive all such rights, then (a) only the proceeds of such claim,
asset, right, contract, permit or license shall be deemed to have been
transferred to Transferee pursuant hereto and Transferor shall otherwise retain
such claim, asset, right, contract, permit or license, and (b) Transferor hereby
engages Transferee, and Transferee hereby accepts the engagement, to act as the
attorney-in-fact of Transferor in order to obtain for Transferee the benefit of
such claim, asset, right, contract, permit, franchise or license. From and after
the Closing Date, Transferor shall use its best efforts to obtain or satisfy all
such consents, approvals, authorizations, notices, filings, exemptions and other
requirements.
10. Representations and Warranties.
------------------------------
(a) Each of Transferor and Transferee represents and warrants to
the other that on the date hereof and on the Closing Date (i) it has all
requisite power and authority to execute and deliver this Agreement, the
Assignment Documents, the Assumption Documents,
8
<PAGE>
and any other assignments, instruments and documents to be executed and
delivered to effectuate the assignment and assumption contemplated hereby, (ii)
its execution and delivery of this Agreement, the Assignment Documents, and the
Assumption Documents, and the performance of its obligations hereunder and
thereunder have been authorized by all necessary action and do not violate any
laws, regulations or orders by which it is bound, and (iii) this Agreement, the
Assignment Documents, and the Assumption Documents constitute its legal, valid
and binding obligations, enforceable against it in accordance with the terms
hereof and thereof.
(b) Transferor represents and warrants to Transferee that on the
date hereof and on the Closing Date it has good and marketable title to each of
the Assets, subject only to the Liens. The delivery to Transferee of the
instruments of transfer of ownership contemplated by this Agreement will, on the
Closing Date, vest in Transferee good and marketable title to each of the
Assets, subject only to the Liens.
(c) Transferee understands that, except as provided in Section
10(b) above, Transferor is making no representation or warranty, express or
implied, with respect to the Assets and that Transferee is acquiring the Assets
"as is" and "with all faults", if any.
11. Delivery. In addition to the instruments, agreements and other
--------
documents, including, without limitation, the Assignment Documents and the
Assumption Documents, executed and delivered in accordance with this Agreement,
on or as soon as practicable following the Closing Date, Transferor shall
deliver the following to Transferee or to such location, person or entity
designated by Transferee in its sole discretion:
(a) The Assets, including, without limitation, (i) all Tangible
Personal Property, (ii) possession of the Real Property, (iii) all originals and
copies of the Contracts and Other Agreements; (iii) the certificates
representing any securities or ownership interests in other entities included in
the Assets and any negotiable instruments included in the Assets, together with
duly executed assignments in blank and all necessary endorsements; (iv) all cash
on hand and in banks which is included in the Assets; and (v) all Books and
Records relating to or included in the Assets; and
(b) Any other information, document, instrument or agreement with
respect to the Assets and the Assumed Liabilities in the possession or control
of Transferor.
12. Reimbursement Obligations. If an amount is received or recovered
-------------------------
by Transferor after the Closing Date in respect of the Assets, Transferor shall
promptly pay such amount to Transferee after receipt thereof and assign to
Transferee any related rights under contract or otherwise. If any amount is
received or recovered by Transferee after the Closing Date in respect of the
Excluded Assets, Transferee shall promptly pay such amount to Transferor after
receipt thereof and assign to Transferor any related rights under contract or
otherwise.
13. Assets and Assumed Liabilities Held in Trust. From the date
--------------------------------------------
hereof until the Closing Date, Transferor shall hold the Assets and the Assumed
Liabilities and the proceeds of each in trust for the benefit of Transferee, and
neither Transferor nor its stockholders shall be entitled to any beneficial
interest in the Assets or the Assumed Liabilities during such period. From the
date hereof until the Closing Date, Transferee may direct Transferor to convey,
transfer
9
<PAGE>
or otherwise dispose of any or all of the Assets or Assumed Liabilities,
provided that such disposition would not have any material adverse effect on
Transferor.
14. Further Assurances. Each of Transferor and Transferee shall, at
------------------
any time and from time to time after the date hereof, upon request of the other
party hereto, execute, acknowledge and deliver all such further acts, deeds,
assignments, transfers, conveyances, and assurances, and take all such further
actions, as shall be necessary or desirable to give effect to the transactions
contemplated hereby and to collect and reduce to the possession of Transferee
any and all of the Assets.
15. Notices. All notices, requests and other communications hereunder
-------
shall be in writing and shall be delivered by courier or other means of personal
service (including by means of a nationally recognized courier service or
professional messenger service), or sent by telex or telecopy or mailed first
class, postage prepaid, by certified mail, return receipt requested, in all
cases, addressed to:
Transferor: Lifef/x Networks, Inc.
(f/k/a Pacific Title/Mirage, Inc.)
8 Cambridge Center
Cambridge, Massachusetts 02142-1401
Attn: Mr. Richard Guttendorf
Facsimile: (617) 551-5848
Transferee: PTM Productions, Inc.
c/o Safeguard Scientifics, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087-1945
Attn: Steve Rosard, Esq. & Mr. Richard Guttendorf
Facsimile: (610) 293-0601
All notices, requests and other communications shall be deemed given
on the date of actual receipt or delivery as evidenced by written receipt,
acknowledgment or other evidence of actual receipt or delivery (or attempted
delivery) to the address specified above. In case of service by telecopy, a
copy of such notice shall be personally delivered or sent by registered or
certified mail, in the manner set forth above, within three (3) business days
thereafter. Any party hereto may from time to time by notice in writing served
as set forth above designate a different address or a different or additional
person to which all such notices or communications thereafter are to be given.
16. Choice of Law. This Agreement shall be governed by, and construed
-------------
in accordance with, the laws of the State of California.
17. Third Party Beneficiaries. This Agreement is entered into for the
-------------------------
sole protection and benefit of the parties hereto and their respective
successors and permitted assigns, and no other person shall be a direct or
indirect beneficiary of, or shall have any direct or indirect cause of action or
claim in connection with, this Agreement, nor is anything in this Agreement
10
<PAGE>
intended to relieve or discharge the obligation or liability of any third
persons to any party to this Agreement. Notwithstanding anything to the contrary
contained herein, each of the Indemnified Parties (other than Transferor) and
its heirs, successors and permitted assigns shall be deemed to be a third-party
beneficiary of this Agreement but solely with respect to Section 7 hereof.
18. Waiver. The waiver or failure of either party to exercise in any
------
respect any right provided for in this Agreement shall not be deemed a waiver of
any further right under this Agreement.
19. Severability. If any provision of this Agreement is invalid,
------------
illegal or unenforceable under any applicable statute or rule of law, it is to
that extent to be deemed omitted. The remainder of the Agreement shall be valid
and enforceable to the maximum extent possible.
20. Gender. Any of the terms defined in this Agreement may, unless
------
the context otherwise requires, be used in the singular or the plural and in any
gender depending on the reference, and all references in this Agreement to a
person or entity shall be deemed to include that person's heirs, personal
representatives, administrators, successors and permitted assigns.
21. Assignment. This Agreement and the covenants and agreements
----------
herein contained shall inure to the benefit of and shall bind the respective
parties hereto and their respective successors and permitted assigns. Either
party may assign its interest under this Agreement with the prior written
consent of the other party hereto, which consent shall not be unreasonably
withheld or delayed.
22. Entire Agreement. This Agreement is intended to embody the final,
----------------
complete and exclusive agreement among the parties with respect to the subject
matter hereof and is intended to supersede all prior agreements, understandings
and representations written or oral, with respect thereto, and may not be
contradicted by evidence of any such prior or contemporaneous agreement,
understanding or representation, whether written or oral.
23. Arbitration. The sole and exclusive jurisdiction, venue and means
-----------
for resolving any controversy or claim arising out of, relating to or concerning
this Agreement (including, without limitation, the agreement to arbitrate
contained in this Section 23), the compliance by any party herewith, any claim
in tort, or any claim for violation of any federal, state or local statute,
ordinance or regulation, shall be binding arbitration in Los Angeles County,
California. The arbitration shall be conducted by the American Arbitration
Association, whose rules applicable to commercial disputes shall be in force,
and judgment or the award rendered by the arbitrator may be entered by any court
having jurisdiction thereof. There shall be one arbitrator to be mutually
selected by the parties to the arbitration. The fees of the arbitrator,
administrative fees, and the other fees and costs of the arbitration, including,
but not limited to, the cost of any record or transcripts of the arbitration,
shall be advanced by the parties to the arbitration in equal portions, and, in
addition thereto, each such party shall advance the fees of its own attorneys,
the expenses of its witnesses and all other expenses connected with presenting
its case. THE PARTIES HERETO WAIVE THE RIGHT TO A TRIAL BY JURY IN CONNECTION
WITH ANY ARBITRABLE CONTROVERSY OR CLAIM.
11
<PAGE>
24. Attorneys' Fees. Without limiting the enforceability of Section 23
---------------
above, if any action or proceeding is commenced in arbitration or otherwise by
either party to enforce its rights under this Agreement or to collect damages as
a result of the breach of any of the provisions of this Agreement, the
prevailing party in such action or proceeding, including any bankruptcy,
insolvency or appellate proceedings, shall be entitled to recover all reasonable
costs and expenses, including, without limitation, reasonable attorneys' fees
and court costs and other amounts advanced in accordance with Section 23 above,
in addition to any other relief awarded by the arbitrator or court.
25. Amendments. This Agreement shall not be altered, modified or
----------
amended except by a written instrument signed by each of the parties hereto
(except SDI unless such alteration, modification or amendment relates to Section
4 above).
26. Headings. The captions and headings used in this Agreement are for
--------
convenience only and shall not be construed as a part of this Agreement.
27. Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
TRANSFEROR:
----------
LIFEF/X NETWORKS, INC.
(F/K/A PACIFIC TITLE/MIRAGE, INC.),
a Delaware corporation
By: /s/ Richard A. Guttendorf
--------------------------------
Richard A. Guttendorf
Chief Financial Officer and Secretary
TRANSFEREE:
----------
PTM PRODUCTIONS, INC.,
a Delaware corporation
By: /s/ Richard A. Guttendorf
--------------------------------
Richard A. Guttendorf
President
SOLELY WITH RESPECT TO SECTION 4 ABOVE:
SDI:
---
SAFEGUARD DELAWARE, INC.,
a Delaware corporation
By: /s/ Steven Rosard
--------------------------------
Name: Steven J. Rosard
------------------------------
Title: Vice President
-----------------------------
<PAGE>
SCHEDULE 1(a)
-------------
REAL PROPERTY
-------------
PARCEL 1:
LOT 1 IN BLOCK "B" OF SENECA HEIGHTS IN THE CITY OF LOS ANGELES, COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 16 PAGE 72 OF MAPS, IN
THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
PARCEL 2:
THOSE PORTIONS OF LOTS 2 AND 3 IN BLOCK 23 OF COLEGROVE, IN THE CITY OF LOS
ANGELES, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK
53 PAGE 10 OF MISCELLANEOUS RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF
SAID COUNTY, DESCRIBED AS FOLLOWS:
BEGINNING AT THE NORTHWEST CORNER OF LOT 1 IN BLOCK "B" OF SENECA HEIGHTS, AS
PER MAP RECORDED IN BOOK 16 PAGE 72 OF MAPS, IN THE OFFICE OF THE COUNTY
RECORDER OF SAID COUNTY, IN THE SOUTH LINE OF SANTA MONICA BOULEVARD 80 FEET
WIDE; SAID POINT OF BEGINNING BEING DISTANT WESTERLY 47.50 FEET FROM THE
INTERSECTION OF SAID SOUTH LINE OF SANTA MONICA BOULEVARD WITH THE WEST LINE OF
LILLIAN WAY; THENCE SOUTHERLY ALONG THE WEST LINE OF SAID LOT 1, 135 FEET;
THENCE WESTERLY PARALLEL WITH SAID SOUTH LINE OF SANTA MONICA BOULEVARD 87.50
FEET; THENCE NORTHERLY PARALLEL WITH SAID WEST LINE OF LILLIAN WAY, 135 FEET TO
SAID SOUTH LINE OF MONICA BOULEVARD; THENCE EASTERLY ALONG SAID LAST MENTIONED
LINE 87.50 FEET TO THE POINT OF BEGINNING.
PARCEL 3:
THOSE PORTIONS OF LOTS 2 AND 3 IN BLOCK 23 OF COLEGROVE, IN THE CITY OF LOS
ANGELES, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK
53 PAGE 10 OF MISCELLANEOUS RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF
SAID COUNTY, AND OF LOT 2 IN BLOCK "B" OF SENECA HEIGHTS, IN SAID CITY, AS PER
MAP RECORDED IN BOOK 16 PAGE 72 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF
SAID COUNTY, DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT IN THE WEST LINE OF LILLIAN WAY, DISTANT SOUTHERLY 67.50
FEET FROM THE NORTHEAST CORNER OF LOT 2 IN BLOCK "B" OF SENECA HEIGHTS; THENCE
WESTERLY PARALLEL WITH THE SOUTHERLY LINE OF SANTA MONICA BOULEVARD, 135 FEET;
THENCE SOUTHERLY PARALLEL WITH SAID WEST LINE OF LILLIAN WAY, 67.50 FEET TO THE
NORTH LINE OF ELEANOR AVENUE; THENCE EASTERLY ALONG SAID LAST MENTIONED LINE;
135
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Page 1 of 2
<PAGE>
FEET TO SAID WEST LINE OF LILLIAN WAY, THENCE NORTHERLY ALONG SAID LILLIAN
WAY, 67.50 FEET TO THE POINT OF BEGINNING.
PARCEL 4:
THOSE PORTIONS OF LOTS 2 AND 3 IN BLOCK 23 OF COLEGROVE, IN THE CITY OF LOS
ANGELES, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK
53 OF PAGE 10 OF MISCELLANEOUS RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF
SAID COUNTY, AND OF LOT 2 IN BLOCK B OF SENECA HEIGHTS, IN SAID CITY, AS PER MAP
RECORDED IN BOOK 16 PAGE 72 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF
SAID COUNTY, DESCRIBED AS FOLLOWS:
BEGINNING AT THE NORTHEAST CORNER OF SAID LOT 2 IN BLOCK "B" OF SENECA HEIGHTS,
IN THE WEST LINE OF LILLIAN WAY, SAID POINT OF BEGINNING BEING DISTANT SOUTHERLY
135 FEET FROM THE INTERSECTION OF SAID WEST LINE OF LILLIAN WAY WITH THE SOUTH
LINE OF SANTA MONICA BOULEVARD, 80 FEET WIDE; THENCE WESTERLY PARALLEL WITH SAID
SOUTH LINE OF SANTA MONICA BOULEVARD 135 FEET; THENCE SOUTHERLY PARALLEL WITH
SAID WEST LINE OF LILLIAN WAY 67.50 FEET; THENCE EASTERLY PARALLEL WITH SAID
SOUTH LINE OF SANTA MONICA BOULEVARD, 135 FEET TO SAID WEST LINE OF LILLIAN WAY;
THENCE NORTHERLY ALONG LILLIAN WAY 67.50 FEET TO THE POINT OF BEGINNING.
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Page of 2 of 2
<PAGE>
SCHEDULE 2(a)
-------------
EXCLUDED ASSETS - LIFEF/X DIVISION
----------------------------------
-16-
See attached.
<PAGE>
Listing of Life F/X Assets to be
Excluded from SVB Liens
. Patents (issued and pending) see attached
. Technologies License, Development, Consulting and Collaboration Agreement
between Auckland UniServices Limited and Pacific Title/Mirage effective as of
11/1/97
. Employment contracts dated as of the dates indicated:
. Lucille Salhany - 11/29/99
. Michael Rosenblatt - 11/29/99
. Serge LaFontaine - 12/25/99
. Keith Waters - 12/20/99
. Carol Harris - 1/17/00
. Mark A. Sagar - 3/1/98
. Paul G. Charette - 3/1/98
. Life insurance contracts on Mark A. Sagar & Paul G. Charette
. Policy # 55-646-749 issued by Manufacturer's Life Insurance Co.
Insured: Paul G. Charette
. Policy # 55-646-756 issued by Manufacturer's Life Insurance Co.
Insured: Mark A. Sagar
. Employment services of all LifeF/X employees/contractors and consultants:
. Boston employees/contractors/consultants include:
. Lucille Salhany
. Michael Rosenblatt
. Serge LaFontaine
. Keith Waters
. Carol Harris
. Vyctoria Thwreatt
. Edward Beuchert
. Lawrence Linsky
. Ian Hunter
. William Wilder
. Joseph Williams
. Alene Gansemer
. Ron Fosner
. David Goddeau
. Gabe Mahoney
. Chris Muldoon
. John Polcari
<PAGE>
. Los Angeles employees/contractors/consultants include:
. Paul G. Charette
. Mark A. Sagar
. Greg DeCamp
. Brad Kalinoski
. David Kalinoski
. Rafi Mazlumian
. Kieran Waegner
. Non-compete agreements from former employees
. Prepaid health benefits on all LifeF/X employees paid to Union Health and
Welfare Plan through Pacific Title/Mirage
. Prepaid patent trust fund (less than $25,000) at patent firm of Bromberg &
Sunstein, Boston, MA
. Proprietary software and tools that have been developed by Pacific
Title/Mirage, Inc.
. LifeF/X Equipment at both the Los Angeles and Boston locations including, but
not limited to assets on the attached listing
. LifeF/X content and library including, but not limited to those itemized on
the attached list
. LifeF/X models, sculptures, pictures, including, but not limited to those
itemized on the attached list
. LifeF/X trademarks and service marks including but not limited to:
. LifeF/X
. LifeF/X, Inc.
. LifeF/X Networks, Inc.
. "the face of the internet"
. "changing the internet from catalogue to dialogue"
. "standins"
. LifeF/X registered domain names as per the attached listing
. PR related materials, brochures and Siggraph awards
. Prepaid D&O insurance policy issued through Jules Berlin Agency
. $18 million of cash from recent offering less deal-related costs and all
related documentation from the offering, including without limitation all
subscription agreements and Private Placement Memorandums
. Net Operating Loss Carryforward of former Pacific Title/Mirage, Inc.
. Lease for facility at "Polaroid Building" at 153 Needham Road, Newton, MA
02164
. Lease for facility at facility at 7080 Hollywood Blvd., Los Angeles, CA
90067
. All books and records relating to the operation of the LifeF/X division and
the assets listed herein
<PAGE>
Listing of Life F/X Assets to be
Excluded form SVB Liens
Patent-Related
. Apparatus and Method for Representation of Expression in a Tissue-Like System
(No. 8900893)
. Rapid High Resolution Image Capture System (No. 5999209)
. Apparatus and Method for Rapid 3D Paramaterization (No. 08994803)
<PAGE>
Listing of Life F/X Assets to be
Excluded from SVB Liens
Equipment and Software in Boston
(1) Two HP 859c win 98 workstations
(2) HP Photosmart P1100 Printer
(3) Six Dell Inspiron 7600 laptops
(4) HP 2100tn printer
(5) Xerox 385 fax machine
(6) Compaq AP 200 workstation
(7) Five Dell Precision workstations
(8) Dell Server 44400
(9) Cisco 3524 Data Switch, GTX router
(10) Avid express system (Purchased in Boston, shipped to L.A.)
(11) Two AC power adapters for Dell Inspiron
(12) Additional CD-RW and DVD for Inspiron
(13) Additional CD-RW for SL Inspiron and AC adapter
(14) VST IEEE-1394 Firewire PC card
(15) Ratoc IEEE-1394 Firewire PC card
(16) HP deskjet printer 882c
(17) HP deskjet printer 712c
(18) Dell 4727T docking station
(19) Thinkmate clone PC
(20) Powerspec clone PC
(21) HP deskjet printer 718c
(22) Assets purchased from One/Zero Media as listed on the following four
pages
Software
. Adobe Photoshop
. Adobe Premiere
. Adobe Golive
. Microsoft Developer Network Universal Library (multiple copies)
. Intel V-Tune
. Visual C Boards
. Visual Test
. Install Shield Prof.
. MKT Toolkit
. Compuware Numega
<PAGE>
Life F/X Assets to be
Excluded from SVB Lien
Back Part of Office
<TABLE>
<CAPTION>
Qty Item Location Notes
<S> <C> <C> <C>
10 Work Stations (Low Height) Center Area White tabletop, Material rides, Black trim
04 Work Stations (High Height) Center Area Along Wall White tabletop, Material rides, Black trim
01 HP 4000TN Printer Center Area Front Wall 2 Trays
01 Panafax UF 770 Fax Machine Center Area Front Wall
03 Executive Desk Setup Offices Off Center Area Wood Finish
01 Meridian Phone Set Center Area
02 Apple Monitors Office Off Center Area
05 17" Panasonic Monitor Office Off Center Area
08 17" Princeton Monitor Office Off Center Area
01 20" Viewsonic Monitor Office Off Center Area
01 17" Sun System Monitor Office Off Center Area
08 High Back Multi-Tilt Chair In Cube Along Wall Color- Black
05 2 Drawer Lateral File Cabinet Center Area Front Wall Color- Black
02 4 Drawer Lateral File Cabinet Center Area Front Wall Color- Black
01 Metal Bookcases (4 Rows) Center Area Front Wall Color- Black
01 Wood Bookcases (5 Rows) Center Area Front Wall Wood Finish
14 Guest Chair Back Wall Color- Red
01 Pedestal Light Fixture Office Off Center Area Color- White
02 Pedestal Light Fixture Office Off Center Area Color- Black
Kitchen
Qty Item Location Notes
01 Full Size Fridge Kitchen Color- White
01 Full Size Coke Cooler Kitchen Glass Door
01 Sanyo Microwave Kitchen Color- White
02 Single Pedestal Round Table Kitchen Color- White
01 Single Pedestal Round Table Moveable Kitchen Color- White
08 Chairs Kitchen Color- Black
Conference Room
Qty Item Location Notes
01 Sony Television Conference Room Color- Black
01 JVC Video Casette Recorder Conference Room Color- Black
01 Sony Projector Conference Room
01 Compaq Computer Conference Room
01 PS2 Keyboard and 2 Button Mouse Conference Room
01 Speakers for Computer Sound Conference Room
01 Conference Table Conference Room Wood Finish
05 High Back Swivel Task Chair Conference Room Color- Black
05 Low Back Swivel Task Chair Conference Room Color- Black
Reception Area
Qty Item Location Notes
02 Meridian Phone Set Front Lobby
01 Storage Cabinet Front Lobby 2 Door
</TABLE>
<PAGE>
Life F/x Assets to be
Excluded from SUB Lien
Wiring Closet
<TABLE>
<CAPTION>
Qty Item Location Notes
<S> <C> <C> <C>
01 Uninterruptible Power Supply Wiring Closet APC Model 2200
01 Uninterruptible Power Supply Wiring Closet APC Model 1400
01 Baystack 350 Switch Wiring Closet 12 Ports
01 Baystack 350T Switch Wiring Closet 10/100 16 Ports
01 Baystack 102 Hub Wiring Closet 10Base T24 Ports
03 Baystack 204 Hub Wiring Closet 100Base T24 Ports
02 Meridian Phone Set Wiring Closet
01 High Back Multi-Tilt Chair Wiring Closet Color-Black
Conference Room Corridor
<CAPTION>
Qty Item Location Notes
<S> <C> <C> <C>
01 4 Drawer Lateral File Cabinet Conference Room Corridor Color-Black
Large Computer Closet
<CAPTION>
Qty Item Location Notes
<S> <C> <C> <C>
12 17" Princeton Monitor Large Computer Closet
01 15" NEC Monitor Large Computer Closet
01 17" Panasonic Monitor Large Computer Closet
01 17" Sun System Monitor Large Computer Closet
01 17" Viewsonic Monitor Large Computer Closet
01 17" NEC Monitor Large Computer Closet
01 Epson 636 Scanner Large Computer Closet
29 PS2 Keyboards Large Computer Closet Color-White
01 Sun System Keyboard Large Computer Closet
05 PS2 Natural Keyboards Large Computer Closet Color-White
02 Iomega Zip 100 Drives Large Computer Closet MacIntosh
07 Speakers for Computer Sound Large Computer Closet
24 PS2 2 Button Mice Large Computer Closet Logitech, Microsoft
01 MacIntosh Mouse Large Computer Room
45 Meridian Phone Set Large Computer Room
01 Swing Arm Lamp Large Computer Room Clip-on Incandescent
02 Desk Lamp Large Computer Room Color-Black (Halogen)
04 Desk Lamp Large Computer Room Color-Black (Incandescent)
Large Computer Closet
<CAPTION>
Qty Item Location Notes
<S> <C> <C> <C>
04 Compaq 400Mhz, 64MB Ram, Win NT Large Computer Room Tower
01 Compaq 400Mhz, 196Mb Ram, Win NT Large Computer Room Tower
02 Compaq 350Mhz, 32MB Ram, Win Nt Large Computer Room Tower
01 Compaq 350Mhz, 64MB Ram, Win Nt Large Computer Room Tower
01 Compaq 350Mhz, 96Mb Ram, Win Nt Large Computer Room Tower
01 Compaq 350Mhz, 128MB Ram, Win 95 Large Computer Room Tower
09 Compaq 350Mhz, 128Mb Ram, Win Nt Large Computer Room Tower
02 NPC 400 Mz, 128MB Ram, Win NT Large Computer Room Tower
01 NPC 333 Mhz, 64MB Ram, Win NT Large Computer Room Tower
05 NPC 333 Mhz 128 Mb Ram, Win NT Large Computer Room Tower
01 NPC 333 Mhz, 160 MB Ram, Win NT Large Computer Room Tower
</TABLE>
<PAGE>
Life F/X Assets to be
Excluded from SUB Lien
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Qty Item Location Notes
03 Work Stations (Low Height) Along Proni Wall White tabletop, Material sides, Black trim
07 Work Stations (High Height) Center Area White tabletop, Material sides, Black trim
01 4 Drawer Lateral File Cabinet Center Area Color - Black
03 Executive Credenza/Bridge/Desk Offices Off Center Area Wood Finish
01 Small Round Conference Table Offices Off Center Area Wood Finish
03 "L" Shape Workstations Offices Off Center Area White tabletop, Black trim
01 Epson Color 800 Printer Center Area
01 Spare Station 10 Offices Off Center Area
01 Sun System Monitor Offices Off Center Area
01 Sun System Keyboard and 2 Button Mouse Offices Off Center Area
01 NPC 166 Mhz Computer Offices Off Center Area
01 15" ADC Monitor Offices Off Center Area
01 PS2 Keyboard and 2 Button Mouse
01 High Back Multi-Tilt Chair Offices Off Center Area Color - Black
01 Low Back Multi-Tilt Chair Offices Off Center Area Color - Black
01 Guest Chair Offices Off Center Area Color - Red
01 4 Drawer Lateral File Cabinet Offices Off Center Area Color - Black
01 2 Drawer Lateral File Cabinet Offices Off Center Area Color - Black
01 Pedestal Light Fixture Offices Off Center Area Color - White
01 HP 4050N Printer Offices Off Center Area 2 Trays
01 Meridian Phone Set Offices Off Center Area
19 Under Cabinet Light Fixtures Offices Off Center Area Color - Black (PL Lamps)
27 2 Drawer Mobile File Cabinet Offices Off Center Area Color - Black
26 3 Drawer Mobile File Cabinet Offices Off Center Area Color - Black
01 6" Folding Table Offices Off Center Area
06 5" Folding Table Offices Off Center Area
02 6" Folding Table Offices Off Center Area
Front Offices
Qty Item Location Notes
03 Executive Credenza/Bridge/Desk Front Office Wood Finish
01 Small Round Conference Table Front Office Wood Finish
01 NPC 166Mhz Computer Front Office
01 17" Princeton Monitor Front Office
01 Keyboard and 2 Button Mouse Front Office
02 Wood Bookcases (2 Rows) Front Office Wood Finish
02 4 Drawer Lateral File Cabinets Front Office Color - Black
02 Wood Bookcases (4 Rows) Front Office Corridor Wood Finish
02 Guest Chair Front Office Color - Red
01 Meridian Phone Set Front Office
01 Desk Lamp Front Office Color - Black (Incandescent)
</TABLE>
<PAGE>
SVB Assets to be
Excluded from SVB Lien
Network Office
<TABLE>
<CAPTION>
Qty Item Location Notes
<S> <C> <C> <C>
02 Macintosh G3 Computers Network Office Specifications unknown at this time
03 NPC Computers Network Office Specifications unknown at this time
01 Executive Credenza/Bridge/Desk Network Office Wood Finish
01 "L" Shape Workstations Network Office White tabletop, Black trim
01 Wood Bookcase (2 Rows) Network Office Wood Finish
01 17" Princeton Monitor Network Office
01 17" ADC Monitor Network Office
02 High Back Multi-Tilt Chair Network Office Color - Black
01 Epson EPL-N2000 Printer Network Office Local Printer
01 Laser Jet 6L Printer Network Office Local Printer
01 NPC 333Mhz, 128 MB Ram, Win NT Network Office Tower
01 NPC 400Mhz, 128 MB Ram, Win Nt Network Office Tower
02 Compaq 400Mhz desktop Computers Network Office Tower
01 Compaq 350Mhz Computer Network Office Tower
01 Compaq Deskpro Network Office Tower
02 Meridian Phone sets Network Office
Upstairs Back Offices
Qty Item Location Notes
01 Executive Credenza/Bridge/Desk Upstairs Back Office Wood Finish
05 Work Stations (High Height) Upstairs Back Office White tabletop, Material sides, Black trim
01 4 Drawer Lateral File Cabinet Upstairs Back Office Color-White
01 17" Panasonic Monitor Upstairs Back Office
01 17" Princeton Monitor Upstairs Back Office
02 3 Drawer Mobile File Cabinet Upstairs Back Office Color - Black
05 2 Drawer Mobile File Cabinet Upstairs Back Office Color - Black
06 Under Cabinet Light Fixtures Upstairs Back Office Color - Black (PL Lamps)
01 NPC 333Mhz, 163 MB Ram, Win NT Upstairs Back Office Tower
01 NPC 166Mhz Computer Upstairs Back Office Tower
03 Meridian Phone Sets Upstairs Back Office
02 PS2 Keyboard and 2 Button Mouse Upstairs Back Office
01 PS2 Natural Keyboard and 2 Button Mouse Upstairs Back Office
01 Speakers for Computer Sound Upstairs Back Office
03 Pedestal Light Fixture Upstairs Back Office Color - White
01 "L" Shape Workstation Upstairs Back Office White tabletop, Black trim
</TABLE>
<PAGE>
LIFE F/X ASSETS EXCLUDED FROM SUBLIEN
EQUIPMENT AND ASSETS
-LOS ANGELES-
<TABLE>
<CAPTION>
Computers: SGI
<S> <C>
. SGI 'O2' Computer "snapper" . SGI 'Octane' Computer "tarpon"
. 180mhz R5000 Processor . 250mhz R10,000 Processor
. 448MB Ram . 1GB Ram
. 19" Monitor . 21" Monitor
. 4GB System Hard Drive . 4GB System Hard Drive
. 18GB External Hard Drive
. SGI 'Octane' Computer "jellyfish"
. SGI 'O2' Computer "manowar" . (2) 175mhz R10,000 Processor
. 180mhz R5000 Processor . 768MB Ram
. 96MB Ram . 21" Monitor
. 19" Monitor . 18GB System Hard Drive
. 4GB System Hard Drive . 18GB External Hard Drive
. SGI 'O2' Computer "stingray" . SGI 'Octane' Computer "fishandchips"
. 180 mhz R5000 Processor . (2) 195mhz R10,000 Processors
. 96MB Ram . 1GB Ram
. 4GB System Hard Drive . 21" Monitor
. 4GB System Hard Drive
. SGI 'O2' Computer "grunion1" . 9GB External Hard Drive
. 180mhz R5000 Processor . Wacom Tablet
. 288MB Ram
. 21" Monitor . SGI 'Octane' Computer "bluegill"
. 4GB System Hard Drive . (2) 195mhz R10,000 Processors
. 18GB External Hard Drive . 768MB Ram
. 21" Monitor
. SGI 'O2' Computer "grunion2" . 4GB System Hard Drive
. 180mhz R5000 Processor . 67GB External Hard Drive(s)
. 320MB Ram
. 21" Monitor . SGI 'Octane' Computer "hammerhead"
. 2GB System Hard Drive . 195mhz R10,000 Processor
. 18GB External Hard Drive . 896MB Ram
. 21" Monitor
. SGI 'O2' Computer "grunion4" . 4GB System Hard Drive
. 180mhz R5000 Processor . 67GB External Hard Drive(s)
. 288MB Ram . Wacom Tablet
. 21" Monitor
. 2GB System Hard Drive . SGI 'Origin2' Server "taniwha"
. 18GB External Hard Drive . (12) R10,000 Processors
. (8) 195mhz Processors
. SGI 'O2' Computer "minnow" . (4) 250mhz Processors
. 195mhz R10,000 Processor . 3.5GB Ram
. 576MB Ram . 9GB System Hard Drive
. 21" Monitor . 330GB External Hard Drive(s)
. 4GB System Hard Drive
</TABLE>
<PAGE>
Life F/X Assets Excluded
From SVB Lien
Computers: Desktop PC's
. Gateway Pentium II Laptop Computer
. External Speakers
. External Iomega 100MB Zip Drive
. 21" External SGI Monitor
. SOFTWARE
. Windows 98
. Microsoft Office
. Microsoft Outlook
. X-Win 32
. Toshiba Satellite Pro Pentium Laptop Computer
. Windows 2000
. "Used as a terminal computer"
. Compaq Presario 5050; Pentium II Desktop Computer
. 19" SGI Monitor
. External Speakers
. SOFTWARE
. Microsoft Office
. Microsoft Outlook
. Compaq Presario 5147; Pentium II Desktop Computer
. 17" Compaq Monitor with built in speakers
. SOFTWARE
. Microsoft Office
. Dreamweaver 2
. Adobe Premier 5.1
. Pentium II Desktop Computer
. 21" Sony Monitor
. SOFTWARE
. Windows 98
. Microsoft Office
. Autodesk AutoCad
. Corel Photo Paint
. Norton Anti Virus
Printers
. Epson Stylus Pro XL . Hewlett Packard 45000N
. Color Inkjet Printer . Laser Printer w/duplex option
. Hewlett Packard 5N
. Laser Printer
<PAGE>
Life F/X Assets Excluded
From SVB Lien
Other System Equipment
. DLT7 000 Tape Drive
. Quantum Model TH6BF-YF
. DTF Tape Drive
. Sony Model GY-2120
. 21" SGI Monitor
. Laptop External Monitor
. Networking Equipment
. Data Tape Stock
. (28) 75GB DST Tapes used in Archives
. (4) 25GB DST Tapes used in Archives
. (38) 42GB DTF Tapes used in Archives
. Many other tapes, both video and data, in boxed project archives
Audio/Video Equipment
. Mackie Audio Mixer
. Microphone
. BetaCam Video Camera
. (4) Tripods
. Sony TRV 900 Mini DV Video Camera
. Sony DCR VX1000 Mini DV Video Camera
. Clacker Board
. Miscellaneous Audio and Video Cables
. Panasonic 13" TV/VCR Combo
. Model PVM-1369
. Fostex Audio DAT Recorder/Playback
. Model D-15 Master Recorder
. Sierra Design Labs High Definition Digital Disk Recorder
. Model HD 1.5 w/ Advanced Audio
. Sony 17" SVGA 'Confidence' Monitor
<PAGE>
Software/Misc. Eq.
- Los Angeles -
Software: SGI
. Alias/Wavefront Maya 2.5 Complete
. Including Artisan Plugins
. Alias/Wavefront Studio Paint
. Shake 2.0
. Matlab
. Photoshop 3.0
Software: PC
. Photoshop 5.5
. Premier 5.1
. Mathmatica
. C++ Compiler
. FORTRAN Compiler
Software: LifeF/x
. Various Proprietary Applications
. Makeshots
. CMGUI
. Tracking Software
. Model Building Software
. Various Scripts and Support Applications
Editing Systems
. Avid Media Composer 8000
. "Macintosh Based Platform"
. External lomega 100MB Zip Disk
. This item not included in original Media Composer package
. 19" Sony HR Trinitron Monitor
. Model PVM-20M4U
. This item not included in original Media Composer package
Miscellaneous LifeF/x Equipment
. Prisms and Mirrors
. For LifeF/x Capture Session
. Miscellaneous Books and Manuals
. Miscellaneous Busts and Masks
. Jim Carrey
. Jessica Vallot
. Fictitious Characters
<PAGE>
Life F/X Assets Excluded From SUB Lien
Furniture and Office Equipment
. Conference Table
. 6 Chairs
. Two piece desk set
. (1) Desk
. (1) Credenza
. Three piece desk set
. (1) Desk
. (2) Bookshelves
. Three Piece Desk Set
. (1) Desk
. (1) Bookshelf/Cabinet
. (1) Lateral File Cabinet
. (1) "L" Shaped Desk
. (1) Wrap around desk
. 4 Bookshelves
. 12 Office Chairs
. 4 File Cabinets
. Small Refrigerator
. Futon Chair/Bed
. Reclining Makeup Chair
. Used for applying tracking dots to actors
. (10) Whiteboards
. (2) Large Corkboards
. (11) Phones
Miscellaneous Items
. Espresso Machine
. Fish Tank
<PAGE>
Life F/X Assets Excluded From SVS Lien
Proprietary Software
Los Angeles
1) Tracking software: The Life F/X tracking software consists of a suite of
software tools and utilities that track image feature in video images (the video
format can be, but is not limited to, HDTV) in order to generate time sequences
of moving three dimensional geometry. The software also includes noise filtering
and modeling software for processing and transforming the tracking data to
various formats.
2) Calibration software: the Life F/X calibration software calculates 3D-2D
camera transformation parameters between world coordinate space and the camera
image coordinate space, using data from a pre-calibrated physical target. The
software optimizes the calibration parameters based on an ensemble of random
target positions.
3) 3D Face modeling software: the Life F/X face modeling software consists of a
suit of pipelined software tools and utilities and CMGUI command files (macros)
that create (from raw tracked data) and manipulate files (including finite
element node files) which describe all geometric aspects of an individual's
face.
4) Polygonal model manipulation software: This is a suite of tools which modify
polygonal models in such ways as transformations, polygon reduction and texture
reparameterization, and change between multiple file formats.
<PAGE>
LifeF/x Assets Excluded From
SVB Lien
List of LifeFx Shows and Tests
Finished Shorts
. The Jester
. Young at Heart
LifeF/x Tests
. The Incredible Mr. Limpet
. Brother Termite
. WETA
. Troll (Using Jim Carrey Data)
. Blue Planet
. "Jet" (Using Jim Carrey Data)
. Phantom of the Opera
. Using Jim Carrey Data
. Star Trek
. Bringing 60's Spock Back to Life
. Play With Your Food
. Mushroom Man (Using Jim Carrey Data)
. Scrawney
. Internet "Stand-in" test for Michael Rosenblatt
. Justine
. Early LifeF/x work
<PAGE>
Listing of Life F/X Assets to be
Excluded from SVB Liens
Internet Domain Names
. Lifefx.com
. Smilefx.com
. Girlfx.com
. Boyfx.com
. Manfx.com
. Ladyfx.com
. Netstampede.com
. Estampede.com
. E-dnas.com
. Lefef-x.com
. Lifeffects.com
. Lifeeffects.com
. Ur3d.com
. E-dnas.net
. Virtual-human.com
. Ur4d.com
. Mirageentsci.com
. 3d4you.com
. 3d4.com
. 4d4me.com
. e4rm.com
. 3d4life.com
. 3d4rm.com
. e-motor.com
. 3d4ever.com
. 4d4you.com
. life-fx.com
. standin.com
. getbarcodes.com
. standins.org
<PAGE>
PROPRIETARY SOFTWARE TO BE EXCLUDED FROM SVB LIENS
---------------------------------------------------
announce: Script that displays software group announcements to a user.
auto_slate: Wrapper script around the slategen program. This script prompts
users for input and determines the correct slate image resolution for input
into the slategen program.
bpd: Bent Pipe Daemon. Program that allows fast bulk data transfer via the
HiPPI network. Works only among the HiPPI connected system and the OMUs.
bpdcopy: Program that uses the bpd to quickly copy images via HiPPI from one
system to another.
calib: Program that creates a look up table for the Howtek scanner. Companion
programs include histogram, wedge and wedge2lut.
cine_dump: Programs that reads in a cineon file header and prints out the
image's information like resolution, color depth, etc.
cine_load: Script that facilitates retrieving file information off a tape.
cine_view: Image program that displays cineon images.
cineon_monitor: Script that changes Matisse's monitor mode from one monitor to
two monitors, and vice versa. Matisse is the only system with dual
monitors, and is, therefore, the only one able to use the script.
deflicker: Program that removes luminense flickering from a series of images.
dst_query, dst_to310, dst_to600: scripts used to set the current status of the
DST drives.
fielder: program that finds A frames (present in a 3:2 pulldown shot) in a
series of images.
fixperms: Script used to change file permissions on the /images files systems
from "closed" or limited, to full access.
Grid: Program that creates gridded images for testing and calibrating monitors.
hcopy: Wrapper script around bpdcopy. Prompts for input from user and reports
status of HiPPI transfers.
histogram: Program that creates image histogram data.
Isshot: Script that lists sequences of frames in a succinct format.
lut_convert: Program that converts LUTs and LUT values.
<PAGE>
Multi_tar: Prompting script that allows tape backups to be done easily and
efficiently, without a lot of knowledge of unix tape commands.
newplay: Program that loads a series of images into memory and displays them at
realtime via a HiPPI connected frame buffer.
pt_adaptord: Communication program that enables the SGIs to communicate to the
OMUs. Companion program is pt_svc_term.
pt_arch: Script that determines system type and operating system, so that the
correct version of applications will run.
pt_filter_dens: Program used to create density text files from the
densitometer, but without excess information the densitometer creates.
pt_framemem: Program that determines how much memory is free on a system and
how many images of a given size will fit into that free memory.
pt_gen_lut: Program that generates look up tables. Companion programs include
pt_gen_rec_lookup (creates recorder look up tables) and pt_gen_scan_rec_lut
(used to create scanner look up tables).
pt_genesis: Script that creates Genesis Plus scan request files.
pt_interp: Program that interpolates data. Used for OMU recorder calibration.
pt_key: Script that converts key numbers to frame count numbers.
pt_lut_installer: Program that installs a hardware lookup table. Companion
programs include pt_lut_editor and pt_lut_generator.
pt_mv_stride: Script that renumbers a series of files, using the "mv" command.
Companion programs include pt_In_stride and pt_cp_stride.
pt_omubatch: Script that prompts users for a series of record and wedge
requests to execute in sequence.
pt_operator: Program that manages recording and wedge requests, allowing
operators to easily begin, track, document and archive requests.
pt_par_umask: Program that sharpens an image using an unsharpmasking algorithm.
pt_recorder: Program that executes record requests on the OMUs.
pt_renamer: Script that easily renames a series of images.
pt_request: Program that creates requests (record or wedge) by prompting users
for information.
2
<PAGE>
pt_resample: Program that resizes images, including crop and pad, and converts
images from one file format to another.
pt_shutdown: Program that monitors the status of the machine room, testing for
humidity, temperature and electrical status. In the event of a critical
system emergency, shuts down systems to prevent damage. Companion programs
include tempserv, rtemp, btemp, temp, rhum, hmidserv, rshut, and shutserv.
pt_squish_log: Script that compresses a Multi-tar log file and creates a new,
smaller file. Saves trees.
pt_tape_verify: Script that checks for errors in the Multi_tar output log file
and reports them to the user.
pt_ticket: Program that adds a ticket to the Digital ticket database.
pt_view: Display program that can load and display any image file format
supported by the PtGFImage library.
pt_wedger: Program that executes a wedge request on an OMU recorder, creating a
brightness and/or contrast wedge of specified values.
ptfssh: Program that provides a file system shell capable of interacting with
the OMUs. Originally designed to work with the PVS & RCI also.
RenderMinder: Script that checks the status of currently running third party
rendering jobs and reports problems via email and pager to coordination and
users.
RenderMinderKickoff: Script that allows starts of the RenderMinder script.
rlacin: Script that facilitates converting Wavefront rla files to cineon or rgb
files.
run_prod_app: Script that displays, in a separate xterm window, the status of a
recording request. Uses run_prod_app_helper, also.
sgi_sharp: Script that calls various sharpening programs to sharpen a series of
images.
slategen: Program that prints supplied text onto a supplied background image.
Used for creating shot slates.
wedge: Script that creates histrogram data on a series of images.
wedge2lut: Script that creates histrogram data on a series of images, that luts
for the Howtek and Genesis Plus.
Unknown (status or purpose): (Not completed or used):
rstat, signon, patch_gen, polysharp, test7, test8, pt_run, pt_sep_filter,
pt_sharpen, pt_wrapper, videolink, yuv_slate
3
<PAGE>
EXHIBIT 10.10
GENERAL BILL OF SALE
--------------------
ASSIGNMENT AND ASSUMPTION AGREEMENT
-----------------------------------
THIS GENERAL BILL OF SALE, ASSIGNMENT AND ASSUMPTION AGREEMENT is made and
entered into this 20 day of March, 2000, by and between Lifef/x Networks, Inc.,
a Delaware corporation formerly known as Pacific Title/Mirage, Inc.
("Transferor"), and PTM Productions, Inc., a Delaware corporation
("Transferee"), and is made with reference to the following:
A. Transferee, Transferor and Safeguard Delaware, Inc., a Delaware
corporation, have heretofore executed that certain Assignment and Assumption
Agreement dated as of December 14, 1999 (the "Agreement"). All capitalized terms
not defined herein shall have the meanings ascribed to them in the Agreement.
B. Pursuant to the Agreement, among other things, Transferor has agreed to
transfer to Transferee substantially all of its assets and liabilities other
than those relating primarily to its Lifef/x Division and Transferee has agreed
to indemnify Transferor for certain liabilities and obligations in connection
therewith.
C. Transferee and Transferor now desire to consummate the transfer of all
of the assets and the assumption of all of the obligations as provided in the
Agreement .
NOW, THEREFORE, in consideration of the foregoing recitals and of the
mutual agreements hereinafter set forth, the parties hereto agree as follows:
ARTICLE 1
ASSIGNMENT
----------
For valuable consideration, the receipt and sufficiency of which Transferor
hereby acknowledges, Transferor, pursuant to and in compliance with the
Agreement, does hereby assign, transfer, convey and deliver to Transferee, and
Transferee does hereby accept from Transferor, all of Transferor's right, title
and interest in and to the Assets (including, without limitation, (a) that
certain Lease Termination Agreement by and between A&G LLC, a California limited
liability company ("A&G"), and Transferor dated as of March 10, 2000 (the "Lease
Termination Agreement"), (b) that certain Sublease by and among Rotor
Communications Corporation, a California corporation, and Transferor dated as of
March 10, 2000 (the "Sublease"), and (c) that certain $1,200,000 Promissory Note
executed by A&G in favor of Transferor dated March 10, 2000 (the "Note")), but
excluding the Excluded Assets;
TO HAVE AND TO HOLD all such Assets hereby assigned, transferred and
conveyed unto Transferee, its successors and assigns, to its and their own use
and behalf forever.
<PAGE>
ARTICLE 2
ASSUMPTION
----------
In consideration of such assignment, transfer, conveyance and delivery,
Transferee, pursuant to and in compliance with the Agreement, does hereby assume
and agree to pay and perform the Assumed Liabilities, including, without
limitation, Transferor's liabilities under the Lease Termination Agreement, the
Sublease and the Note.
ARTICLE 3
FURTHER ASSURANCES
------------------
Transferor shall, at any time and from time to time after the date hereof,
upon the request of Transferee, execute, acknowledge and deliver all such
further acts, deeds, assignments, transfers, conveyances, powers of attorney and
assurances, and take all such further actions, as shall be necessary or
desirable to give effect to the transactions hereby consummated and to collect
and reduce to the possession of Transferee any and all of the Assets hereby
transferred to Transferee. Without limiting the generality of the foregoing,
Transferor hereby appoints Transferee, and its successors and assigns, the true
and lawful attorney of Transferor, in the name of Transferee or in the name of
Transferor but for the benefit and at the expense of Transferee, to demand and
receive any and all Assets hereby transferred; to give releases and acquittances
for or in respect of the same or any part thereof; to endorse, collect and
deposit any checks, drafts or other instruments payable to Transferor which
constitute accounts receivable hereby assigned or relate to payments for goods
and/or services provided by Transferor or Transferee in connection with the
accounts or rights under contract hereby assigned; to institute and prosecute,
in the name of Transferor or otherwise, any and all proceedings at law, in
equity or otherwise, which Transferee, or its successors and assigns, may deem
necessary or advisable to collect, assert or enforce any claim, right, title,
debt or account hereby assigned; and to defend and compromise any and all
actions, suits or proceedings in respect of any of the Assets hereby assigned
that Transferee, or its successors or assigns, shall deem necessary or
advisable. Transferor hereby declares that the foregoing powers are coupled
with an interest and shall be irrevocable.
ARTICLE 4
OTHER INSTRUMENTS
-----------------
It is understood that Transferor, contemporaneously with the execution and
delivery of this General Bill of Sale, Assignment and Assumption Agreement, is
further executing and delivering to Transferee certain other assignments and
instruments of transfer which in particular cover certain of the Assets
hereinabove assigned, the purpose of which is to supplement, facilitate and
otherwise implement the transfers intended hereby.
<PAGE>
ARTICLE 5
SUCCESSORS AND ASSIGNS
----------------------
This instrument and the covenants and agreements herein contained shall
inure to the benefit of and shall bind the respective parties hereto and their
respective successors and permitted assigns.
IN WITNESS WHEREOF, the parties hereto have executed this General Bill of
Sale, Assignment and Assumption Agreement as of the day and year first
hereinabove written.
TRANSFEROR:
----------
LIFEF/X NETWORKS, INC.
(F/K/A PACIFIC TITLE/MIRAGE, INC.),
a Delaware corporation
By: /s/ Richard A. Guttendorf
_______________________________________
Richard A. Guttendorf
Chief Financial Officer and Secretary
TRANSFEREE:
----------
PTM PRODUCTIONS, INC.,
a Delaware corporation
By: /s/ Richard A. Guttendorf
_______________________________________
Richard A. Guttendorf
President
<PAGE>
EXHIBIT 10.11
SOFTWARE LICENSE AGREEMENT
--------------------------
THIS SOFTWARE LICENSE AGREEMENT dated as of March 20, 2000 (this
"Agreement") is made and entered into by and between Lifef/x Networks, Inc., a
Delaware corporation formerly known as Pacific Title/Mirage, Inc., a Delaware
corporation ("Licensor") and PTM Productions, Inc., a Delaware corporation
("Licensee"), with reference to the following:
A. Prior to the execution hereof, Licensor, Licensee and Safeguard
Delaware, Inc., a Delaware corporation, have entered into that certain
Assignment and Assumption Agreement dated as of December 14, 2000 (the
"Assignment Agreement"), pursuant to which, among other things, Licensor has
agreed to transfer to Licensee substantially all of its assets and liabilities
other than those relating primarily to its Lifef/x Division and Licensee has
agreed to indemnify Licensor for certain liabilities and obligations in
connection therewith.
B. The ownership of the software to be licensed to Licensee pursuant to
this Agreement is not being transferred to Licensee under the Assignment
Agreement.
C. This Agreement is entered into in connection with, and pursuant to the
terms of, the Assignment Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereby agree as follows
1. Definitions
a. "AAA" means the American Arbitration Association.
b. "Copyright Act" means Title 17 of the United States Code.
c. "Derivative Works" has the meaning ascribed to it in Section 2(c) of
this Agreement.
d. "Site" means the offices of Licensee, 1149 North Gower Street,
Hollywood, California 90038 or such other location where Licensee's offices are
located.
e. "Software" means that certain software described on Exhibit "A"
attached hereto as it exists as of the date hereof.
2. License
a. Grant of License. Effective as of the date hereof, Licensor grants
Licensee, pursuant to the terms and conditions of this Agreement, a perpetual,
nonexclusive and transferable license to use and develop the Software.
b. Copies and Transfer. Except as otherwise provided in Section 4(b) of
this Agreement, Licensor agrees that Licensee shall have the right to (i) make
copies of the Software, provided
<PAGE>
that any such copies shall include Licensor's copyright and any other
proprietary notices, and (ii) transfer the Software.
c. Derivative Works. Licensor agrees that Licensee shall have the right to
make derivative works (as defined in the Copyright Act) of the Software (the
"Derivative Works").
d. License Fee. The license granted hereunder is in further consideration
for the assumption of liabilities by Licensee pursuant to the Assignment
Agreement. No additional fees, royalties, costs or expenses shall be due or
payable by Licensee for the license granted hereunder.
3. Ownership
a. Title. Licensee and Licensor agree that (i) Licensor owns all
proprietary rights, including patent, copyright, trade secret, trademark and
other proprietary rights, in and to the Software, and any corrections, bug
fixes, enhancements, updates or other modifications, including custom
modifications, to the Software made by or on behalf of Licensor, and (ii)
Licensee shall own all proprietary rights, including patent, copyright, trade
secret, trademark and other proprietary rights, in and to the Derivative Works,
and any corrections, bug fixes, enhancements, updates or other modifications,
including custom modifications, to the Software or the Derivative Works made by
or on behalf of Licensee.
b. Transfers. Under no circumstances shall Licensee sell, license, publish,
display, distribute, or otherwise transfer, to a third party the Software or any
copy thereof, in whole or in part, without Licensor's prior written consent
(which shall not be unreasonably withheld or delayed); provided, however, that
Licensee may sell, license, or otherwise transfer the Software or a copy
thereof, in whole or in part, without Licensor's prior written consent, in
connection with a merger, business combination or sale of stock of or by
Licensee, or sale of all or substantially all of the assets of either or all of
Licensee's Optical Division, Scanning and Recording Division, or Digital
Division.
4. Confidential Information
Licensee agrees that the Software contains proprietary information,
including trade secrets, know-how and confidential information, that is the
exclusive property of Licensor. During the period this Agreement is in effect
and at all times after its termination, Licensee and its employees and agents
shall maintain the confidentiality of this information and shall not sell,
license, publish, display, distribute, disclose or otherwise make available this
information to any third party nor use such information except as authorized by
this Agreement. Except in connection with a merger, business combination, sale
of stock or sale of assets, Licensee shall not disclose any such proprietary
information concerning the Software, including any flow charts, logic diagrams,
user manuals and screens, to any person who is not an employee of Licensee, or
not a consultant to Licensee who is subject to a confidentiality agreement,
without the prior written consent of Licensor, which shall not be unreasonably
with held or delayed.
2
<PAGE>
5. Arbitration
The sole and exclusive jurisdiction, venue and means for resolving any
controversy or claim arising out of, relating to or concerning this Agreement
(including, without limitation, the agreement to arbitrate contained in this
Section 5), the compliance by either party herewith, any claim in tort, or any
claim for violation of any federal, state or local statute, ordinance or
regulation, shall be binding arbitration in Los Angeles County, California. The
arbitration shall be conducted by the American Arbitration Association, whose
rules applicable to commercial disputes shall be in force, and judgment or the
award rendered by the arbitrator may be entered by any court having jurisdiction
thereof. There shall be one arbitrator to be mutually selected by the parties
to the arbitration. The fees of the arbitrator, administrative fees, and the
other fees and costs of the arbitration, including, but not limited to, the cost
of any record or transcripts of the arbitration, shall be advanced by the
parties to the arbitration in equal portions, and, in addition thereto, each
such party shall advance the fees of its own attorneys, the expenses of its
witnesses and all other expenses connected with presenting its case. THE
PARTIES HERETO WAIVE THE RIGHT TO A TRIAL BY JURY IN CONNECTION WITH ANY
ARBITRABLE CONTROVERSY OR CLAIM.
6. Notices
All notices, requests and other communications hereunder shall be in
writing and shall be delivered by courier or other means of personal service
(including by means of a nationally recognized courier service or professional
messenger service), or sent by telex or telecopy or mailed first class, postage
prepaid, by certified mail, return receipt requested, in all cases, addressed
to:
Licensor: Lifef/x Networks, Inc.
(f/k/a Pacific Title/Mirage, Inc.)
8 Cambridge Center
Cambridge, MA 02142-1401
Attn: Mr. Richard Guttendorf
Facsimile: (617) 551-5848
Licensee: PTM Productions, Inc.
c/o Safeguard Scientifics, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087-1945
Attn: Steve Rosard, Esq. & Mr. Richard Guttendorf
Facsimile: (610) 293-0601
All notices, requests and other communications shall be deemed given on the
date of actual receipt or delivery as evidenced by written receipt,
acknowledgment or other evidence of actual receipt or delivery (or attempted
delivery) to the address specified above. In case of service by telecopy, a
copy of such notice shall be personally delivered or sent by registered or
certified mail, in the manner set forth above, within three (3) business days
thereafter. Any party hereto may from time to time by notice in writing served
as set forth above designate a different
3
<PAGE>
address or a different or additional person to which all such notices or
communications thereafter are to be given.
7. General Provisions
a. Complete Agreement. This Agreement is intended to embody the final,
complete and exclusive agreement among the parties with respect to the subject
matter hereof and is intended to supersede all prior agreements, understandings
and representations written or oral, with respect thereto, and may not be
contradicted by evidence of any such prior or contemporaneous agreement,
understanding or representation, whether written or oral.
b. Amendment. This Agreement shall not be altered, modified or amended
except by a written instrument signed by each of the parties hereto.
c. Successors and Assigns. This Agreement and the covenants and agreements
herein contained shall inure to the benefit of and shall bind the respective
parties hereto and their respective successors and permitted assigns.
d. Waiver. The waiver or failure of either party to exercise in any respect
any right provided for in this Agreement shall not be deemed a waiver of any
further right under this Agreement.
e. Severability. If any provision of this Agreement is invalid, illegal or
unenforceable under any applicable statute or rule of law, it is to that extent
to be deemed omitted. The remainder of the Agreement shall be valid and
enforceable to the maximum extent possible.
f. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California.
g. Attorneys' Fees. Without limiting the enforceability of Section 5 above,
if any action or proceeding is commenced in arbitration or otherwise by either
party to enforce its rights under this Agreement or to collect damages as a
result of the breach of any of the provisions of this Agreement, the prevailing
party in such action or proceeding, including any bankruptcy, insolvency or
appellate proceedings, shall be entitled to recover all reasonable costs and
expenses, including, without limitation, reasonable attorneys' fees and court
costs and other amounts advanced in accordance with Section 5 above, in addition
to any other relief awarded by the arbitrator or court.
h. Headings. The captions and headings used in this Agreement are for
convenience only and shall not be construed as a part of this Agreement.
4
<PAGE>
[SOFTWARE LICENSE AGREEMENT]
i. Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective duly authorized officers as of the date first above written.
LICENSOR:
--------
LIFEF/X NETWORKS, INC.
(F/K/A PACIFIC TITLE/MIRAGE, INC.),
a Delaware corporation
By: /s/ Richard A. Guttendorf
_________________________________________
Richard A. Guttendorf
Chief Financial Officer and Secretary
LICENSEE:
--------
PTM PRODUCTIONS, INC.,
a Delaware corporation
By: /s/ Richard A. Guttendorf
_________________________________________
Richard Guttendorf
President
<PAGE>
EXHIBIT A TO
SOFTWARE LICENSE AGREEMENT
Software to be Licensed
-----------------------
announce: Script that displays software group announcements to a user.
auto_slate: Wrapper script around the slategen program. This script prompts
users for input and determines the correct slate image resolution for input
into the slategen program.
bpd: Bent Pipe Daemon. Program that allows fast bulk data transfer via the
HiPPI network. Works only among the HiPPI connected systems and the OMUs.
bpdcopy: Program that uses the bpd to quickly copy images via HiPPI from one
system to another.
cine_dump: Programs that reads in a cineon file header and prints out the
image's information like resolution, color depth, etc.
cine_load: Script that facilitates retrieving file information off a tape.
cine_view: Image program that displays cineon images.
deflicker: Program that removes luminense flickering from a series of images.
dst_query, dst_to310, dst_to600: scripts used to test the current status of the
DST drives.
fielder: Program that finds A frames (present in a 3:2 pulldown shot) in a
series of images.
fixperms: Script used to change file permissions on the /images files systems
from "closed" or limited, to full access.
Grid: Program that creates gridded images for testing and calibrating monitors.
hcopy: Wrapper script around bpdcopy. Prompts for input from user and reports
status of HiPPI transfers.
histogram: Program that creates image histogram data.
lsshot: Script that lists sequences of frames in a succinct format.
lut_convert: Program that converts LUTs and LUT values.
Multi_tar: Prompting script that allows tape backups to be done easily and
efficiently, without a lot of knowledge of unix tape commands.
newplay: Program that loads a series of images into memory and displays them at
realtime via a HiPPI connected frame buffer.
Exhibit A
Page 1 of 3
<PAGE>
pt_arch: Script that determines system type and operating system, so that the
correct version of applications will run.
pt_filter_dens: Program used to create density text files from the
densitometer, but without excess information the densitometer creates.
pt_framemem: Program that determines how much memory is free on a system and
how many images of a given size will fit into that free memory.
pt_gen_lut: Program that generates look up tables. Companion programs include
pt_gen_rec_lookup (creates recorder look up tables) and pt_gen_scan_rec_lut
(used to create scanner look up tables).
pt_key: Script that converts key numbers to frame count numbers.
pt_lut_installer: Program that installs a hardware lookup table. Companion
programs include pt_lut_editor and pt_lut_generator.
pt_mv_stride: Script that renumbers a series of files, using the "mv" command.
Companion programs include pt_ln_stride and pt_cp_stride.
pt_operator: Program that manages recording and wedge requests, allowing
operators to easily begin, track, document and archive requests.
pt_par_umask: Program that sharpens an image using an unsharpmasking algorithm.
pt_renamer: Script that easily renames a series of images.
pt_request: Program that creates requests (record or wedge) by prompting users
for information.
pt_resample: Program that resizes images, including crop and pad, and converts
images from one file format to another.
pt_shutdown: Program that monitors the status of the machine room, testing for
humidity, temperature and electrical status. In the event of a critical
system emergency, shuts down systems to prevent damage. Companion programs
include tempserv, rtemp, btemp, temp, rhum, humidserv, rshut, and shutserv.
pt_squish_log: Script that compresses a Multi-tar log file and creates a new,
smaller file. Saves trees.
pt_tape_verify: Script that checks for errors in the Multi_tar output log file
and reports them to the user.
pt_ticket: Program that adds a ticket to the Digital ticket database.
pt_view: Display program that can load and display any image file format
supported by the PtGFImage library.
Exhibit A
Page 2 of 3
<PAGE>
RenderMinder: Script that checks the status of currently running third party
rendering jobs and reports problems via email and pager to coordination and
users.
RenderMinderKickoff: Script that allows starts of the RenderMinder script.
rlacin: Script that facilitates converting Wavefront rla files to cineon or rgb
files.
run_prod_app: Script that displays, in a separate xterm window, the status of a
recording request. Uses run_prod_app_helper, also.
sgi_sharp: Script that calls various sharpening programs to sharpen a series of
images.
slategen: Program that prints supplied text onto a supplied background image.
Used for creating shot slates.
wedge: Script that creates histrogram data on a series of images.
wedge2lut: Script that creates histrogram data on a series of images, that luts
for the Howtek and Genesis Plus.
Unknown (status or purpose): (Not completed or used):
rstat, signon, patch_gen, polysharp, test7, test8, pt_run, pt_sep_filter,
pt_sharpen, pt_wrapper, videolink, yuv_slate
Exhibit A
Page 3 of 3
<PAGE>
EXHIBIT 10.12
INDEMNIFICATION AGREEMENT
-------------------------
(Director)
This Indemnification Agreement (the "Agreement") is made and entered into
this 14th day of December, 1999 by and between Lifef/x, Inc., a Nevada
corporation (the "Company"), and Robert Verratti (the "Indemnitee"), with
reference to the following:
A. Indemnitee is a director of the Company.
B. The Company and Indemnitee recognize the increasing difficulty in
obtaining directors', officers', employees' and agents' liability insurance,
the significant increases in the cost of such insurance and the general
reductions in coverage of such insurance.
C. The Company and Indemnitee further recognize the substantial increase
in corporate litigation subjecting directors, officers, employees and agents to
expensive litigation risks at the same time as the availability and coverage of
liability insurance has been severely limited.
D. Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other directors,
officers, employees and agents of the Company may not be willing to continue to
serve as directors, officers, employees and agents without additional
protection.
E. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve as directors, officers,
employees and agents of the Company and to indemnify its directors, officers,
employees and agents so as to provide them with the maximum protection permitted
by law.
Now, therefore, the Company and Indemnitee hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 The term "Agent" shall mean and refer to any person who is or was
a director, officer, employee or other agent of the Company; or is or was
serving at the request of the Company as a director, officer, employee or agent
of another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise; or was a director, officer, employee or agent of a foreign or
domestic corporation which was a predecessor corporation of the Company; or was
a director, officer, employee or agent of another enterprise at the request of
such predecessor corporation.
1.2 The term "Expenses" shall mean and refer to, without limitation,
attorneys' fees and any expenses of establishing a right to indemnification
under this Agreement, Section 78.7502 of the Nevada General Corporation Law or
otherwise.
<PAGE>
1.3 The term "Proceeding" shall mean and refer to any threatened,
pending, or completed action or proceeding, whether civil, criminal,
administrative or investigative to which Indemnitee is or was a party or is
threatened to be made a party by reason of the fact that Indemnitee is or was an
Agent of the Company or by reason of anything done or not done by him in such
capacity.
1.4 The term "Company" shall mean and refer to Lifef/x, Inc. and any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger, which, if its separate existence had continued, would
have had power and authority to indemnify its Agents, so that if Indemnitee is
or was an Agent of such constituent corporation, Indemnitee shall stand in the
same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
1.5 The term "Derivative Proceeding" shall mean and refer to any
Proceeding by or in the right of the Company, and excludes any Proceeding
brought directly by a third party.
ARTICLE 2
AGREEMENT TO SERVE
------------------
In consideration of the protection afforded by this Agreement, Indemnitee
agrees to serve at least for the balance of the current term as a director
(which commenced on the date hereof and shall continue for a one-year term or
until his successor is duly elected and qualified) and not to resign voluntarily
during such period without the written consent of a majority of the Board of
Directors. Following the period set forth above, Indemnitee agrees to continue
to serve as a Director at the will of the Company (or under separate agreement,
if such agreement exists) so long as he is duly appointed or elected and
qualified in accordance with the applicable provisions of the Bylaws of the
Company or any subsidiary of the Company or until such time as he tenders his
resignation in writing.
ARTICLE 3
INDEMNIFICATION
---------------
3.1 Third Party Proceedings. The Company shall indemnify Indemnitee
-----------------------
against any and all Expenses, judgments, fines, penalties, settlements and other
amounts actually and reasonably incurred by him in connection with any
Proceeding (other than a Derivative Proceeding) if, with respect to the acts or
omissions of Indemnitee which are the subject of the Proceeding, Indemnitee
acted in good faith and in a manner he reasonably believed to be in the best
interests of Company and, in the case of a criminal action or proceeding, had no
reasonable cause to believe Indemnitee's conduct was unlawful. No determination
in any Proceeding against Indemnitee by judgment, order, settlement (with or
without court approval) or conviction or upon a plea of nolo contendere or its
equivalent, shall, of itself, create a presumption that Indemnitee did not act
in good faith and in a manner which he reasonably believed to be in the best
interests of the Company and, with respect to any criminal action or proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
2
<PAGE>
3.2 Derivative Proceedings. The Company shall indemnify Indemnitee
----------------------
against any and all Expenses, judgments, fines, penalties, settlements and other
amounts actually and reasonably incurred by him in connection with the defense
or settlement of a Derivative Proceeding if, with respect to the acts or
omissions of Indemnitee which are the subject of the Proceeding, Indemnitee
acted in good faith and in a manner which he believed to be in the best
interests of the Company and its shareholders; except that no indemnification
shall be made hereunder in respect of any claim, issue or matter as to which
Indemnitee shall have been adjudged liable to the Company in the performance of
his duty to the Company and its shareholders unless, and then only to the extent
that the court in which such Proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnification for such Expenses.
3.3 Notice/Cooperation by Indemnitee. Indemnitee shall, as a
--------------------------------
condition precedent to his right to be indemnified under this Agreement, give
the Company notice in writing as soon as practicable of the commencement or the
threatened commencement of any Proceeding against him for which indemnification
will or could be sought under this Agreement. Notice to the Company shall be
directed to the Chief Executive Officer of the Company at the address shown on
the signature page of this Agreement (or such other address as the Company shall
designate in writing to Indemnitee). In addition, Indemnitee shall give the
Company such information and cooperation regarding such Proceeding or threatened
Proceeding as it may reasonably require and as shall be within Indemnitee's
power.
3.4 Procedure. Subject to the provisions of ARTICLE 4 as to the
---------
advancement of Expenses, any indemnification provided for in this ARTICLE 3
shall be paid no later than forty-five (45) days after receipt of the written
request of Indemnitee. If a claim under this Agreement, any statute, or any
provision of the Company's Articles of Incorporation or Bylaws providing for
indemnification is not paid in full by the Company within forty-five (45) days
after a written request for payment thereof has first been received by the
Company, Indemnitee may, but need not, at any time thereafter bring an action
against the Company to recover the unpaid amount of the claim and, subject to
ARTICLE 14 of this Agreement, Indemnitee shall also be entitled to be paid for
the Expenses of bringing such action. It shall be a defense to any such action
(other than an action brought to enforce a claim for Expenses incurred in
connection with any action, suit or proceeding in advance of its final
disposition) that Indemnitee has not met the standards of conduct which make it
permissible under applicable law for the Company to indemnify Indemnitee for the
amount claimed, but the burden of proving such defense shall be on the Company
and Indemnitee shall be entitled to receive advances of Expenses pursuant to
Section 4.1 hereof unless and until such defense may be finally adjudicated by
court order or judgment from which no further right of appeal exists. It is the
parties' intention that if the Company contests Indemnitee's right to
indemnification, the question of Indemnitee's right to indemnification shall be
for the court to decide, and neither the failure of the Company (including its
Board of Directors, any committee or subgroup of the Board of Directors,
independent legal counsel or the Company's shareholders) to have made a
determination that indemnification of Indemnitee is proper in the circumstances
because Indemnitee has met the applicable standard of conduct required by
applicable law, nor an actual determination by the Company (including its Board
of Directors, any committee or subgroup of the Board of Directors, independent
legal counsel, or its shareholders) that Indemnitee has not
3
<PAGE>
met such applicable standard of conduct, shall create a presumption that
Indemnitee has or has not met the applicable standard of conduct.
3.5 Notice to Insurers. If, at the time of the receipt of a notice
------------------
of a claim pursuant to Section 3.3 hereof, the Company has directors' liability
insurance in effect, the Company shall give prompt notice of such Proceeding to
the applicable insurer in accordance with the procedures set forth in the
applicable policy. The Company shall thereafter take all necessary or desirable
action to cause such insurer to pay, on behalf of Indemnitee, all amounts
payable as a result of such Proceeding in accordance with the terms of such
policy.
3.6 Selection of Counsel. In the event the Company shall be
--------------------
obligated under this ARTICLE 3 to indemnify Indemnitee, the Company shall be
entitled to assume the defense of such Proceeding, with counsel approved by
Indemnitee, which approval shall not be unreasonably withheld, upon the delivery
to Indemnitee of written notice of its election so to do. In this regard, Loeb
& Loeb LLP is hereby approved by Indemnitee as counsel for the Company. After
delivery of such notice, approval of such counsel by Indemnitee and the
retention of such counsel by the Company, the Company shall not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently incurred by
Indemnitee with respect to the same Proceeding, provided that (i) Indemnitee
shall have the right to employ his own counsel in any such Proceeding at
Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee
has been previously authorized by the Company, (B) Indemnitee shall have
reasonably concluded that there may be a conflict of interest between the
Company and Indemnitee in the conduct of any such defense, or (C) the Company
shall not, in fact, have employed counsel to assume the defense of such
Proceeding, then the fees and expenses of Indemnitee's counsel shall be borne by
the Company.
ARTICLE 4
EXPENSES; INDEMNIFICATION PROCEDURE
-----------------------------------
4.1 Advancement of Expenses. The Company shall advance all Expenses
-----------------------
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any Proceeding prior to the final disposition thereof upon receipt
by the Company of an undertaking by or on behalf of Indemnitee to repay the
Company such advanced amounts if it shall be determined ultimately that
Indemnitee is not entitled to be indemnified by the Company hereunder and
provided that Indemnitee offers reasonable proof of his ability to repay such
advanced amounts under such circumstances. Notwithstanding the foregoing,
however, such advances shall not be made if it is determined by a majority vote
of a quorum of disinterested directors (or by independent legal counsel, if such
a quorum is not obtainable) that Indemnitee acted in bad faith or deliberately
breached his duty to the Company and its shareholders and, as a result, it is
more likely than not that Indemnitee will not be entitled to indemnification
under the terms of this Agreement. The advances of Expenses to be made
hereunder shall be paid by the Company to Indemnitee within thirty (30) days
following delivery of a written request therefor by Indemnitee to the Company.
4
<PAGE>
ARTICLE 5
ADDITIONAL INDEMNIFICATION RIGHTS; NON- EXCLUSIVITY
---------------------------------------------------
5.1 Scope. Notwithstanding any other provision of this Agreement,
-----
the Company hereby agrees to indemnify Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by other provisions of this Agreement, the Company's Articles of
Incorporation, the Company's Bylaws or by statute. In the event of any change
after the date of this Agreement in any applicable law, statute or rule which
expands the right of a Nevada corporation to indemnify an Agent, such changes
shall, ipso facto, be within the purview of Indemnitee's rights and Company's
---- -----
obligations, under this Agreement. In the event of any change in applicable
law, statute or rule which narrows the right of a Nevada corporation to
indemnify an Agent, such changes, to the extent not otherwise required by such
law, statute or rule to be applied to this Agreement, shall have no effect on
this Agreement or the parties' rights and obligations hereunder.
5.2 Non-Exclusivity. The indemnification provided by this Agreement
---------------
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Articles of Incorporation, its Bylaws, any other agreement
to which the Company is bound, any vote of shareholders or disinterested
directors, the Nevada General Corporation Law, or otherwise.
ARTICLE 6
PARTIAL INDEMNIFICATION
-----------------------
If Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of the Expenses, judgments,
fines, penalties or settlements actually or reasonably incurred by him in the
investigation, defense, appeal or settlement of any Proceeding, but not,
however, for the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for that portion of such Expenses, judgments, fines or penalties for
which Indemnitee is entitled to indemnification.
ARTICLE 7
MUTUAL ACKNOWLEDGMENT
---------------------
Both the Company and Indemnitee acknowledge that in certain instances
Federal law or applicable public policy may prohibit the Company from
indemnifying Indemnitee under this Agreement or otherwise. Indemnitee
understands and acknowledges that the Company has undertaken or may be required
in the future to undertake with the Securities and Exchange Commission to submit
the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
5
<PAGE>
ARTICLE 8
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE
--------------------------------------------
The Company shall, from time to time, make a good faith determination
whether or not it is practicable for the Company to obtain and maintain a policy
or policies of insurance with reputable insurance companies providing the Agents
of the Company with coverage from losses from wrongful acts, or to insure the
Company's performance of its indemnification obligations under this Agreement.
Among other considerations the Company will weigh the costs of obtaining such
insurance coverage against the protection afforded by such coverage. In all
policies of Agents' liability insurance, Indemnitee shall be named as an insured
in such a manner as to provide Indemnitee the same rights and benefits as are
accorded to the most favorably insured of the Company's directors.
Notwithstanding the foregoing, the Company shall have no obligation to obtain or
maintain such insurance if the Company determines in good faith that such
insurance is not reasonably available, if the premium costs for such insurance
are too high, if the coverage provided by such insurance is limited by
exclusions so as to provide an insufficient benefit or if Indemnitee is covered
by similar insurance maintained by a subsidiary or parent of the Company.
ARTICLE 9
SEVERABILITY
------------
The provisions of this Agreement shall be severable as provided in this
ARTICLE 9. If any provision of this Agreement, or any portion hereof, shall be
invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify Indemnitee to the full extent permitted by
any other applicable portion of this Agreement that shall not have been
invalidated, and the balance of this Agreement not so invalidated shall be
enforceable in accordance with its terms.
ARTICLE 10
EXCEPTIONS
----------
Any other provision herein to the contrary notwithstanding, the Company
shall not be obligated pursuant to the terms of this Agreement:
10.1 Excluded Acts. To indemnify Indemnitee for any acts or omissions
-------------
or transactions from which a director may not be relieved of liability as set
forth in Sections 78.037 and 78.7502 of the Nevada General Corporation Law; or
10.2 Claims Initiated by Indemnitee. To indemnify or advance Expenses
------------------------------
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 78.7502 of the Nevada General Corporation Law, but such
6
<PAGE>
indemnification or advancement of Expenses may be provided by the Company in
specific cases if the Board of Directors has approved the initiation or bringing
of such suits; or
10.3 Lack of Good Faith. To indemnify Indemnitee for any Expenses
------------------
incurred by Indemnitee with respect to any Proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that any of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous; or
10.4 Insured Claims. To indemnify Indemnitee for expenses or
--------------
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid directly to Indemnitee by an insurance carrier under a policy of
Agents' liability insurance maintained by the Company; or
10.5 Claims Under Section 16(b). To indemnify Indemnitee for
--------------------------
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute or similar
provisions of any state or federal securities law; or
10.6 Other Indemnification. To indemnify Indemnitee for Expenses for
---------------------
which Indemnitee is indemnified by the Company otherwise than pursuant to this
Agreement; or
10.7 Unlawful Claims. To indemnify Indemnitee for Expenses brought
---------------
about or contributed to by the dishonesty of Indemnitee; however,
notwithstanding the foregoing, Indemnitee shall be protected under this
Agreement to the fullest extent permitted under law as to any claims upon which
suit may be brought against him by reason of any alleged dishonesty on his part,
unless a judgment or other final adjudication thereof adverse to Indemnitee
shall establish that he committed acts of active and deliberate dishonesty with
actual dishonest purpose and intent, which acts were material to the cause of
action so adjudicated.
ARTICLE 11
EFFECTIVENESS OF AGREEMENT; CONTINUATION OF INDEMNITY
-----------------------------------------------------
11.1 Effectiveness. To the extent that the indemnification
-------------
permitted under the terms of this Agreement exceeds the scope of the
indemnification provided for in Section 78.7502 of the Nevada General
Corporation Law, such provisions shall not be effective unless and until the
Company's Articles of Incorporation authorize such additional rights of
indemnification. In all other respects, the balance of this Agreement shall be
effective as of the date set forth on the first page and may apply to acts or
omissions of Indemnitee which occurred prior to such date if Indemnitee was an
Agent of the Company. Nothing in this Agreement is intended to require or shall
be construed as requiring the Company to do or fail to do any act in violation
of applicable law. The Company's inability, pursuant to court order, to perform
its obligations under this Agreement shall not constitute a breach of this
Agreement.
11.2 Continuation. The indemnification and advancement of Expenses
------------
by the Company to Indemnitee provided for under this Agreement shall survive and
continue after termination of Indemnitee as a director of the Company as to any
acts or omissions by Indemnitee while serving in such capacity.
7
<PAGE>
ARTICLE 12
COUNTERPARTS
------------
This Agreement may be executed in one or more counterparts, each of which
shall constitute an original.
ARTICLE 13
SUCCESSORS AND ASSIGNS
----------------------
This Agreement shall be binding upon the Company and its successors and
assigns, and shall inure to the benefit of Indemnitee and Indemnitee's estate,
heirs, legal representatives and assigns.
ARTICLE 14
ATTORNEYS' FEES
---------------
In the event that any action is instituted by Indemnitee under this
Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be
entitled to be paid all court costs and expenses, including reasonable
attorneys' fees, incurred by Indemnitee with respect to such action, unless as a
part of such action, the court of competent jurisdiction determines that any of
the material assertions made by the Indemnitee as a basis for such action were
not made in good faith or were frivolous. In the event of an action instituted
by or in the name of the Company under this Agreement or to enforce or interpret
any of the terms of this Agreement, Indemnitee shall be entitled to be paid all
court costs and expenses, including attorneys' fees, incurred by Indemnitee in
defense of such action (including with respect to Indemnitee's counterclaims and
cross-claims made in such action), unless as a part of such action the court
determines that any of Indemnitee's material defenses to such action were made
in bad faith or were frivolous.
ARTICLE 15
NOTICES
-------
All notices, requests and other communications hereunder shall be in
writing, and shall be delivered by courier or other means of personal service,
or sent by telex or telecopy or mailed first class, postage prepaid, by
certified mail, return receipt requested, in all cases, addressed to:
Indemnitee: Robert Verratti
100 Gray's Lane
Unit 200
Haverford, PA 19041
Company: Lifef/x, Inc.
______________________________
______________________________
______________________________
8
<PAGE>
with a copy to: Loeb & Loeb LLP
1000 Wilshire Boulevard
Suite 1800
Los Angeles, California 90017
Attention: Michele E. Beuerlein, Esq.
All notices, requests and other communications shall be deemed given on the date
of actual receipt or delivery as evidenced by written receipt, acknowledgment or
other evidence of actual receipt or delivery to the address.
ARTICLE 16
CHOICE OF LAW
-------------
This Agreement shall be governed by and its provisions construed in
accordance with the laws of the State of Nevada as applied to contracts between
Nevada residents entered into and to be performed entirely within Nevada.
[Intentionally left blank]
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
COMPANY:
Lifef/x, Inc.
By: /s/ Lucille Salhany
________________________________
Title: Co-President
INDEMNITEE:
/s/ Robert Verratti
____________________________________
Robert Verratti
10
<PAGE>
EXHIBIT 10.13
LOCK-UP/LEAK-OUT AGREEMENT
THIS LOCK-UP/LEAK-OUT AGREEMENT (the "Agreement") is made and entered into
as of the 14th day of December 1999, by and among Safeguard Scientifics
(Delaware), Inc., a Delaware corporation with an address at 800 The Safeguard
Building, 435 Devon Park Drive, Wayne, PA 19087-1945 ("SSI"), Safeguard 97
Capital L.P., a Delaware limited partnership with an address at 800 The
Safeguard Building, 435 Devon Park Drive, Wayne, PA 19087-1945 ("S97"),
Safeguard 98 Capital L.P., a Delaware limited partnership with an address at 800
The Safeguard Building, 435 Devon Park Drive, Wayne, PA 19087-1945 ("S98"),
Safeguard 99 Capital L.P., a Delaware limited partnership with an address at 800
The Safeguard Building, 435 Devon Park Drive, Wayne, PA 19087-1945 ("S99" and
collectively with SSI, S97 and S98, "Safeguard"), Mirage Technologies Limited
Partnership, a Massachusetts limited partnership with an address at 331 Dudley
Road, Newton, MA 02459 ("MTLP"), Robert Verratti, an individual with an address
at 100 Gray's Lane, Unit 200, Haverford, PA 19041 ("RV"), Duane S. Jenson, an
individual with an address at 5525 South 9th East, #110, Salt Lake City, UT
84117 ("DJ"), Jenson Services, a Utah corporation with an address at 5525 South
9th East, #110, Salt Lake City, UT 84117 ("Services" and, collectively with DJ,
"Jenson"), Leonard W. Burningham, an individual with an address at Suite 205
Hermes Building, 455 East Fifth South, Salt Lake City, UT 84111 ("LWB"), Briar
Creek Investment LLC, a ________ limited liability company, with an address at
119 Constoga Road, Bryn Mawr, PA 19010 ("Briar Creek"), MG Securities Group,
Inc., a Texas corporation with an address at 900 Jackson Street, Suite 450,
Dallas, TX 75202 ("MG") and Lifef/x, Inc., formerly known as Fin Sports U.S.A.,
Inc. (the "Company"). SSI, S97, S98, S99, MTLP, RV, DJ, Services, LWB, Briar
Creek and MG are sometimes collectively referred to herein as the "Shareholders"
and each, a "Shareholder"), as the Shareholders of record of certain shares of
common stock, $.001 par value per share (the "Common Stock"), of the Company.
R E C I T A L S :
WHEREAS, the Company, PTM Acquisition Corp., and Pacific Title/Mirage, Inc.
are parties to that certain merger agreement dated December 14, 1999 (the
"Merger Agreement"), a copy of which is annexed hereto and incorporated herein
by this reference; and
WHEREAS, LWB is the record owner of 117,100 shares of the Common Stock; and
WHEREAS, RV is the record owner of 349,998 shares of the Common Stock; and
WHEREAS, Safeguard is the record owner of 4,452,440 shares of the Common
Stock; and
WHEREAS, MTLP is the record owner of 6,824,979 shares of the Common Stock;
and
WHEREAS, Jenson is the record owner of 1,301,734 shares of the Common
Stock; and
WHEREAS, Briar Creek is the record owner of 195,166 shares of the Common
Stock; and
<PAGE>
WHEREAS, MG is entitled to purchase 100,000 shares of Common Stock
underlying the warrants issued to it pursuant to the Merger Agreement ; and
WHEREAS, in order to facilitate the consummation of the transactions
contemplated by the Merger Agreement and an orderly market for the Common Stock
of the Company subsequent to the reorganization contemplated by the merger, the
undersigned desire to enter into this Agreement and restrict the sale,
assignment, transfer, conveyance, hypothecation or alienation of the Common
Stock, all on the terms set forth below.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants, contained herein, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Notwithstanding anything to the contrary contained in this Agreement,
(a) any Shareholder may transfer all or any part of its shares of Common Stock,
(i) to its affiliates, its partners if such Shareholder is a partnership, its
shareholders if such Shareholder is a corporation, its members if such
Shareholder is a limited liability company, its spouse, lineal ancestors or
descendants or extended family members or to any trust for estate planning
purposes or (ii) with the written consent of the holders of the majority of
shares of Common Stock subject to this Agreement; provided that, in each case,
the transferee (or the legal representative of the transferee) executes an
agreement to be bound by all of the terms of this Agreement, and (b) DJ and
Services shall have the right to transfer shares of Common Stock to Savage
Holdings, Inc. ("SHI") provided that SHI acknowledges its agreement to be bound
by the restrictions contained herein.
2. Except as otherwise expressly provided herein and except as each
Shareholder may be otherwise restricted from selling shares of Common Stock
("Shares"), each Shareholder may only sell Shares subject to the following
conditions in relation to the sale of said Shares prior to the effective date of
a registration statement (other than in connection with a merger or employee
benefit plans pursuant to Forms S-4 or S-8) pertaining to the Company's Common
Stock (the "Registration Statement").
2.1 No Shareholder other than DJ, Services, Briar Creek and LWB may
sell any Shares. For purposes of the restrictions contained in this Section 2,
DJ, Services, Briar Creek and LWB shall collectively be considered one
Shareholder.
2.2 Each Shareholder shall be allowed to sell Shares in blocks of
5,000 Shares or less per transaction.
2.3 The Shares may only be sold at the "offer" or "ask" price stated
by the relevant market maker. Each Shareholder agrees that it will not sell
Shares at the "bid" price.
2.4 After a Shareholder sells 5,000 Shares, such Shareholder may not
sell any other Shares unless the "offer" or "ask" price of the Common Stock
increases by 25 basis points above such Shareholder's last sale price. However,
if the foregoing condition has been satisfied, the sale of the next 5,000 Shares
may take place at a price less than such Shareholder's last sale price plus 25
basis points. (For example, a Shareholder sells 5,000 Shares at a price of 10
1/2. If
2
<PAGE>
the "ask" price then increases to 10 3/4, the Shareholder may sell an additional
5,000 Shares and such sale may occur at a price less than 10 3/4).
2.5 Notwithstanding the foregoing, if, after a Shareholder sells
5,000 Shares, a market maker in the Common Stock (other than the market maker
involved in the first transaction) continues to show an "offer" or "ask" price
at the same price as the first 5,000 Share transaction, the Shareholder may, on
one occasion only, sell an additional 5,000 Shares at that price.
2.6 The Shares may not be sold at a price below $7.50 per share.
2.7 Each Shareholder shall be allowed to sell up to fifteen (15%)
percent of its Shares held as of the date hereof during each three month period;
provided, however, that in the event any Shareholder does not sell its full 15%
during any three-month period, such Shareholder may sell the Pre-Effective Date
Carry Forward Shares (as defined below) during the following three-month periods
prior to the Effective Date. Pre-Effective Date Carry Forward Shares shall be
defined, for any three month period, as the difference between 15% of the Shares
held as of the date hereof and the Shares actually sold during such three-month
period.
2.8 The Shareholders agree that they will not engage in any short
selling of the Shares.
3. Upon the effective date of the Registration Statement (the "Effective
Date"), the provisions contained in Section 2 hereof shall cease to be binding.
Upon the Effective Date, each Shareholder shall be allowed to sell up to ten
(10%) percent of its Shares as of the Effective Date during each three-month
period; provided, however, that in the event any Shareholder does not sell its
full 10% during any three-month period, such Shareholder may sell the Post-
Effective Date Carry Forward Shares (as defined below) during the following
three-month periods. Post-Effective Date Carry Forward Shares shall be defined,
for any three month period, as the difference between 10% of the Shares held as
of the Effective Date and the Shares actually sold during such three-month
period.
4. Each Shareholder agrees that all of its Shares are covered by all of
the restrictions hereunder, whether such Shares are owned on the date hereof or
are hereafter acquired (whether by issuance, transfer, upon exercise of any
warrants or options currently held by such Shareholder or otherwise).
5. This Agreement shall terminate eighteen months from the Effective Time
of the Merger (as defined in the Merger Agreement), and thereafter all
provisions contained herein shall cease and be of no further force or effect.
6. Notwithstanding anything to the contrary set forth herein, the Company
may, at any time and from time to time, waive any of the conditions or
restrictions contained herein to increase the liquidity of the Common Stock or
if such waiver would otherwise be in the best interests of the development of
the trading market for the Common Stock.
7. In the event of a tender offer to purchase all or substantially all of
the Company's issued and outstanding securities, or a merger, consolidation or
other reorganization with or into
3
<PAGE>
an unaffiliated entity, this Agreement shall terminate and the Shares restricted
pursuant hereto shall be released from such restrictions if the requisite number
of the record and beneficial owners of the Company's securities then outstanding
are voted in favor of such tender offer, merger, consolidation or
reorganization.
8. Except as otherwise provided in this Agreement, the Shareholders shall
be entitled to their respective beneficial rights of ownership of the Shares,
including the right to vote the Shares for any and all purposes.
9. The Shares and per share price restrictions covered by this Agreement
shall be appropriately adjusted should the Company make a dividend or
distribution, undergo a split or a reverse split or otherwise reclassify, its
shares of Common Stock.
10. This Agreement may be executed in any number of counterparts with the
same force and effect as if all parties had executed the same document.
11. All notices, instructions or other communications required or
permitted to be given pursuant to this Agreement shall be given in writing and
delivered by certified mail, return receipt requested, overnight delivery or
hand-delivered to all parties to this Agreement at the addresses set forth
above. All notices shall be deemed to be given on the same day if delivered by
hand or on the following business day if sent by overnight delivery or the
second business day following the date of mailing.
12. This Agreement sets forth the entire understanding of the parties
hereto with respect to the subject matter hereof, and may not be amended except
by a written instrument executed by the parties hereto.
13. This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware applicable to contracts entered into and to be
performed wholly within said State.
4
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed and delivered this
Agreement as of the day and year first above written.
SAFEGUARD SCIENTIFICS (DELAWARE), INC.
By: /s/ Steve Rosard
----------------------------------------
Name: Steve Rosard
-----------------------------------
Title: Vice President
----------------------------------
SAFEGUARD 97 CAPITAL L.P.
By: Safeguard Scientifics (Delaware), Inc.
----------------------------------------
General Partner
By: /s/ Steve Rosard
------------------------------------
Its: Vice President
-----------------------------------
SAFEGUARD 98 CAPITAL L.P.
By: Safeguard (Delaware), Inc.
----------------------------------------
General Partner
By: /s/ Steve Rosard
------------------------------------
Its: Vice President
-----------------------------------
SAFEGUARD 99 CAPITAL L.P.
By: Safeguard (Delaware), Inc.
----------------------------------------
General Partner
By: /s/ Steve Rosard
------------------------------------
Its: Vice President
-----------------------------------
MIRAGE TECHNOLOGIES LIMITED PARTNERSHIP
By: Mirage Technologies, Inc.
General Partner
By: /s/ Michael Rosenblatt
------------------------------------
Its: Co-President
-----------------------------------
/s/ Robert Verratti
-------------------------------------------
ROBERT VERRATTI
[LOCK-UP/LEAK-OUT AGREEMENT]
<PAGE>
/s/ Duane S. Jenson
______________________________________
Duane S. Jenson
JENSON SERVICES
By: /s/ Duane S. Jenson
___________________________________
Name: Duane S. Jenson
_____________________________
Title: President
_____________________________
/s/ Leonard W. Burningham
______________________________________
Leonard W. Burningham
BRIAR CREEK INVESTMENT LLC
By: /s/ Illegible
___________________________________
Name:
_____________________________
Title: Manager Member
_____________________________
MG SECURITIES GROUP, INC.
By: /s/ Michael Anderson
___________________________________
Name: Michael Anderson
_____________________________
Title: President
_____________________________
FIN SPORTS U.S.A., INC.
By: /s/ Wayne Bassham
___________________________________
Name: Wayne Bassham
_____________________________
Title: President
_____________________________
[LOCK-UP/LEAK-OUT AGREEMENT]
<PAGE>
EXHIBIT 10.14
SUBLEASE
between
NEWTON TECHNOLOGY PARK LLC
as Landlord
and
LIFEF/X, INC.
as Tenant
of
Premises at 153 Needham Street, Newton, Massachusetts
March 16, 2000
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<C> <S> <C>
1. Definitions....................................................... 2
2. Premises and Term; Master Lease................................... 5
2.1 Premises; Master Lease............................................ 5
2.2 Appurtenant Rights................................................ 6
2.3 Landlord's Reservations........................................... 6
2.4 Parking........................................................... 6
2.6 Commencement Date................................................. 6
2.9 Preparation of the Premises....................................... 7
2.10 Prior Access...................................................... 9
3. Rent and Other Payments; Security Deposit......................... 9
3.1 Annual Fixed Rent................................................. 9
3.2 Real Estate Taxes................................................. 9
3.3 Operating Expenses................................................ 11
3.4 Directly Metered Utility Charges.................................. 13
3.5 Above-standard Services........................................... 13
3.6 No Offsets........................................................ 13
3.7 Rent.............................................................. 13
3.8 Security Deposit.................................................. 13
4. Alterations....................................................... 16
4.1 Consent Required for Tenant's Alterations......................... 16
4.2 Ownership of Alterations.......................................... 16
4.3 Construction Requirements for Alterations......................... 16
4.4 Payment for Tenant Alterations.................................... 17
4.5 As Is............................................................. 18
5. Responsibility for Condition of Premises; Landlord's Services..... 18
5.1 Maintenance and Repair Obligations of the Landlord................ 18
5.2 Maintenance and Repair Obligations of Tenant; Surrender........... 18
5.3 Landlord's Services; Landlord Delay; Interruption................. 19
5.4 ADA Compliance.................................................... 19
5.5 Signage........................................................... 19
5.6 Trash Removal..................................................... 20
6. Certain Covenants................................................. 20
6.1 Permitted Uses.................................................... 20
6.2 Laws and Regulations and Other Compliance; Liens.................. 20
6.3 Rules and Regulations............................................. 21
6.4 Safety Compliance................................................. 21
6.5 Landlord's Entry.................................................. 21
6.6 Personal Property Tax............................................. 22
6.7 Assignment and Subleases.......................................... 22
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
7. Indemnity and Insurance........................................... 23
7.1 Tenant's Indemnity................................................ 23
7.2 Liability Insurance............................................... 23
7.3 Tenant's Risk..................................................... 25
7.4 Property Insurance................................................ 25
7.5 Waiver of Subrogation............................................. 26
7.6 Indemnity Procedural Provisions................................... 26
8. Casualty and Eminent Domain....................................... 27
8.1 Restoration Following Casualties.................................. 28
8.2 Termination Elections............................................. 28
8.3 Casualty at Expiration of Lease................................... 29
8.4 Eminent Domain.................................................... 29
8.5 Rent After Casualty or Taking..................................... 30
8.6 Taking Award...................................................... 30
9. Default........................................................... 30
9.1 Tenant's Default.................................................. 30
9.2 Damages........................................................... 31
9.3 Cumulative Rights................................................. 32
9.4 Landlord's Self-help.............................................. 32
9.6 Late Charges and Interest on Overdue Payments..................... 32
9.7 Consequential Damages............................................. 33
10. Environmental Matters............................................. 33
10.1 Tenant's Use of Hazardous Materials............................... 33
10.2 Tenant's Environmental Indemnification............................ 34
10.3 Landlord's Environmental Indemnification.......................... 35
11. Mortgagees' and Ground Lessors' Rights............................ 36
11.1 Subordination, Non-Disturbance and Attornment..................... 36
11.2 Estoppel Certificates............................................. 36
12. Miscellaneous..................................................... 37
12.2 Notices........................................................... 37
12.3 Successors and Limitation on Liability of the Landlord............ 37
12.4 Waivers........................................................... 38
12.5 Acceptance of Partial Payments of Rent............................ 38
12.6 Interpretation and Partial Invalidity............................. 38
12.7 Quiet Enjoyment................................................... 38
12.8 Brokerage......................................................... 39
12.9 Surrender of Premises and Holding Over............................ 39
12.10 Exhibits.......................................................... 39
12.11 Master Lease...................................................... 40
12.12 Financial Information............................................. 40
EXHIBIT A Basic Lease Terms............................................ 41
EXHIBIT B Legal Description of the Land................................ 43
EXHIBIT C Site Plan.................................................... 44
EXHIBIT D Floor Plan................................................... 45
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
EXHIBIT E Rules and Regulations........................................ 46
EXHIBIT F Exclusions from Operating Expenses........................... 52
</TABLE>
iv
<PAGE>
SUBLEASE
THIS SUBLEASE (this "Lease") is entered into as of March 16, 2000 by and
between NEWTON TECHNOLOGY PARK LLC, a Delaware limited liability company(the
"Landlord"), and LIFEF/X, INC., a Nevada corporation (the "Tenant").
In consideration of the mutual covenants herein set forth, the Landlord and
the Tenant do hereby agree to the terms and conditions set forth in this Lease.
1. Definitions. The following terms have the meanings indicated or referred
-----------
to below.
"Acceptance Notice" - See Section 2.8.
-----------
"Additional Rent" means all charges payable by the Tenant pursuant to this
Lease other than Annual Fixed Rent, including, without implied limitation, the
Tenant's Tax Expense Allocable to the Premises payable pursuant to Section 3.2;
the Tenant's Operating Expenses Allocable to the Premises payable pursuant to
Section 3.3; and amounts payable for special services pursuant to Section 3.5.
"Annual Fixed Rent" - See Exhibit A.
---------
"Base Building Systems" - See Section 5.2.
-----------
"Buildings" means, collectively, the three presently existing buildings on
the Land known as Building N1, Building N2 and Building N3, respectively, as
shown on the Site Plan, and any additions to existing Buildings or any other
buildings constructed in the future on the Land, other than accessory
structures.
"Commencement Date" - See Section 2.6.
-----------
"Environment" shall mean soil, surface waters, groundwaters, land, stream
sediments, surface or subsurface strata, ambient air, and any environmental
medium.
"Environmental Laws" means all federal, state or local laws, ordinances,
rules, regulations, or policies whether now or hereafter enacted, applicable to
the Premises and/or the Tenant's use or occupancy of the Premises or the
Tenant's activities on or about the Premises, and governing the use, clean-up,
storage, treatment, transportation, manufacture, refinement, handling,
production or disposal of Hazardous Materials, including, without limitation:
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
(42 U.S.C. Sec. 9601, et seq.) as amended by the Superfund Amendment and
-- ----
Reauthorization Act; the Solid Waste Disposal Act (42 U.S.C. Sec. 6901 et seq);
-- ---
the Hazardous Materials Transportation Act (49 U.S.C. Sec. 1801, et seq.); the
-- ----
Toxic Substances Control Act; the Resource Conservation and Recovery Act; the
Federal Clean Water Act; Massachusetts General Laws Chapter 21C and 21E;
2
<PAGE>
and any amendments thereto and any regulations adopted and publications
promulgated pursuant thereto, or any other environmental or health and safety-
related law, regulation, rule, ordinance, or by-law at the federal, state, or
local level, applicable to the Premises and/or Tenant's use or occupancy of the
Premises or the Tenant's activities on or about the Premises, whether existing
as of the date hereof, previously enforced, or subsequently enacted.
"External Causes" means any of the following: Acts of God, war, civil
commotion, fire, flood or other casualty, strikes or other extraordinary labor
difficulties, shortages of labor or materials or equipment in the ordinary
course of trade, government order or regulations or other cause not reasonably
within the control of the party in question, and not due to the fault or neglect
of such party, excluding, however, inability to pay obligations as they become
due.
"Hazardous Materials" means any pollutants, contaminants, hazardous wastes,
toxic substances, oil or petroleum products, or hazardous substances as defined
in or pursuant to any Environmental Law, including, without limitation, any
asbestos, PCB's, any toxic, noxious, or radioactive substances, methane,
volatile hydrocarbons, industrial solvents, petroleum products, or any other
materials or substances which could cause or constitute a health, safety or
other environmental hazard to any person or property.
"Interest Rate" means the variable rate of interest from time to time
announced by The BankBoston, N.A. (or its successor) as its base rate or, if
such rate can no longer be determined, the variable rate of interest from time
to time announced by a major commercial bank with administrative offices in
Boston, Massachusetts selected by the Landlord as its base or prime rate.
"Land" means the land situated in Newton, Massachusetts, described in
Exhibit B.
- ---------
"Landlord Responsible Parties" - See Section 7.1.
-----------
"Landlord's Address" - See Exhibit A.
---------
"Landlord's Work" - See Section 2.9.
-----------
"Lease Year" means each period of one year during the Term commencing on
the Commencement Date or on any anniversary thereof, or, if the Commencement
Date does not fall on the first day of a calendar month, the first Lease Year
shall consist of the partial calendar month following the Commencement Date and
the succeeding 12 full calendar months, and each succeeding Lease Year shall
consist of a one-year period commencing on the first day of the calendar month
following the calendar month in which the Commencement Date fell.
"Major Alterations" - See Section 4.1.
-----------
"Master Landlord" means the Lessor from time to time under the Master
Lease.
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"Master Lease" - means that certain Lease between Second Bromfield
Properties, Inc., as Lessor, and Honeywell Inc., as Lessee, of the Property
dated as of July 25, 1967, and under which, as of the date of this Lease, the
Lessor is Wellford Corp., and the Lessee is Landlord. A copy of the Master
Lease is attached hereto as Exhibit G. A copy of the Assignment and Assumption
----------
Agreement by which Landlord became the Lessee under the Master Lease is also
attached hereto as part of Exhibit G.
"Minor Alterations" - See Section 4.1.
-----------
"Permitted Uses" - See Exhibit A.
---------
"Premises" means THAT PORTION OF Building N1, as shown on the floor plan
attached thereto as Exhibit D, consisting of approximately 10,000 square feet of
---------
Rentable Floor Area.
"Property" means the Land and the Buildings.
"Property Common Areas" means the parking lot, walkways, driveways,
sidewalks and landscaped areas located on those portions of the Property outside
of the Buildings from time to time, and those portions of the Buildings, if any,
which serve the Property as a whole from time to time, such as but not limited
to any cafe or cafeteria and those areas required for access to the Premises.
In no event shall the Property Common Areas include any portion of the Property
that is under construction.
"Release" shall mean any releasing, spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, disposing, or
dumping into the Environment.
"Rentable Floor Area" means the area within the Buildings pursuant to which
rental calculations are made.
"Rules and Regulations" - See Section 6.3.
-----------
"Security Deposit" - See Section 3.8.
-----------
"Site Plan" means the site plan of the Property attached hereto as Exhibit
-------
C.
- -
"Tenant Responsible Parties" means the Tenant and Tenant's agents,
contractors, licensees, invitees, servants, employees, sublessees, assignees and
others for whom the Tenant is legally responsible.
"Tenant's Address for Notices" - See Exhibit A.
---------
"Tenant's Plans" - See Section 2.9.
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4
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"Tenant's Proportionate Share" - The Rentable Floor Area of the Premises,
which is 10,000 square feet, divided by the total Rentable Floor Area of the
Buildings, agreed to be currently 160,042, with the resulting Tenant's
Proportionate Share at present of Six and Twenty Five /100 percent (6.25%).
"Tenant's Work" - See Section 2.9.
-----------
"Term" means the term as set forth in Exhibit A.
"Threat of Release" shall mean a substantial likelihood of a Release which
requires action to prevent or mitigate damage to the Environment which may
result from such Release.
2. Premises and Term; Master Lease.
-------------------------------
2.1 Premises; Master Lease. The Landlord hereby leases to the Tenant,
----------------------
and the Tenant hereby leases from the Landlord, for the Term, the Premises. As
of the Commencement Date, the basic systems serving the Premises - plumbing,
electrical, HVAC - shall be in good operating condition. The Tenant
acknowledges that there have been no representations or warranties made by or on
behalf of the Landlord with respect to the Premises or the Property, or with
respect to the suitability of either of them for the conduct of the Tenant's
business, except for the representations and warranties specifically set forth
in this Lease, if any. Tenant shall be entitled to have access to the Premises
and to occupy the same twenty-four (24) hours per day, seven (7) days per week
throughout the Term.
This Lease is subject and subordinate to all the provisions of the Master
Lease and the Tenant shall not perform any act or omit to perform any act that
will violate any of the provisions of the Master Lease. A true and complete copy
of the Master Lease is attached hereto as Exhibit G. The Landlord agrees to
---------
exercise all extension options under the Master Lease necessary to keep the
Master Lease in full force and effect throughout the term of this Lease, and not
to exercise any right to terminate the Master Lease such that the Master Lease
will terminate at any time during the term of this Lease for any reason,
including, without limitation, on account of a casualty or condemnation event,
unless pursuant to the terms of this Lease the Landlord has the right to
terminate this Lease on account of such reason or event. In amplification and
not in limitation of the foregoing, in no event shall the Landlord exercise the
right of termination set forth in Article 13 of the Master Lease except as
expressly permitted in Section 12.11 hereof such that the Master Lease will
terminate at any time during the term of this Lease. If the Master Lease
terminates, this Lease shall terminate, and the parties shall be relieved from
all liabilities and obligations under this Lease; provided, however, that if
this Lease terminates as a result of a default of one of the parties under this
Lease or the Master Lease or both, the defaulting party shall be liable to the
non-defaulting party for all damage suffered by the non-defaulting party as a
result of the termination, excluding any indirect or consequential damages (by
way of example and not by way of limitation, in case of Landlord's default,
Tenant may be entitled to recover damages such as for relocation costs and
rental differential, but not for loss of business profits); provided, further,
that if the Master Lease terminates as a result of the acquisition of the
ownership of the fee interest in the Property by the Landlord, notwithstanding
the foregoing, this Lease shall remain in full force and effect, subject to the
remaining terms and conditions hereof,
5
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and the Landlord shall recognize the Tenant as the tenant under this Lease, and
the Tenant shall attorn to the Landlord as landlord under this Lease.
2.2 Appurtenant Rights. The Tenant shall have, as appurtenant to the
------------------
Premises, the nonexclusive right to use the Property Common Areas in common with
others, subject to the Rules and Regulations.
2.3 Landlord's Reservations. The Landlord expressly reserves the right
-----------------------
from time to time to alter or relocate any Property Common Area. Landlord
agrees not to reduce the existing number of parking spaces on-site as of the
date hereof by more than ten (10%) percent, nor to materially diminish access
and egress on foot and by vehicle to and from Needham Street as presently
existing but may change the present accesses so long as, as changed, there
remains reasonably sufficient and convenient accesses, taking into account
suitable requirements for the Property. The Landlord shall give the Tenant
reasonable prior notice (except in the event of emergency) before exercising its
rights under this Section 2.3 which require access to and/or through the
Premises, and the Landlord shall, in any event, exercise diligent, commercially
reasonable efforts to minimize any interference with the Tenant's use of the
Premises and to avoid undue interference with the Tenant's use of the Property
Common Areas in connection with exercising its rights under this Section 2.3.
In no event shall the Premises be decreased in size or otherwise altered in a
fashion that would adversely affect the Tenant's use thereof as a result of the
Landlord's exercise of such rights. The Landlord further expressly reserves the
right to access to and/or through the Premises upon no less than 24 hour prior
notice (except that no prior notice shall be required in an emergency) for
purposes of inspecting the Premises and otherwise exercising the Landlord's
rights as granted hereunder and performing any obligations which have been
undertaken by the Landlord under this Lease, provided that the Landlord uses
diligent, commercially reasonable efforts to minimize interference with the
Tenant's use of the Premises in connection therewith.
2.4 Parking. The Landlord shall provide not less than 32 parking spaces
-------
for cars for use at all times by the Tenant's employees, business invitees and
visitors in the parking lots on the Land. The Tenant's use of the parking lots
shall be in common with the Landlord and others entitled thereto from time to
time, and the Tenant's parking spaces shall not be reserved spaces. The Tenant
agrees that it and all persons claiming by, through and under it, shall at all
times abide by the Rules and Regulations which pertain to the use of the parking
facilities. Tenant acknowledges that approximately seventeen (17) spaces
adjacent to the Aspect Medical space are reserved for the exclusive use of
Aspect Medical. Further, Landlord expressly reserves the right to give exclusive
use of up to seventy-five (75) parking spaces elsewhere in the Office Park for
use by other tenants of the Office Park from time to time for their employees
and business invitees.
2.5 Intentionally Omitted
2.6 Commencement Date. The commencement date of the Term (the
-----------------
"Commencement Date") shall be March 15, 2000 or such earlier date as the Tenant
may occupy any substantial portion of the Premises for the conduct of its
business as opposed to preparing the Premises for occupancy.
6
<PAGE>
2.7 Intentionally Omitted
2.8 Intentionally Omitted
2.9 Preparation of the Premises.
---------------------------
(a) Landlord's Work. Promptly following the execution of this Lease, the
---------------
Landlord, at the Landlord's expense, shall, with Tenant's reasonable
collaboration, repaint the walls which currently have painted surfaces and
shampoo the carpets, and construct a vestibule inside the front of the first
floor space of the Building as part of access to Tenant's Premises ("Landlord's
Work"). The Landlord shall obtain all necessary permits and other governmental
approvals, if any, in connection with the Landlord's Work prior to commencement
of the Landlord's Work. Promptly after execution of this Lease, the Landlord
shall commence and exercise reasonable efforts to complete the Landlord's Work
on or before the Commencement Date, subject to External Causes. If the
Landlord's Work is not completed by the Commencement Date, the Tenant shall so
notify Landlord whereupon Landlord shall be permitted up to fourteen (14)
additional days within which to complete Landlord's Work, except for the
vestibule which Landlord shall exercise best efforts to complete within sixty
(60) days after the Commencement Date. If it is not then completed, Tenant
shall have the right to terminate this Lease by giving notice to the Landlord on
or before the Commencement Date of the Tenant's election so to do, and this
Lease shall cease and come to an end without further liability or obligation on
the part of either party. Notwithstanding anything to the contrary contained
herein, Tenant shall not be responsible for payment of Annual Fixed Rent or
Additional Rent, until completion of such of Landlord's Work which consists of
shampooing rugs and repainting, as long as Tenant does not take occupancy of any
of the Premises prior to completion of such repainting and shampooing. Such
right of termination and the right not to pay Annual Fixed Rent and Additional
Rent, until completion thereof unless Tenant commences occupancy of any of the
Premises prior to such completion, shall be the Tenant's sole and exclusive
remedy at law and in equity for the Landlord's failure so to complete the
Landlord's Work on or before the Commencement Date. The Tenant shall give the
Landlord notice, not less than thirty (30) days after the later of (i) the
Commencement Date or (ii) the completion of the Landlord's work, of any respects
in which the Landlord's Work has not been performed fully, properly and in
accordance with the terms of this Lease. Except as identified in any such
notice from the Tenant to the Landlord, the Tenant shall have no right to make
any claim that the Landlord has failed to perform any of the Landlord's Work
fully, properly and in accordance with this Lease or to require the Landlord to
perform any further Landlord's Work.
(b) Tenant's Plans. Tenant may currently be preparing, at its sole cost
--------------
and expense, plans and specifications for improvements Tenant desires to make in
connection with Tenant's occupancy of the Premises (the "Tenant's Plans"). If
so, Tenant's Plans shall be submitted to Landlord for its approval. Any
disapproval by the Landlord of Tenant's Plans shall be accompanied by a
reasonably specific statement of reasons therefor. At the Tenant's sole cost and
expense, the Tenant shall cause the Tenant's Plans to be revised in a manner
sufficient to remedy the Landlord's reasonable objections and/or respond to the
Landlord's reasonable concerns and for such revised plans to be redelivered to
the Landlord, and the Landlord shall either approve or
7
<PAGE>
disapprove the Tenant's revised plans within two (2) Business Days following the
date of submission. If the Landlord shall again disapprove Tenant's Plans, the
Tenant shall revise such plans and redeliver them to the Landlord pursuant to
the prior two sentences until the Tenant's Plans have been approved by the
Landlord. The Tenant's Plans shall be stamped by a Massachusetts-registered
architect and engineer, such architect and engineer being subject to the
Landlord's reasonable approval, which shall not be unreasonably withheld or
delayed, and shall comply with all applicable laws, ordinances and regulations
(including, without limitation, the applicable requirements of the Americans
with Disabilities Act of 1990, and the regulations promulgated thereunder, it
being understood that Tenant shall be responsible only for compliance with ADA
to the extent that non-compliance would result by virtue of Tenant's Work as
distinguished from the state of the Premises at the time of delivery by
Landlord) and shall be in a form satisfactory to appropriate governmental
authorities responsible for issuing permits, approvals and licenses required for
construction. The Landlord will not approve any alterations or additions
requiring unusual expense to readapt the Premises to normal office, research and
development or laboratory use on termination of this Lease or increasing the
cost of insurance on the Building, unless the Tenant first gives assurances
acceptable to the Landlord for payment of such increased cost and that such re-
adaptation will be made prior to such termination without expense to the
Landlord. The approval of any Tenant's Plans shall not impose upon the Landlord
any responsibility or liability whatsoever to the Tenant. In connection with its
approval of the Tenant's Plans, Landlord shall specify in writing those portions
of Tenant's work which must be removed at the expiration of the Term of this
Lease as part of Tenant's surrender and yield-up of the Premises.
(c) Tenant's Work. Promptly after approval of Tenant's Plans, the Tenant
-------------
shall commence and exercise all reasonable efforts to complete the work
specified therein ("Tenant's Work"). All Tenant's Work shall be completed in
accordance with the approved Tenant's Plans and the requirements for alterations
and improvements made by or on behalf of Tenant set forth in this Lease. Copies
of all permits and approvals required for Tenant's Work shall be furnished to
the Landlord promptly upon receipt thereof. Tenant's Work shall be performed by
a general contractor approved by the Landlord, which approval shall not be
unreasonably withheld or delayed, under a written construction contract
providing for payment, performance and lien bonds in the full amount of the
contract sum; provided, however, that the Tenant may have Tenant's Work
competitively bid by several general contractors approved in advance by the
Landlord which approval shall not be unreasonably withheld or delayed and the
Tenant may select among such general contractors the general contractor that
will perform Tenant's Work. The approval by the Landlord of the Tenant's
general contractor shall not impose upon the Landlord any responsibility or
liability whatsoever to the Tenant as a result of, or arising out of, the
defaults or other acts or omissions of the general contractor. A copy of all
required bonds and certificates of insurance required by this Lease shall be
furnished to the Landlord prior to commencement of construction and installation
of Tenant's Work. In addition, the Landlord may monitor the progress of
Tenant's Work, including, without limitation, attend any weekly or other
periodic job meetings. The Landlord shall provide the Tenant with no less than
twenty four hours prior notice before it enters the Premises to review Tenant's
Work, except in the event of an emergency, when no such notice shall be
required. Any review and monitoring of Tenant's Work by the Landlord shall not
impose upon the Landlord any responsibility or liability whatsoever to the
Tenant as a result of, or arising out of, Tenant's Work. Within forty-five (45)
8
<PAGE>
days of completion of any Tenant's Work in accordance with the approved plans
and specifications, the Tenant shall provide to the Landlord "as-built" plans
showing precisely how and where Tenant's Work was actually installed. The Tenant
shall provide the Landlord with copies of any certificates of occupancy for any
Tenant's Work that requires a certificate of occupancy reasonably promptly after
completion of any portion of Tenant's Work. Nothing herein shall be construed as
permitting the Tenant to occupy all or any portion of the Premises for which the
Tenant has not obtained a certificate of occupancy or otherwise failed to comply
with legal requirements as set forth herein.
2.10 Prior Access. Tenant shall have access to the Premises effective as
------------
of the date this Lease has been executed by all parties thereto for the purpose
of making alterations and furniture and equipment installation; provided,
however, that any entry onto any portion of the Property or the Premises by the
Tenant shall be subject to all of the terms and provisions of this Lease other
than the provisions requiring the Tenant to pay Annual Fixed Rent, Tenant's Tax
Expense Allocable to the Premises and Tenant's Operating Expenses Allocable to
the Premises, or any other Additional Rent none of which shall be payable for
the period prior to the Commencement Date. However, Tenant shall pay for all
utility charges incurred in connection with the Premises commencing as of no
later than the Commencement Date or such earlier date as of which it commences
to perform improvement work in the Premises, which utilities shall include, ,
but not be limited to, electricity, HVAC and gas charges, if any..
3. Rent and Other Payments; Security Deposit.
-----------------------------------------
3.1 Annual Fixed Rent. From and after the Commencement Date, the Tenant
-----------------
shall pay, without notice or demand, monthly installments of one-twelfth
(1/l2th) of the Annual Fixed Rent in effect and applicable to the Premises in
advance on the first day of each calendar month during the Term (except for any
monthly rental payment due for any partial month at the beginning of the Term,
which shall be paid on the Commencement Date) for each full calendar month of
the Term and of the corresponding fraction of said one-twelfth (1/l2th) for any
fraction of a calendar month at the beginning or end of the Term. The Annual
Fixed Rent applicable to the Premises during the Term shall be as set forth in
Exhibit A.
- ---------
3.2 Real Estate Taxes. From and after the Commencement Date, during the
-----------------
Term, the Tenant shall pay to the Landlord, as Additional Rent, Tenant's Tax
Expense Allocable to the Premises (as such term is hereinafter defined), in
accordance with this Section 3.2. The capitalized terms used in this Section
3.2 are defined as follows:
(a) "Tax Year" means the 12-month period beginning July 1 each year or if
the appropriate governmental tax fiscal period shall begin on any date other
than July 1, such other date. The "Base Tax Year" shall be the fiscal year 2000.
(b) "Tenant's Tax Expense Allocable to the Premises" means, for any Tax
Year, the Real Estate Taxes for the Tax Year in excess of the Base Tax Year,
multiplied by Tenant's Proportionate Share.
9
<PAGE>
(c) "Real Estate Taxes" means all taxes and special assessments payable by
Landlord under Section 1(a) of the Master Lease of every kind and nature
assessed by any governmental authority on the Property and reasonable expenses
of any proceedings for abatement of such taxes including appeals thereof, less
the amount of any abatement or refund received with respect to any period during
the Term (or less a prorated portion thereof, if only a portion of the period is
within the Term). The amount of special taxes or special assessments to be
included shall be limited to the amount of the installment (plus any interest
thereon) of such special tax or special assessment (which shall be payable over
the longest period permitted by law) required to be paid during the Tax Year in
respect of which such taxes are being determined. There shall be excluded from
such taxes all income, estate, succession, inheritance, excess profit, franchise
and transfer taxes; provided, however, that if at any time during the Term the
present system of ad valorem taxation of real property shall be changed so that
----------
in lieu of the whole or any part of the ad valorem tax on real property, there
shall be assessed on the Landlord a capital levy or other tax on the gross rents
received with respect to the Property, or a federal, state, county, municipal,
or other local income, franchise, excise or similar tax, assessment, levy or
charge (distinct from any now in effect) based, in whole or in part, upon any
such gross rents, then any and all of such taxes, assessments, levies or
charges, to the extent so based, shall be deemed to be included within the term
"Real Estate Taxes."
Payments by the Tenant on account of the Tenant's Tax Expense Allocable to
the Premises shall be made monthly at the time and in the fashion herein
provided for the payment of Annual Fixed Rent and shall be equal to one-twelfth
(1/12) of the Tenant's Tax Expense Allocable to the Premises for the current Tax
Year as reasonably estimated by the Landlord.
Annually, the Landlord shall render to the Tenant a statement in reasonable
detail showing for the preceding calendar year or fraction thereof, as the case
may be, Real Estate Taxes on the Property and any abatements or refunds of such
taxes received during such period with respect to any period included wholly or
partially within the Term, together with, copies of all applicable tax bills for
the Property, and the Landlord's calculations of Tenant's Tax Expense Allocable
to the Premises. The Landlord shall to render the statement not later than one
hundred twenty (120) days after the end of each calendar year or fraction
thereof during the Term or fraction thereof at the end of the Term. Expenses
incurred in obtaining any tax abatement or refund may be charged against such
tax abatement or refund before the adjustments are made for the Tax Year, unless
previously included in Real Estate Taxes used to calculate Tenant's Tax Expense
Allocable to the Premises. If at the time such statement is rendered it is
determined with respect to any Tax Year that the Tenant has paid (i) less than
the Tenant's Tax Expense Allocable to the Premises or (ii) more than the
Tenant's Tax Expense Allocable to the Premises, then, in the case of (i) the
Tenant shall pay to the Landlord, as Additional Rent, within thirty (30) days of
such statement the amount of such underpayment and, in the case of (ii) the
Landlord shall credit the amount of such overpayment against the monthly
installments of the Tenant's Tax Expense Allocable to the Premises next
thereafter coming due or, if such amount exceeds a monthly installment, then the
balance shall be credited against the next monthly installments of Annual Fixed
Rent. If the Term has expired and the Tenant has no further obligation to the
Landlord, however, the Landlord shall refund such overpayment to the Tenant
within thirty (30) days. To the extent that Real Estate Taxes may be payable to
the taxing authority in installments
10
<PAGE>
with respect to periods less than a Tax Year, the statement to be furnished by
the Landlord shall be rendered and payments made on account of such
installments.
Upon Tenant's written request submitted to Landlord no more often than once
in any three year period, the Landlord shall initiate a tax abatement proceeding
and diligently prosecute the same to completion or settlement. If, as the
result of any tax abatement proceeding (or for any other reason), Real Estate
Taxes shall be reduced for any Tax Year, the Tenant's liability for the Tenant's
Tax Expense Allocable to the Premises for such Tax Year shall be recomputed so
as to reflect the net amount of the reduction remaining after deducting the cost
to the Landlord, if any, of obtaining the same. If no such reduction for any
Tax Year results, the reasonable cost incurred by Landlord in pursuing any such
abatement shall be included in Operating Costs for the year in which such costs
are incurred.
3.3 Operating Expenses. From and after the Commencement Date, during the
------------------
Term the Tenant shall pay to the Landlord, as Additional Rent, the Tenant's
Operating Expenses Allocable to the Premises, as hereinafter defined, in
accordance with this Section 3.3. The capitalized terms used in this Section
3.3 are defined as follows:
(a) "Tenant's Operating Expenses Allocable to the Premises" means, for any
calendar year, the Operating Expenses for the Property for such calendar year in
excess of the Operating Expenses for the Property for calendar year 2000,
multiplied by Tenant's Proportionate Share; provided, however, that with respect
to any Operating Expense solely allocable to Building N1 and not to either of
the other Buildings, Tenant's Operating Expenses Allocable to the Premises shall
include 18.87% of such Operating Expense allocated to the Premises, and with
respect to any Operating Expense reasonably allocable to either or both of the
other Buildings and not to the Premises, Tenant's Operating Expenses allocable
to the Premises shall not include any of such Operating Expense for the other
Buildings.
(b) "Operating Expenses" means the Landlord's cost of operating, cleaning,
maintaining and repairing the Property, which shall include, without limitation:
the cost of providing or causing to be provided the services to be provided
hereunder; premiums for insurance with respect to the property which shall
include any and all insurance that Landlord shall deem to be reasonable,
including, but not limited to, all risk, general liability, excess liability,
rent loss, business interruption, boiler and equipment, and flood and
earthquake; the amount deductible from any insurance claim of the Landlord (but
only in the event of an actual claim paid and settled); compensation and all
fringe benefits, worker's compensation insurance premiums and payroll taxes paid
to, for or with respect to all persons directly engaged in operating,
maintaining or cleaning the Property, including the parking facilities located
thereon and such expenses shall be fairly allocated in the event any such person
works on other sites as well as on the Premises ; landscaping and maintenance;
steam, water, sewer, gas, oil and electricity, and other utility charges,
excluding such utility charges either separately metered or separately
chargeable to tenants or Tenant whether for additional or special services or
otherwise; costs of building and cleaning supplies; rental costs for equipment
used in operating, cleaning, maintaining or repairing the Property; snow
removal; security, if any; cost of maintenance, repairs and replacements (other
than repairs and replacements reasonably collectible from contractors under
guarantees), including, without limitation, capital expenditures
11
<PAGE>
for repairs, replacements and improvements; payments under service contracts
with independent contractors for services provided in connection with the
operation, cleaning, maintenance, and repair of the Property, but only to the
extent that such expenses would otherwise be properly included in Operating
Expenses hereunder; reasonable management fees; and all other reasonable
expenses paid in connection with operation, cleaning, maintenance and repair of
the Property. Notwithstanding the foregoing, Operating Expenses shall not
include the items specified in Exhibit F.
---------
Payments by the Tenant on account of the Tenant's Operating Expenses
Allocable to the Premises shall be made monthly at the time and in the fashion
herein provided for the payment of Annual Fixed Rent. The amount so to be paid
to the Landlord shall be an amount from time to time reasonably estimated by the
Landlord to be sufficient to aggregate a sum equal to the Tenant's Operating
Expenses Allocable to the Premises for each calendar year.
Annually, the Landlord shall render to the Tenant a statement in reasonable
detail (including with respect to the allocation of Operating Expenses for the
Property among the Buildings and Property Common Areas expense), showing for the
preceding calendar year or fraction thereof, as the case may be, the Operating
Expenses for the Property and the Tenant's Operating Expenses Allocable to the
Premises. The Landlord shall deliver the statement not later than one hundred
twenty (120) days after the end of each calendar year or fraction thereof during
the Term or fraction thereof at the end of the Term. If at the time such
statement is rendered it is determined with respect to any calendar year that
the Tenant has paid (i) less than the Tenant's Operating Expenses Allocable to
the Premises or (ii) more than the Tenant's Operating Expenses Allocable to the
Premises, then, in the case of (i) the Tenant shall pay to the Landlord, as
Additional Rent, within thirty (30) days of such statement the amounts of such
underpayment and, in the case of (ii) the Landlord shall credit the amount of
such overpayment against the monthly installments of the Tenant's Operating
Expenses Allocable to the Premises next thereafter coming due or, if such amount
exceeds a monthly installment, then the balance shall be credited against the
next monthly installments of Annual Fixed Rent. If the Term has expired and the
Tenant has no further obligation to the Landlord, however, the Landlord shall
refund such overpayment to the Tenant within thirty (30) days. The Tenant, its
accountants and representatives, shall have the right, at the Tenant's expense,
on not less than five (5) business days' prior written request by the Tenant to
the Landlord, to examine, audit and copy (at the Tenant's expense) at the
Landlord's offices, as long as such offices are located within one hundred (100)
miles of the Premises, during normal business hours, the Landlord's books and
records pertaining to the Operating Expenses and/or Real Estate Taxes for the
Property, to enable the Tenant to verify the accuracy of the Operating Expenses
and/or Real Estate Taxes for the Property shown on a Landlord's statement for
the prior year. If Landlord's offices are not within said 100 mile radius,
Landlord shall deliver to Tenant copies of all such books and records pertaining
to the Operating Expenses at issue. Any such audit shall be conducted within
120 days from Tenant's receipt of Landlord's statement showing in reasonable
detail the expenses incurred during the preceding calendar year or fraction
thereof. The Landlord agrees to keep its books in accordance with generally
accepted accounting principles consistently applied and in such manner as shall
reasonably make possible the verification of the Operating Expenses and Real
Estate Taxes for the Property.
12
<PAGE>
3.4 Directly Metered Utility Charges. During the Term, the Tenant shall
--------------------------------
pay on or before the date the same are due directly to the provider of the
service, all separately metered charges for steam, heat, gas, water, sewer, fuel
and other services and utilities furnished to the Premises other than
electricity for lights and plugs. Electricity consumed by Tenant for lights and
plugs shall be billed to Tenant at a flat rate of one dollar ($1.00) per square
foot per year payable in monthly installments as set forth on Exhibit A hereto.
If any of such services are not separately metered to Tenant, then Tenant shall
pay its pro rata share, as reasonably determined by the Landlord, of such
services within ten (10) days after receiving invoices therefor from Landlord.
3.5 Above-standard Services. If the Tenant requests and the Landlord
-----------------------
elects to provide any services to the Tenant in addition to those expressly
provided for herein, the Tenant shall pay to the Landlord, as Additional Rent,
the amount billed by the Landlord for such services at the Landlord's standard
rates as from time to time in effect and reasonably established. If the Tenant
has requested that such services be provided on a regular basis, the Tenant
shall, if requested by the Landlord, pay for such services at the time and in
the fashion in which Tenant's Operating Expenses Allocable to the Premises are
payable. Otherwise, the Tenant shall pay for such additional services within
thirty (30) days after receipt of an invoice from the Landlord. Concurrently
with the execution of this Lease, Landlord shall provide Tenant with a list of
the amount of the charges for such additional services.
3.6 No Offsets. Annual Fixed Rent and Additional Rent shall be paid by the
----------
Tenant without any offset, abatement or deduction whatsoever.
3.7 Rent. The total rent payable under this Lease shall be deemed to
----
include the aggregate of (i) the Annual Fixed Rent, and (ii) all other rent,
charges, fees, and costs allocable to Tenant pursuant to the terms of this
Lease.
3.8 Security Deposit.
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(a) In this Section 3.8, the following definitions apply:
-----------
"Original Amount" means $217,500.
---------------
"Letter of Credit" means any original Letter of Credit, and any
----------------
substitute, replacement, or additional letter of credit.
(b) Simultaneously with the execution of this Lease, the Tenant shall
deliver to and deposit with the Landlord a security deposit (the "Security
Deposit") consisting of either (i) cash in the Original Amount or (ii) an
irrevocable, unconditional, Letter of Credit in the face amount equal to the
Original Amount running to the Landlord as the sole beneficiary, which Letter of
Credit shall in all ways be satisfactory to the Landlord in its reasonable
discretion. Such Letter of Credit shall require, in addition to the usual
certification, the Special Certification as defined at the end of this
subparagraph (b). Any Letter of Credit shall have a stated duration of and
shall be effective for at least one year with provision for automatic successive
annual one-year extensions during the Lease Term and for sixty days thereafter
provided that Tenant may replace
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said letter of credit by no later than thirty days before its termination. If
Landlord has neither received a written notice of renewal from the issuing bank
nor a replacement Letter of Credit satisfying the requirements hereof by no
later than thirty (30) days before termination, then Landlord may draw down the
full amount covered by said Letter of Credit and may hold said amount as a cash
Security Deposit hereunder, until it receives a satisfactory replacement Letter
of Credit. Unless the Security Deposit consists of cash, the Tenant shall keep
the Letter of Credit in force throughout the Lease Term and for sixty days after
the expiration date or the earlier termination of the Term, except that if such
earlier termination is based on the Tenant's default, the Tenant shall keep the
Letter of Credit in force until sixty days after the date when the Term would
have expired had it not been earlier terminated. Unless the Security Deposit
consists of cash, the Tenant shall deliver to the Landlord a renewal Letter of
Credit no later than thirty days prior to the expiration date of any Letter of
Credit issued under this Section 3.8, and if the Tenant fails to do so, the
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Landlord may draw the entire amount of the expiring Letter of Credit and hold
the proceeds in cash as the Security Deposit. If the Security Deposit consists
of a Letter of Credit, the Letter of Credit shall be issued by a Boston
commercial bank (or other bank satisfactory to and approved by the Landlord)
which has capital assets of at least $250,000,000 and capital reserves of at
least $7,000,000, and which is a member of the Federal Reserve System, or any
other bank reasonably acceptable to Landlord. As used herein, the "Special
Certification" to be included in any draw on any Letter of Credit hereunder
shall be a certification by the drawer that the drawer did send notice in
compliance with the Notice Provisions of this Lease to Tenant of Landlord's
intention to draw on the Letter of Credit on a date not earlier than (i) five
(5) business days or (ii) if Landlord shall have received at least $25,000 in
cash as part of the Security Deposit (in which event said sum shall be included
within the Security Deposit amount and not be in addition thereto), twelve (12)
days nor later than twenty-four (24) days from the date of such notice and that
such notice specified the amount to be drawn upon and the reasonably specific
grounds or basis for arriving at that amount, such Special Certification to be a
condition precedent to any drawing under the Letter of Credit. It is understood
that if Landlord shall receive a payment on account of the amount specified in
such notice of intention to draw on the Letter of Credit, then a new notice
shall not be required if Landlord draws down a lesser amount than the amount
specified in said notice of intention to draw upon the Letter of Credit.
If the Security Deposit shall be paid in cash at any time throughout the
term of this Lease, the Landlord shall deposit two-thirds of said amount in an
escrow account in a financial institution located in Massachusetts that is
mutually acceptable and pays current interest rates and such deposit shall be in
the name of the Landlord, as escrowee. Any interest earned thereon shall be
added to and be deemed a part of the Security Deposit. The remaining one-third
of the Security Deposit paid in cash may be commingled with other funds of
Landlord and Landlord shall not be obligated to pay interest on such amount to
the Tenant. The Landlord and Tenant agree to cooperate with each other with a
view to arriving at a mutually satisfactory form of Letter of Credit from a
mutually acceptable bank if a qualified bank can not write the Letter of Credit
specifically as directed.
(c) If, and as soon as, there shall exist an Event of Default under this
Lease (and on the occasion of each Event of Default if there shall be more than
one), the Landlord may draw upon the Security Deposit at any time and from time
to time in such amount or amounts as may
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be necessary to cure the default(s) or to reimburse the Landlord for any sum(s)
which the Landlord may have spent to cure the default(s), and if the Landlord
has terminated this Lease due to the Tenant's default(s), the Landlord may also
draw upon the Security Deposit in such amount (or all) as may be necessary to
obtain any amounts from time to time owed to the Landlord by the Tenant after
termination. In the case of each such drawing (except a drawing occurring after
termination or expiration of this Lease), the Tenant shall, on demand, cause the
Security Deposit to be reinstated to the full amount that was required by this
Lease prior to the drawing (or, in the case of a Letter of Credit, cause a
similar Letter of Credit, aggregating said full amount, to be issued to the
Landlord). If at the end of the Lease Term, no Event of Default shall exist, the
Security Deposit, or any balance thereof, shall be returned to the Tenant or if
at the end of the Term of this Lease, an Event of Default shall exist, then any
portion of the Security Deposit not necessary to cure said Event of Default
shall be returned to Tenant but not otherwise. The Landlord shall have the
right, if an Event of Default occurs, to draw on that portion of the Security
Deposit necessary to cure an Event of Default as long as partial drawings are
permitted thereunder; otherwise, Landlord shall hold the proceeds thereof
(without interest payable to the Tenant) to be applied from time to time against
damages and losses. The Landlord shall be entitled to commingle up to the
equivalent of three (3) months Fixed Rent in cash or the proceeds of any Letter
of Credit provided to the Landlord as the Security Deposit with other funds of
the Landlord, and shall not be obligated to pay interest on that portion of the
deposit to the Tenant, and the remaining two-thirds will be placed in an escrow
account, all as provided in sub-paragraph (b) above. If the Landlord conveys the
Landlord's interest under this Lease, the Security Deposit, or any part thereof
not previously applied, shall be turned over by the Landlord to the Landlord's
transferee, and, if so turned over, the Tenant agrees to look solely to such
transferee for proper application of the Security Deposit in accordance with the
terms of this Lease as to the portion of the Security Deposit so transferred to
Landlord's transferee, provided that the Landlord shall see to it that the full
amount of the Security Deposit (or the unapplied balance thereof) is actually
turned over to such assignee and placed in an escrow account in a Massachusetts
bank and notice of the name and address of the transferee, the name and parties
to the escrow account and the name and address of the bank and account number is
concurrently provided by notice to the Tenant, and if the Security Deposit is
represented in whole or in part by a Letter of Credit, that no notice of
intention to draw shall have been given, or if given, shall remain outstanding.
(d) If the Security Deposit consists of a Letter of Credit, upon the
request of the Landlord, from time to time but not more than twice during the
term of this Lease, the Tenant shall make arrangements satisfactory to the
Landlord in its reasonable discretion for the transfer of Letter of Credit to
any successor landlord or mortgagee of the Property, and from any such mortgagee
to the Landlord or any successor mortgagee provided that Tenant shall not be
responsible to pay any fee required in connection with any such transfer of the
Letter of Credit due to the request of the Landlord more often than annually
during the term of this Lease.
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4. Alterations.
4.1 Consent Required for Tenant's Alterations. The Tenant shall not make
-----------------------------------------
alterations or additions to the Premises, unless the Tenant shall have first
obtained the Landlord's prior written consent thereto and approval of the plans
and specifications in each case, which consent the Landlord may withhold in its
sole discretion, except that the Landlord's prior written consent shall not be
unreasonably withheld for Minor Alterations. For purposes hereof, "Minor
Alterations" shall consist of alterations and additions to the Premises that are
not alterations or additions to the exterior of the Premises including, without
limitation, the roof thereof structural alterations or additions or alterations
or additions to the Base Building Systems (as hereinafter defined) and that will
not cost more than $10,000 to perform. Prior to commencing any alterations or
additions, Tenant shall submit to Landlord copies of all permits, approvals and
plans relating to the performance of such work. In the case of Minor
Alterations, such plans may be "schematic plans" and need not have been prepared
or certified by an engineer or architect. Upon commencing any alterations or
additions, the Tenant shall diligently prosecute the same until completion. The
Tenant shall, in all events, deliver a complete set of as-built plans to the
Landlord upon completion of any alterations or additions for which plans are
required, whether or not the plans therefor are required to be approved by
Landlord hereunder.
Notwithstanding the foregoing, if any additions, alterations or
improvements shall change the general character of the Premises or substantially
change the basic structure of the Premises or any other improvement included
therein or adversely affect the value of the Property, the Tenant may make such
alterations, addition or improvement only with the prior written approval of the
Master Landlord and of the Landlord. In the event that the consent of the
Master Landlord is required hereunder for any such addition, alterations or
improvements, Landlord will exercise reasonable efforts to obtain any such
consent.
4.2 Ownership of Alterations. Except as otherwise expressly provided in
------------------------
this Section 4.2, all alterations and additions shall be part of the Premises
and owned by the Landlord, unless at the time of the Landlord's approval of the
plans and specifications therefor, the Landlord shall specify in writing that
such alterations or additions may or shall be removed upon termination or
expiration of this Lease. By no later than twenty (20) days prior to the
anticipated time of commencement of work on any such alteration or addition. the
Tenant may submit a written request to Landlord seeking Landlord's determination
whether such item is to be removed at the expiration or earlier termination of
this Lease, and Landlord will respond to such request in writing within ten (10)
days after receipt of such request. All equipment and personal property not
attached to the Premises and trade fixtures susceptible of being removed from
the Premises without substantial injury thereto shall remain the property of the
Tenant and shall be removed by the Tenant upon termination or expiration of this
Lease. The Tenant shall repair any damage caused by the removal of any
alterations, additions, trade fixtures or personal property from the Premises.
4.3 Construction Requirements for Alterations. All construction work by
-----------------------------------------
the Tenant shall be done at the Tenant's sole cost and expense except as
expressly otherwise set forth herein and in a good and workmanlike manner,
employing only materials of equal or better quality than those installed in the
Premises as of the Commencement Date, and in compliance with all
16
<PAGE>
applicable laws and all lawful ordinances, regulations and orders of
governmental authority and insurers of the Premises and the Rules and
Regulations. The Landlord or the Landlord's authorized agent may (but without
any implied obligation to do so) inspect the work of the Tenant at reasonable
times. Except for installation of furnishings and Minor Alterations, all of the
Tenant's alterations and additions and installation of furnishings shall be
performed by contractors or workers first approved by the Landlord, which
approval the Landlord agrees not to unreasonably withhold or delay. The Tenant,
before starting any work, shall secure all licenses and permits necessary
therefor and, except as to any Minor Alterations, shall deliver to the Landlord
a copy of all such licenses and permits (and, upon completion, a copy of the
certificate of occupancy (If required by applicable law)) The Tenant also shall
deliver to the Landlord a copy of the building permit and certificate of
occupancy for any Minor Alternations for which they are required by applicable
law. The Tenant shall cause each contractor to carry worker's compensation
insurance in statutory amounts covering all the contractors' and subcontractors'
employees and comprehensive general public liability insurance with limits not
less than $1,000,000 (individual) $3,000,000 (occurrence) (all such insurance to
be written in companies approved reasonably by the Landlord and naming as
additional insureds the Landlord, the Landlord's managing agent, any ground
lessor or mortgagee of whose identity the Tenant shall have been given notice,
and the Tenant, as well as the contractors, and to deliver to the Landlord
certificates of all such insurance. Each policy of general public liability
insurance shall be non-cancelable and non-amendable with respect to the
Landlord, and any such ground lessors and mortgagees without 30 days' prior
notice to the Landlord, and such ground lessors and mortgagees. At the
Landlord's request, the Tenant shall, before work is started on any improvements
or alterations made by the Tenant, secure assurances satisfactory to the
Landlord protecting the Landlord against claims arising out of the furnishing of
labor and materials therefor.
4.4 Payment for Tenant Alterations. The Tenant agrees to pay promptly
------------------------------
when due the entire cost of any work done on the Premises by the Tenant, its
agents, employees or independent contractors, and to prevent any liens for labor
or materials performed or furnished in connection therewith from attaching to
the Premises or the Property and promptly to discharge (whether by payment,
bonding off or otherwise) any such liens which may so attach. If any such lien
shall be filed against the Premises or the Property and the Tenant shall fail to
cause such lien to be discharged within two (2) business days after receipt of
notice of the filing thereof, the Landlord may cause such lien to be discharged
by payment, bond or otherwise, without investigation as to the validity thereof
or as to any offsets or defenses which the Tenant may have with respect to the
amount claimed. The Tenant shall reimburse the Landlord, upon demand, as
Additional Rent, for any reasonable cost so incurred, including, without
limitation, reasonable attorneys' fees in connection therewith, it being
expressly agreed that such discharge by Landlord shall not be deemed to waive or
release the default of the Tenant in not discharging such lien. Tenant shall
indemnify and hold the Landlord harmless from and against any and all expenses,
liens, claims, liabilities and damages based on or arising, directly or
indirectly, by reason of the making of any alterations, additions or
improvements by or on behalf of the Tenant, which obligation shall survive the
expiration or termination of this Lease.
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4.5 As Is. Except as set forth in Section 2.9 (a), Tenant is leasing the
-----
Premises in an "AS IS" condition, without any warranties, express or implied,
with regard to the condition of the Premises (except as otherwise specifically
provided in this Lease), and the Landlord shall not make, is not hereby making
and has not made any covenants, guaranties, representations or warranties,
express, implied or by law, oral or written, of any kind or character, as to the
nature, condition, construction, workmanship, state of repair, development,
function, valuation, profitability, income, operations, expenses, tax
consequences, title, compliance with laws, rules, regulations and ordinances,
habitability, merchantability, or fitness, suitability or feasibility for any
purpose of the Property; all of the foregoing being hereby expressly disclaimed
by the Landlord and waived by the Tenant. The Tenant has entered into this
Lease without relying on any statement or representation by the Landlord or its
agents. The Tenant represents and warrants that the Tenant has relied solely on
its own expertise and that of its consultants in leasing the Premises.
5. Responsibility for Condition of Premises; Landlord's Services.
-------------------------------------------------------------
5.1 Maintenance and Repair Obligations of the Landlord. (a) Except as
--------------------------------------------------
otherwise provided in Article 8, the Landlord shall maintain, clean, repair and
---------
make all necessary replacements to (i) the Property Common Areas, and (ii) the
roof, floor slabs, structural supports, structure of the building (including the
plumbing, mechanical, HVAC and electrical systems serving other portions of the
Property in addition to the Premises as they may be expanded hereunder from time
to time) and exterior walls of the Premises, in each case as may be necessary to
keep and maintain the same in good order, condition and repair. In no event
shall Landlord be responsible for the repair of glass in the Premises or the
doors (or related finish work), except that repairs to glass or doors required
as of the Commencement Date shall be by the Landlord at Landlord's expense.
5.2 Maintenance and Repair Obligations of Tenant; Surrender. The Tenant
-------------------------------------------------------
shall keep neat and clean and maintain in good order, condition and repair the
Premises, excepting only reasonable wear and tear and damage by fire or other
casualty and as a consequence of the exercise of the power of eminent domain,
and those repairs for which the Landlord expressly is responsible pursuant to
Section 5.1.. The Tenant covenants and agrees that, upon the termination or
expiration of this Lease, the Tenant shall surrender the Premises and, to the
extent required or permitted by Section 4.2, all alterations and additions
thereto made by Tenant during the Term of this Lease, in the aforesaid
condition, first removing all goods and effects of the Tenant and, to the extent
required or permitted by Section 4.2, all alterations and additions made by the
Tenant and repairing any damage caused by such removal and restoring the
Premises. The Tenant shall not permit or commit any waste, and the Tenant shall
be responsible for the cost of repairs which may be made necessary by reason of
damage to the roof and exterior walls of the Premises and Property Common Areas
reasonable wear and tear excepted, by any Tenant Responsible Party, which shall
be payable to the Landlord upon demand as Additional Rent.
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5.3 Landlord's Services; Landlord Delay; Interruption. The Landlord shall
-------------------------------------------------
provide lighting, maintenance and snow removal for the parking areas and
landscaping maintenance services in and for the Property so as to maintain the
Property in good and operational condition similar to that of comparable
properties, well maintained, in the area in which the Property is located. The
cost of all such services shall be included in Operating Expenses. Landlord
shall provide heating and cooling as may be required to provide reasonably
comfortable space temperature and ventilation for occupants of the Premises.
Landlord shall also provide hot water for lavatory purposes and cold water for
drinking, lavatory and toilet purposes. The cost of such heating, cooling, hot
water and cold water shall be paid, to the extent specified under Section 3.3
(a), by Tenant as part of Operating Expenses. In case the Landlord is
prevented or delayed from making any repairs, alterations or improvements, or
furnishing any services or performing any other covenant or duty to be performed
on the Landlord's part by reason of any External Cause, the Landlord shall not
be liable to the Tenant therefor, nor, except as expressly otherwise provided in
this Lease, shall the Tenant be entitled to any abatement or reduction of rent
by reason thereof, nor shall the same give rise to a claim in the Tenant's favor
that such failure constitutes actual or constructive, total or partial, eviction
from the Premises. The Landlord also reserves the right to take any steps
necessary to comply with applicable law, ordinances, codes and regulations. In
no event shall the Landlord be liable to the Tenant for, nor, except as
expressly otherwise provided in this Lease, shall the Tenant be entitled to any
abatement or reduction of rent by reason of the unavailability of heat, light or
any utility or any service, nor shall the same give rise to any claim in the
Tenant's favor that the same constitutes actual or constructive, total, or
partial, eviction from the Premises.
5.4 ADA Compliance. The Tenant and the Landlord acknowledge that, in
--------------
accordance with the provisions of the Americans with Disabilities Act of 1990
(42 U.S.C. (S)12101, as amended) and the regulations promulgated thereunder (the
"ADA"), responsibility for compliance with the terms and conditions of the ADA
may be allocated as between the Landlord and the Tenant. The Landlord and the
Tenant therefore agree that the Landlord shall be responsible for compliance
with the ADA with respect to the Property Common Areas, including, but not
limited to, the sidewalks, parking areas and exterior walkways, and the Tenant
shall be responsible for compliance with the ADA only if required with respect
to any work Tenant undertakes with respect to the Premises and any new
compliance obligations which are triggered as a result of Tenant's undertaking
such work.
5.5 Signage. The Tenant shall have the right to install and maintain (a)
-------
a principal sign for the Tenant's business and that of its affiliate, Lifef/x
Networks, Inc. on the Premises on the principal entrance way into the Premises
in front of the main lobby in Building N1. Any signage installed on the
Property by the Tenant shall be installed by the Tenant in a good and
workmanlike manner, using only new first-class materials, and such signage will
be maintained at the Tenant's sole expense in good condition and repair. The
location and design of any sign shall be subject to the Landlord's prior
written approval, not to be unreasonably withheld as long as the format and
design of such signs shall be consistent with Landlord's general criteria for
signage at the Property.
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5.6 Trash Removal. The Landlord shall be responsible for removal of all of
-------------
the Tenant's trash and refuse from the Property. The Landlord shall install and
maintain one or more trash receptacles outside the Premises. Without limitation
of the foregoing, the Tenant shall be responsible for proper disposal off the
Property of all Hazardous Materials used or brought onto the Premises or the
Property by the Tenant or any Tenant Responsible Party.
6. Certain Covenants.
-----------------
6.1 Permitted Uses. The Tenant shall occupy the Premises only for the
--------------
Permitted Uses, and shall not injure or deface the Premises or the Property, nor
permit in the Premises any auction sale. Landlord hereby certifies that the
lawful uses of the Premises under the Newton Zoning Ordinance include office
use, certain research and development use and certain manufacturing uses. The
Tenant shall not permit in the Premises any nuisance (other than consistent with
Permitted Uses and then so long as it is limited to Building N-2 and does not
interfere with any other tenant's use and enjoyment), or the emission from the
Premises of any objectionable noise, odor or vibration, nor do or permit any act
or thing on the Premises or the Property which is contrary to any requirement of
law, or which constitutes a public or private nuisance, or which might impair
the value of the Property, or which is liable to invalidate or increase premiums
for any insurance on the Premises or the Property or their contents (unless the
Tenant agrees to pay the Landlord for the total increased cost of such
premiums), or which is liable to render necessary any alteration or addition to
the Premises or the Property, nor commit or permit any waste in or with respect
to the Premises or the Property.
6.2 Laws and Regulations and Other Compliance; Liens. The Tenant shall
------------------------------------------------
comply with all applicable laws, statutes, codes, ordinances, orders, judgments,
decrees, injunctions, regulations, rules, permits, licenses, authorizations,
directions and requirements of all governments, departments, commissions,
boards, courts, authorities, agencies, officials and officers, foreseen or
unforeseen, ordinary or extraordinary in effect from time to time applicable
with respect to the Tenant's use and occupancy of the Premises, including,
without limitation, by making, any alterations to the Premises required as a
result of the Tenant's specific use and occupancy, subject to the provisions of
this Lease regarding alterations by the Tenant. Without limitation of the
foregoing, the Tenant shall comply with applicable local, state and federal
laws, ordinances, regulations and orders relating to industrial hygiene,
environmental protection, and public health and safety and any applicable
permits, licenses, and other governmental or regulatory approvals regarding the
discharge or emission of regulated materials or wastes in connection with
Tenant's specific operations and occupancy at the Premises. Tenant shall pay
all costs related to such compliance, where such compliance requirements are
triggered by Tenant's specific use, whether as specifically authorized hereunder
or not, (and are not triggered by the inherent character of the space as used
for office and administrative uses respectively). Tenant's authorized use
hereunder is development, maintenance and marketing of software and other
communication technologies; provided, however, that whether or not Tenant may
lawfully engage in such business is at the risk of Tenant as set forth in
Exhibit A. The Tenant shall comply with all instruments now of record which now
or at any time hereafter may be applicable to the Premises or any part thereof,
or any of the adjoining sidewalks, curbs, fences and vaults, if any, or the
ownership or use of any thereof, of which Tenant has received actual written
notice, provided that the same do not materially adversely affect the rights and
remedies of Tenant
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pursuant to this Lease.; conform to all requirements of all customary policies
of insurance covering the Premises or insuring the Landlord or the Tenant in
connection therewith and the standards recommended by the Boston Board of Fire
Underwriters applicable to the Tenant's use and occupancy of the Premises; and
not do or permit to be done on or in connection with the Leased Premises any act
or thing which might impose any liability or responsibility upon the Landlord
except those arising from Permitted Uses expressly permitted hereunder, in which
case such uses may be exercised but Tenant hereby agrees that it assumes any and
all liability or responsibility therefor; and not to subject the Leased Premises
to any mortgage, lien, encumbrance or charge, and to discharge any such
mortgage, lien, encumbrance or charge which may arise. The Tenant shall, at the
Tenant's sole cost and expense, obtain all permits, licenses and approvals
required by any governmental authority for the Tenant's specific use and
activities for Permitted Uses on the Premises.
6.3 Rules and Regulations. The Tenant shall not unreasonably obstruct in
---------------------
any manner any portion of the Property not hereby leased; and shall comply with
all reasonable rules and regulations of uniform application to all occupants of
the Property now or hereafter made by the Landlord, of which the Tenant has been
given notice, for the care and use of the Buildings, and the Property Common
Areas (the "Rules and Regulations"). The initial Rules and Regulations are
attached hereto as Exhibit E. The Landlord shall not be liable to the Tenant
---------
for the failure of other occupants of the Property to conform to any of the
Rules and Regulations, but the Landlord shall enforce such Rules and Regulations
in a non-discriminatory and uniform manner.
6.4 Safety Compliance. The Tenant shall keep the Premises equipped with
-----------------
all safety appliances required by law or ordinance or any other regulations of
any public authority or reasonable insurance underwriting requirements of which
the Tenant has been given reasonable prior notice and procure all licenses and
permits so required because of such use and, if requested by the Landlord, do
any work so required because of such use and such requirements, it being
understood that the foregoing provisions shall not be construed to broaden in
any way the Tenant's Permitted Uses. Landlord acknowledges that as of the
Commencement Date, all such safety appliances as are required for the use of the
Premises for office and administrative purposes shall have been installed and be
in good working order.
6.5 Landlord's Entry. The Tenant shall permit the Landlord, its agents
----------------
and any ground lessor and mortgagee, upon no less than 24 hours prior notice
except in the case of emergencies, to enter the Premises at all reasonable hours
for the purpose of inspecting or of making repairs to the same, and for the
purpose of showing the Premises to prospective purchasers, investors, ground
lessors and mortgagees during normal business hours s, and to prospective
tenants during the last twelve (12) months of the Term. In connection with such
entry, the Landlord shall exercise reasonable efforts to minimize any
interference with the Tenant's use of the Premises. In addition, the Master
Landlord shall have the right to enter the Premises pursuant to Section 6 of the
Master Lease to the extent provided therein. Landlord acknowledges that Tenant
may restrict inspections to the extent reasonably necessary to maintain
confidentiality with respect to its proprietary codes, software and other
intellectual property; provided, however, such restrictions shall not result in
denying Landlord access to any part of the Premises.
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6.6 Personal Property Tax. The Tenant shall pay promptly when due all
---------------------
taxes which may be imposed upon the Tenant's personal property (including,
without limitation, fixtures and equipment) in the Premises to whomever
assessed.
6.7 Assignment and Subleases.
(a) The Tenant covenants and agrees that neither this Lease nor the
term and estate hereby granted, nor any interest herein or therein, will be
assigned, mortgaged, pledged, encumbered or otherwise transferred, whether
voluntarily, involuntarily, by operation of law or otherwise, and that neither
the Premises nor any part thereof will be encumbered in any manner by reason of
any act or omission on the part of the Tenant, or used or occupied or permitted
to be used or occupied, by anyone other than the Tenant, or for any use or
purpose other than a Permitted Use, or be sublet (which term, without
limitation, shall include granting of concessions, licenses and the like) in
whole or in part, or be offered or advertised for assignment or subletting by
the Tenant or any person acting on behalf of the Tenant, without, in each case,
the prior written consent of the Landlord, which consent shall not be
unreasonably withheld and, in the event that the Landlord consents to any
subletting, no subtenant in any event shall be permitted to further assign,
sublet or otherwise transfer its interest under this Lease, except in accordance
with this section in any manner described in this paragraph (a). Subject to
the provisions of paragraph (b) hereof, the provisions of this paragraph (a)
shall apply, without limitation, to a transfer (by one or more transfers) of a
controlling portion of or interest in the stock or partnership or membership
interests or other evidences of equity interests in the Tenant as if such
transfer were an assignment of this Lease; provided that if equity interests in
the Tenant at any time are or become traded on a public stock exchange, the
transfer of equity interests in the Tenant on a public stock exchange shall not
be deemed an assignment within the meaning of this Section.
Landlord acknowledges that Tenant's affiliate, Lifef/x Networks, Inc. may
occupy the Premises with Tenant. Further, notwithstanding anything else to the
contrary herein, assignments by operation of law or otherwise by reason of
"mergers and acquisitions" shall not require the consent of Landlord provided
that the net worth of the Assignee or resulting entity will be not less than the
greater of (i) Tenant's net worth as of the Commencement Date or (ii) Tenant's
net worth as of the last day of the third calendar month next prior to the date
of such Merger or Acquisition. As used herein, the term "mergers and
acquisition" shall include (i) a statutory merger (ii) a statutory
consolidation, (iii) a transfer of all or substantially all assets to another
entity, or (iv) a so-called reorganization within the meaning of Section 368 of
the Internal Revenue Code as amended.
(b) Acceptance of Rent. No such assignment, subletting or occupancy shall
------------------
be deemed a waiver of the terms of this Lease. Any consent by the Landlord to a
particular subletting or occupancy or any assignment by reason of "merger or
acquisition" shall not in any way diminish the prohibition stated in paragraph
(a) as to any future assignment or subletting, or the continuing liability of
the original named Tenant. No assignment or subletting hereunder shall relieve
the Tenant from its obligations hereunder, and the Tenant shall remain fully and
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primarily liable therefor. No assignment or subletting shall expand the signage
rights provided for by this Lease.
(c) In the event Landlord consents to any assignment or subletting one
half of any rent payable to Tenant in excess of the Annual Fixed and Additional
Rent (i.e. Tax Increases and Operating Cost Increase payable by Tenant under
this Lease) shall be the sole property of Landlord, payable as Additional Rent
upon demand of Landlord; however, prior to calculating the amount of such excess
rent to be shared by Landlord and Tenant, Tenant shall be entitled to net out
(and retain) as amortized over the remaining term of the Lease the following of
its out-of-pocket third-party costs of such transaction: reasonable attorney's
fees, broker's commission, and advertising/marketing costs, tenant improvement
costs, tenant inducements and other reasonable out-of pocket expenses incurred
in connection with such assignment or subletting.
7. Indemnity and Insurance.
-----------------------
7.1 Tenant's Indemnity. To the maximum extent this agreement may be made
------------------
effective according to law, and except as otherwise expressly provided in this
Lease, the Tenant agrees to indemnify and save harmless the Landlord from and
against all claims, loss, or damage of whatever nature to the extent, except to
the extent that the same results from the negligence or willful misconduct of
Landlord, or the Landlord's Responsible Parties (as hereinafter defined): (i)
directly arising from any negligent act or omission relating to an express
obligation under this Lease or willful misconduct of any Tenant Responsible
Party or any accident, injury to or death of persons or loss of or damage to
property whatsoever, in each case occurring in the Premises during the Term and
thereafter, so long as the Tenant is in occupancy of any part of the Premises,
or (ii) arising from any accident, injury or damage occurring outside the
Premises but in or on the Property Common Areas, or any other areas within the
Buildings or on the Land, where such accident, injury or damage results directly
from the Tenant's negligence act or omission relating to an express obligation
under this Lease on the part of any Tenant Responsible Party; provided that the
foregoing indemnity shall not include any cost or damage to the extent arising
from the negligence or willful misconduct of the Landlord or the Landlord's
contractors, licensees, invitees, agents, servants or employees or others for
whom the Landlord is legally responsible (collectively, with the Landlord,
"Landlord Responsible Parties") or if caused by the acts or omissions of any
other tenant or such tenant's contractors, licensees, invitees, agents, servants
or employees. This indemnity and hold harmless agreement shall include
indemnity against reasonable attorneys' fees and all other reasonable costs,
expenses and liabilities incurred or in connection with any such claim or
proceeding brought thereon, and the defense thereof. The claims subject to the
foregoing indemnity by Tenant shall include any claims by the Master Landlord
under Section 9(a) of the Master Lease arising from the Tenant's negligent acts
or omissions in connection with use or occupancy of the Premises. This
Indemnification Obligation shall be governed by the provisions of Section 7.6.
7.2 Liability Insurance. The Tenant agrees to maintain in full force from
-------------------
the date upon which the Tenant first enters the Premises for any reason,
throughout the Term, and thereafter, so long as the Tenant is in occupancy of
any part of the Premises:
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(a) a policy of comprehensive general liability insurance under
which the Master Landlord, the Landlord (and the Landlord's managing agent, any
ground lessor and any holder of a mortgage on the Property of whom the Tenant is
notified in writing by the Landlord), Bull HN Information Systems Inc. ("Bull"),
Honeywell Inc. ("Honeywell") and Polaroid Corporation, are named as additional
insureds if naming Bull and Honeywell may be done at no added cost (or if the
same may be procured at added cost, provided that Landlord shall elect to
reimburse Tenant for such added cost) and under which the insurer provides a
contractual liability endorsement insuring against all cost, expense and
liability arising out of or based upon any and all claims, accidents, injuries
and damages described in Section 7.1, in the broadest form of such coverage from
time to time available; and
(b) workers' compensation insurance as required by state law.
The following policy requirements shall apply to the extent that, with best
efforts, they are commercially available at commercially reasonable expense.
Each such policy shall be noncancellable and nonamendable with respect to the
Master Landlord and its mortgagees, the Landlord, its managing agent and such
ground lessors and mortgagees, Bull and Honeywell, without thirty (30) days'
prior written notice to the Landlord, its managing agent and such ground lessors
and mortgagees and, at the election of the Landlord, either a certificate of
insurance or a duplicate original policy shall be delivered to the Landlord
prior to the Commencement Date or any entry into the Premises by the Tenant
prior to the Commencement Date, and in any event, not less than thirty (30) days
prior to expiration. The minimum limits of liability of such comprehensive
general liability insurance shall be Five Million Dollars ($5,000,000.00) for
combined bodily injury (or death) and damage to property (per occurrence), or
such higher amount as the Landlord reasonably may require from time to time,
taking into account amounts commonly carried by similar tenants in similar
buildings in the vicinity of the Property. Such liability limits may be
satisfied by adding Tenant's so-called "umbrella" liability coverage to its base
general liability insurance. The Landlord shall carry such liability insurance
with respect to operations at the Property as may from time to time reasonably
be deemed prudent by the Landlord or required by any mortgagee holding a first
mortgage thereon or any ground lessor of the Land. All such insurance shall be
written by companies of recognized financial standing which are authorized to do
an insurance business in Massachusetts. Such insurance may be obtained by the
Tenant by endorsement on its blanket insurance policies. Every such policy shall
contain, to the extent obtainable, an agreement by the insurer that any loss
otherwise payable thereunder shall be payable notwithstanding any act or
negligence of the Master Landlord, the Landlord, or the Tenant which might,
absent such agreement, result in a forfeiture of all or a part of such insurance
payment and notwithstanding (i) the occupation or use of the Premises for
purposes more hazardous than permitted by the terms of such policy, (ii) any
foreclosure or other action or proceeding taken by any of the Master Landlord's
mortgagees of which the Tenant has notice pursuant to any provision of any such
mortgagees' mortgage upon the happening of an event of default, as defined
therein, or (iii) any change in title or ownership of the Property. The Tenant
shall deliver to the Landlord promptly after the execution and delivery of this
Lease the original or duplicate policies or certificates of the insurance
required to be carried by Tenant hereunder, and the Tenant shall, within thirty
(30) days prior to the expiration of any such insurance, deliver other original
or duplicate policies or other certificates of insurance evidencing the renewal
of such insurance. The Tenant shall not obtain or carry separate insurance
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concurrent in form or contributing in the event of loss with that required
hereunder unless each of the Master Landlord and the Landlord is included
therein as a named insured. The Tenant shall promptly notify the Landlord
whenever any such separate insurance is obtained and shall deliver to the
Landlord the policy or policies or certificates evidencing the same.
Should the Tenant fail to effect, maintain or renew any insurance provided
for in this Section, or to pay the premium therefor, or to deliver to the
Landlord any of such policies or certificates, then and in any of said events
the Landlord, at its option, but without obligation so to do, may, upon five (5)
days notice to the Tenant of its intention to do so, procure such insurance, and
any sums expended to procure such insurance shall be Additional Rent hereunder
and shall be repaid by the Tenant within five (5) days following the date on
which the Tenant receives notice that such expenditure has been made by the
Landlord.
7.3 Tenant's Risk. The Tenant agrees to use and occupy the Premises and
-------------
to use such other portions of the Property as the Tenant is herein given the
right to use at the Tenant's own risk. The Landlord shall not be liable to the
Tenant, its employees, agents, invitees or contractors for any damage, injury,
loss, compensation, or claim (including, but not limited to, claims for the
interruption of or loss to the Tenant's business)except to the extent that the
same arises from the negligence or willful misconduct of the Landlord, based on,
arising out of or resulting from any cause whatsoever, including, but not
limited to, repairs to any portion of the Premises or the Property, any fire,
robbery, theft, mysterious disappearance and/or any other crime or casualty, the
actions of any other tenants of the Property or of any other person or persons,
or any leakage in any part or portion of the Premises or the other Buildings, or
from water, rain or snow that may leak into, or flow from any part of the
Premises or the other Buildings, or from drains, pipes or plumbing fixtures in
the Premises or the other Buildings. Any goods, property or personal effects
stored or placed in or about the Premises shall be at the sole risk of the
Tenant, and neither the Landlord nor the Landlord's insurers shall in any manner
be held responsible therefor, except to the extent that the same arises from the
negligence or willful misconduct of Landlord. Notwithstanding the foregoing,
the Landlord shall not be released from liability for any injury, loss, damages
or liability to the extent arising from any negligence or willful misconduct of
the Landlord Responsible Parties; provided, however, that in no event shall the
Landlord have any liability to the Tenant for indirect or consequential damages
such as lost profits or other such losses of the Tenant's business as a result
of interruption. The Tenant shall carry "all-risk" property insurance on a
"replacement cost" basis, insuring the Tenant's removable property and any
alterations made by the Tenant pursuant to Article 4, to the extent that the
---------
same have not become the property of the Landlord.
7.4 Property Insurance. The Landlord shall carry such property insurance
------------------
upon and with respect to the Premises (including the improvements to be made to
the Premises pursuant to Section 2.9 of this Lease) and the Property Common
Areas as may from time to time reasonably be deemed prudent by the Landlord or
required by any mortgagee holding a first mortgage thereon or any ground lessor
of the Land, and in any event, an "all risk" property insurance policy (or its
equivalent from time to time), on a full replacement cost basis, subject to a
commercially reasonable deductible and exclusive of foundations, site
preparation and other nonrecurring construction costs. The Landlord's insurance
pursuant to this Section 7.4 may be in the form of a blanket policy, so long as
it provides for an agreed amount with respect to the
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Premises and the Property Common Areas. The Tenant shall carry property
insurance upon and with respect to all of its tenant improvements (other than
the tenant improvements to be made to the Premises pursuant to Section 2.9 of
this Lease, which shall be Landlord's responsibility to insure), fixtures,
equipment and personal property located on the Premises, insuring against loss
by fire and other risks which are required to be insured against by the
Landlord.
7.5 Waiver of Subrogation. Any insurance carried by either party under
---------------------
this Lease with respect to the Buildings, the Land, the Premises, parking
facilities or any property therein or occurrences thereon shall, without further
request by either party, if it can be so written without additional premium, or
with an additional premium which the other party elects to pay, include a clause
or endorsement denying to the insurer rights of subrogation against the other
party to the extent rights have been waived by the insured prior to occurrence
of injury or loss. Each party, notwithstanding any provisions of this Lease to
the contrary, hereby waives any rights of recovery against the other for injury
or loss, including, without limitation, injury or loss caused by negligence of
such other party, due to hazards covered by insurance containing such clause or
endorsement to the extent of the indemnification received thereunder.
7.6 Indemnity Procedural Provisions.
-------------------------------
The following provisions shall apply to the indemnities provided for by
this Lease. For purposes of this section, the party obligated to provide an
indemnity hereunder is referred to as the "Indemnitor", and the party benefited
by the indemnity is referred to as the "Indemnified Party."
(a ) An Indemnitor shall have no obligation of indemnity hereunder with
respect to any claim, suit, indemnity or proceeding hereunder unless a
reasonably prompt written notice is given to the Indemnitor by the Indemnified
Party after the Indemnified Party becomes aware of a reasonable likelihood, or
receives actual notice, of the making of any claim or the commencement of any
suit, action or proceeding giving rise or potentially giving rise to the
liability of the Indemnitor hereunder (an "Indemnified Claim").
(b ) The Indemnitor shall be entitled to participate in, and assume sole
control over, the defense of any such Indemnified Claim with counsel at its own
expense; provided, however, that (i) the Indemnified Party shall be entitled to
participate in the defense and to employ counsel at its own expense to assist in
such defense; and (ii) the Indemnitor shall obtain the prior written approval of
the Indemnified Party, which shall not be unreasonably withheld or delayed,
before entering into any settlement or ceasing to defend against any such
Indemnified Claim, if pursuant to or as a result of such settlement or
cessation, injunctive or other equitable relief would be imposed against the
Indemnified Party. Such a settlement by the Indemnitor shall not require the
consent of the Indemnified Party if such settlement shall not materially
adversely impact on the Indemnified Party or on the Property. After written
notice by the Indemnitor to the Indemnified Party of the Indemnitor's election
to assume control of the defense of any such Indemnified Claim pursuant to the
terms hereof, the Indemnitor shall not be liable to any Indemnified Party
hereunder for any expenses subsequently incurred by such Indemnified Party in
connection with the defense thereof other than reasonable costs of
investigation, provided, however, that if the Indemnitor fails to take
reasonable steps necessary to defend diligently such Indemnified Claim
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within twenty (20) calendar days after receiving written notice from an
Indemnified Party that such Indemnified Party believes that the Indemnitor has
failed to take such steps, such Indemnified Party may assume its own defense,
and the Indemnitor will be liable for all reasonable costs and expenses paid or
incurred in connection therewith. Without the prior written consent of the
Indemnified Party, the Indemnitor will not enter into a settlement of any
Indemnified Claim that would lead to liability or create any financial or other
obligation on the part of the Indemnified Party for which the Indemnified Party
is not entitled to indemnification hereunder. If a firm offer is made to settle
an Indemnified Claim without leading to liability or the creation of a financial
or other obligation on the part of an Indemnified Party, and the Indemnitor
desires to accept and agree to such offer, the Indemnitor will give written
notice to such Indemnified Party to that effect. If such Indemnified Party fails
to consent to such firm offer within ten (10) calendar days after its receipt of
such notice, such Indemnified Party may continue to contest or defend such
Indemnified Claim and, in such event, the maximum liability of the Indemnitor as
to such Indemnified Claim will not exceed the amount of such settlement offer,
plus reasonable costs and expenses (not including expenses of settlement) paid
or incurred by such Indemnified Party through the end of such ten (10) calendar
day period. In no event shall any Indemnified Party settle any claim for which
any Indemnified Party seeks indemnification hereunder without the prior written
consent of the Indemnitor.
(c) In any proceeding involving the Indemnified Claim of any third
party, the Indemnitor and each Indemnified Party shall cooperate fully in the
defense of any such claim. Without limiting the generality of the foregoing,
each Indemnified Party shall furnish the Indemnitor such documentary or other
evidence as is then in its possession as may be reasonably requested by the
Indemnitor for the purpose of defending any such Indemnified Claim.
(d) Any notices to an Indemnified Party hereunder shall be given
pursuant to the notices provision hereof.
(e) To the extent that Tenant shall carry insurance coverages and limits
substantially as required hereunder, the Tenant shall not have the obligation to
defend if the Tenant's insurance company shall defend against any such claims
nor shall the Tenant have the obligation to pay or settle any such claim so long
as Tenant's insurance company shall settle or pay such claim, to the extent that
the insurance company does in fact pay the same. To the extent that Landlord
shall carry insurance coverages and limits substantially as required hereunder,
the Landlord shall not have the obligation to defend if the Landlord's insurance
company shall defend against any such claims nor shall the Landlord have the
obligation to pay or settle any such claim so long as Landlord's insurance
company shall settle or pay such claim, to the extent that the insurance company
does in fact pay the same.
8. Casualty and Eminent Domain.
---------------------------
8.1 Restoration Following Casualties. If, during the Term, a portion of
--------------------------------
the Premises or any of the Property Common Areas shall be damaged by fire or
other casualty ("Damaged Area"), subject to the exceptions and limitations
provided below, the Landlord shall proceed promptly to exercise diligent efforts
to restore the Damaged Area to substantially the condition thereof at the time
of such damage, but the Landlord shall not be responsible for delay in the
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Landlord's receipt of insurance proceeds or any delay in such restoration which
may result from any External Cause. The Landlord shall have no obligation to
expend in the reconstruction of the Damaged Area more than the actual amount of
the insurance proceeds actually received by the Landlord with respect to the
fire or other casualty plus the amount of any deductible. Any restoration of
the Damaged Area shall be altered to the extent necessary to comply with then
current laws and applicable codes. Further, the Landlord shall have no
obligation to repair or restore any tenant improvements made by the Tenant
(other than the improvements made to the Premises pursuant to Section 2.9 hereof
and then only to the extent such improvements are insured and that adequate
insurance proceeds are released to Landlord to pay for such repairs or
restoration) or any of the Tenant's trade fixtures or personal property.
In case during the Term hereof, the Premises shall be "partially damaged"
(but not "substantially damaged", as that term is hereinafter defined) by fire
or other casualty, Landlord shall promptly proceed to repair such damage and
restore the Premises, to substantially their condition at the time immediately
before such damage, provided further, that Landlord shall not be responsible for
any delays which may result from any cause beyond Landlord's reasonable control.
As used herein "partially damaged" shall mean damaged to such an extent that
said Premises can reasonably be expected to be restored within sixty (60) days
after the commencement of restoration work. If such restoration is not
substantially complete within ninety (90) days after the date of such casualty,
Tenant may elect to terminate this Lease by fifteen (15) days written notice to
Landlord specifying in what respects said restoration is incomplete, which
termination will be effective upon such fifteenth (15/th/) day, unless the
restoration is then substantially completed.
In case the Premises shall be "substantially damaged" (as hereinafter
defined) by fire or other casualty, the Landlord shall give written notice to
Tenant within forty-five (45) days after such casualty as to whether or nor the
damage can be repaired and the Premises restored before the expiration of two
hundred twenty-five (225) days after such casualty. If the Landlord shall
notify the Tenant that such damage can not be restored within said period, said
notice shall be deemed to be an election to terminate this Lease effective, as
specified therein, not less than thirty (30) nor later than sixty (60) days
after the date of such notice. If in good faith the Landlord shall notify that
such damage will be restored within said period of two hundred twenty-five (225)
days, the Landlord shall promptly commence repair and restoration and pursue the
same diligently to completion without undue delay.
8.2 Termination Elections. In the event that (a) at any time during the
---------------------
Term the Premises is damaged by fire or other casualty such that the damage
cannot be substantially restored within two hundred twenty-five (225) days
after the casualty, or (b) at any time during the last year of the Term the
Premises are damaged by fire or other casualty such that the damage cannot be
substantially restored within one year after the casualty (either such event, a
"Substantial Casualty"), Landlord shall have the right, at any time within sixty
(60) days after the casualty to terminate this Lease by giving written notice to
the Tenant, and, in addition, if the Landlord's mortgagee, ground lessor or
other lender refuses in the event of a Substantial Casualty to make the
insurance proceeds available to the Landlord for repair and restoration, the
Landlord shall have the right, at any time within thirty (30) days after
receiving notice from the mortgagee, ground lessor or other lender of its
refusal to release the insurance proceeds, but in no
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event later than one hundred twenty (120) days following the casualty, to
terminate this Lease by giving written notice to the Tenant.
8.3 Casualty at Expiration of Lease. Notwithstanding anything to the
-------------------------------
contrary contained in this Lease, if the Premises shall be damaged by fire or
casualty in such a manner that the Premises cannot, in the ordinary course,
reasonably be expected to be repaired within thirty (30) days from the date of
such fire or casualty and such damage occurs within the last twelve (12) months
of the Term (as the same may have been extended prior to such fire or casualty),
either party shall have the right, by giving notice to the other not later than
thirty (30) days after such damage, to terminate this Lease, whereupon this
Lease shall terminate as of the thirtieth (30/th/) day after such notice.
8.4 Eminent Domain. Except as hereinafter provided, if the Premises, or
--------------
such portion thereof (or the access thereto unless comparable replacement access
is provided) as to materially impair (if reconstructed to the maximum extent
practicable in the circumstances) the continued conduct of the Tenant's business
at the Premises, or the Property Common Areas, or such portion thereof as to
render the Premises inaccessible such that the continued conduct of the Tenant's
business at the Premises is materially impaired, shall be taken by condemnation
or right of eminent domain and the Landlord has no reasonable means of remedying
or replacing said problem within two hundred and seventy (270) days after the
date of such taking, the Tenant or Landlord shall have the right to terminate
this Lease by notice to the other of its desire to do so, provided that such
notice is given not later than forty five (45) days after the effective date of
such taking. If so much of the Premises, or so much of the Property Common
Areas, shall be so taken that it would be appropriate to raze the Premises, or
due to the lack of sufficient proceeds from the eminent domain taking not
retained by any mortgagee or ground lessor, what may remain of the Premises and
the Property cannot be put into a condition such that the continued conduct of
the Tenant's business is not materially impaired, then each of the Landlord and
the Tenant may terminate this Lease by giving notice to the other of its desire
to do so not later than forty five (45 ) days after the effective date of such
taking.
Should any part of the Premises or the Property be so taken or condemned
during the Term, and should this Lease be not terminated in accordance with the
foregoing provisions, the Landlord agrees to use diligent efforts to put what
may remain of the Premises and the Property into proper condition for use and
occupation as nearly like the condition of the Premises and the Property prior
to such taking as shall be practicable, subject, however, to applicable laws and
codes then in existence, and so long as the proceeds actually received by the
Landlord from the eminent domain taking are sufficient therefor. In no event
shall the Landlord be obligated to expend more than the amount of proceeds from
the eminent domain taking actually received by the Landlord on such work.
8.5 Rent After Casualty or Taking. If the Premises shall be damaged by
-----------------------------
fire or other casualty or taking (and prior to any termination of this Lease
pursuant to this Article 8), the Annual Fixed Rent and Additional Rent shall be
justly and equitably abated and reduced according to the nature and extent of
the loss of use thereof suffered by the Tenant. In the event of a taking which
permanently reduces the area of the Premises or the Property Common Areas, a
just proportion of the Annual Fixed Rent shall be abated for the remainder of
the Term. Any
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disputes between Tenant and Landlord arising hereunder about the extent of any
such abatement shall be resolved pursuant to the format set forth in Exhibit I
hereto.
8.6 Taking Award. Except as otherwise provided in this Section 8.6, the
------------
Landlord shall have and hereby reserves and excepts, and the Tenant hereby
grants and assigns to the Landlord, all rights to recover for any damages to the
Premises and/or any other part of the Property, and the leasehold interest
hereby created, and to compensation accrued or hereafter to accrue by reason of
any such taking, as aforesaid, and by way of confirming the foregoing, subject
to this Section 8.6, the Tenant hereby grants and assigns to the Landlord, all
rights to such damages or compensation. Nothing contained herein shall be
construed to prevent the Tenant from prosecuting in any condemnation proceedings
a claim for relocation expenses, trade fixtures, equipment and other personal
property of the Tenant that is part of a separate award to the Tenant and which
does not diminish the award payable to the Landlord or the Master Landlord as a
result of the taking.
9. Default.
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9.1 Tenant's Default. Each of the following shall constitute an Event of
----------------
Default:
(a) Failure on the part of the Tenant to pay the Annual Fixed Rent, or
the regular monthly payments of Real Estate Taxes or Operating Expenses for
which provision is made herein on or before the date on which the same become
due and payable, if such condition continues for five (5) business days after
notice from Landlord to Tenant thereof, or failure on the part of the Tenant to
pay any balance due determined by reconciling the monthly payments respectively
of Real Estate Taxes and Operating Expenses ("Reconciliation Payments") with the
actual expenses for any calendar year within fifteen (15) business days after
notice from Landlord to Tenant thereof. Tenant agrees that Tenant, even if
contesting the same, may not withhold Reconciliation Payments, and that Tenant
will not unreasonably withhold payment of any other items of Additional Rent;
provided, however, that in the event of any such withholding, Tenant shall
provide Landlord with a reasonably detailed explanation with a reasonable basis
for any such withholding within thirty (30) days after notice from Landlord that
such amount is due. (Notwithstanding the foregoing, Tenant's making of any such
payments shall not be deemed an admission that the same are properly due or
owed).
Notwithstanding the first sentence of this subparagraph (a), Tenant shall not be
entitled to receive such notice from Landlord more than twice during any
calendar year as to any default consisting of failure to make any regular
monthly payment of (i) Annual Fixed Rent or (ii) Real Estate Taxes or (iii)
Operating Expenses.
(b) Failure on the part of the Tenant to perform or observe any other
term or condition contained in this Lease if the Tenant shall not cure such
failure within thirty (30) days after notice from the Landlord to the Tenant
thereof, provided that in the case of breaches of obligations under this Lease
which are susceptible to cure but cannot be cured within thirty (30) days
through the exercise of due diligence, so long as the Tenant commences such cure
within thirty (30) days and the Tenant diligently and continuously pursues such
cure to completion,
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such breach shall not be deemed to create an Event of Default, so long as Master
Landlord does not declare an Event of Default under the Master Lease as a result
of such Event of Default hereunder, provided that Landlord shall promptly
provide Tenant with a copy of any notice of default served upon Landlord by
Master Landlord based upon Article 18 clause (v) and not otherwise;
(c) The taking of the estate hereby created on execution or by other
process of law; or if the Tenant shall make an assignment for the benefit of
creditors or shall be adjudicated insolvent, or shall file any petition or
answer seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief for itself under any present or
future Federal, State or other statute, law or regulation for the relief of
debtors (other than the Bankruptcy Code, as hereinafter defined), or shall seek
or consent to or acquiesce in the appointment of any trustee, receiver or
liquidator of the Tenant or of all or any substantial part of its properties, or
shall admit in writing its inability to pay its debts generally as they become
due; or the filing of a voluntary petition by the Tenant, or the entry of an
order for relief against the Tenant, under Chapter 7, 11, or 13 of 11 U.S.C
(S)101 et seq., as amended or replaced from time to time (the "Bankruptcy
-------
Code"); or a petition shall be filed against the Tenant under any law (other
than the Bankruptcy Code) seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief under any present or
future Federal, State or other statute, law or regulation and shall remain
undismissed or unstayed for an aggregate of one hundred twenty (120) days
(whether or not consecutive), or if any trustee, conservator, receiver or
liquidator of the Tenant or of all or any substantial part of its properties
shall be appointed without the consent or acquiescence of the Tenant and such
appointment shall remain unvacated or unstayed for an aggregate of one hundred
twenty (120) days (whether or not consecutive).
If an Event of Default shall occur, then, in any such case the Landlord
lawfully may, immediately or at any time or times thereafter, give notice to the
Tenant specifying the Event of Default, and this Lease shall come to an end on
the date specified therein, not earlier than thirty (30) nor later than ninety
(90) days after such notice, as fully and completely as if such date were the
date herein originally fixed for the expiration of the Lease Term, and the
Tenant will then quit and surrender the Premises to the Landlord, but the Tenant
shall remain liable as hereinafter provided.
9.2 Damages. In the event that this Lease is terminated, at the
-------
Landlord's election, the Tenant covenants to pay to the Landlord forthwith on
the Landlord's demand, as compensation, an amount (the "Lump Sum Payment") equal
to the excess, if any, of the discounted present value (discounted at an
annualized rate that is equitable at the time of the total rent ("Fixed Rent",
"Real Estate Taxes" and "Operating Expenses") reserved for the remainder of the
Term over the then discounted present fair rental value of the Premises for the
remainder of the Term. Alternatively, at the Landlord's election, the Tenant
shall pay punctually to the Landlord all the sums ("Periodic Payments") which
the Tenant covenants in this Lease to pay in the same manner and to the same
extent and at the same time as if this Lease had not been terminated. In
calculating the amounts to be paid by the Tenant under the foregoing covenant,
the Tenant shall be credited with the amount of the net proceeds of any rent
obtained by reletting the Premises, after deducting the just and proportional
part of the Landlord's reasonable expenses
31
<PAGE>
in connection with such reletting, including, without limitation, repossession
costs, brokerage commissions, reasonable fees for legal services and expenses of
preparing the Premises for such reletting. The Landlord may (i) relet the
Premises, or any part or parts thereof, for a term or terms which may, at the
Landlord's option, exceed or be equal to or less than the period which would
otherwise have constituted the balance of the Term, and may grant such
concessions and free rent as the Landlord considers necessary to relet the same
and (ii) make such alterations, repairs and improvements in the Premises as the
Landlord considers necessary to relet the same. Landlord shall use reasonable
efforts to mitigate its damages in the event of a termination pursuant hereto.
9.3 Cumulative Rights. The specific remedies to which the Landlord may
-----------------
resort under the terms of this Lease are cumulative and are not intended to be
exclusive of any other remedies or means of redress to which it may be lawfully
entitled in case of any breach or threatened breach by the Tenant of any
provisions of this Lease. Nothing contained in this Lease shall limit or
prejudice the right of the Landlord to prove for and obtain in proceedings for
bankruptcy, insolvency or like proceedings by reason of the termination of this
Lease, an amount equal to the maximum allowed by any statute or rule of law in
effect at the time when, and governing the proceedings in which, the damages are
to be proved, whether or not the amount be greater, equal to, or less than the
amount of the loss or damages referred to above.
9.4 Landlord's Self-Help. If the Tenant shall at any time default in the
--------------------
performance of any obligation under this Lease, the Landlord shall have the
right, but not the obligation, upon not less than ten (10) days' prior written
notice to the Tenant (except in case of emergency, in which case no notice need
be given), to perform such obligation, and the reasonable costs to Landlord
thereof shall be payable by the Tenant to the Landlord upon demand as Additional
Rent. The Landlord may exercise its rights under this Section without waiving
any other of its rights or releasing the Tenant from any of its obligations
under this Lease.
9.5 Intentionally Omitted
---------------------
9.6 Late Charges and Interest on Overdue Payments. In the event that any
---------------------------------------------
payment of Annual Fixed Rent or Additional Rent, except such specified
components of Additional Rent as are being reasonably contested as expressly
permitted under Section 9.1 (a) hereof shall not be paid within ten (10) days of
the date the same is due, regardless of whether the same constitutes an Event of
Default, there shall become due to the Landlord from the Tenant, as Additional
Rent and as compensation for the Landlord's extra administrative costs in
investigating the circumstances of late rent, a late charge of five percent (5%)
of the amount overdue. In addition, any Annual Fixed Rent and Additional Rent
(except such specified components of Additional Rent as are being reasonably
contested as expressly permitted under Section 9.1(a) hereof) not paid within
five (5) days of when due shall bear interest from the date due to the Landlord
until paid at the variable rate (the "Default Interest Rate") equal to the
higher of (i) the rate from time to time at which interest accrues on amounts
not paid when due under the terms of the Landlord's first mortgage financing for
the Premises, as from time to time in effect, and (ii) one hundred and fifty
percent (150%) of the Interest Rate, but in no event higher than the maximum
rate permitted by law.
32
<PAGE>
9.7 Consequential Damages. Notwithstanding anything in this Lease to the
---------------------
contrary, in no event shall either party be liable to the other under this Lease
for incidental, indirect, special or consequential damages of any kind or nature
regardless of the form of action through which such damages are sought.
10. Environmental Matters.
---------------------
10.1 Tenant's Use of Hazardous Materials.
-----------------------------------
(a) Tenant may use chemicals such as lubricants, solvents and cleaning
fluids of the kind and in amounts and in the manner customarily found and used
in the operation of an office in order to conduct its business at the Premises
and to maintain and operate customary office machinery located in the Premises
(all such chemicals being referred to herein as the "Permitted Materials").
Tenant shall not use, store, handle, treat, transport, release or dispose of any
other Hazardous Materials on or about the Premises or the Property without
Landlord's prior written consent, which Landlord may withhold or condition in
Landlord's sole discretion. Any handling, treatment, transportation, storage,
disposal or use of Hazardous Materials by the Tenant in or about the Premises or
the Property shall comply with all applicable Environmental Laws. The Tenant
shall not dispose of any Hazardous Materials on the Property, and shall not
dispose of Hazardous Materials in any trash receptacles or other facilities or
areas on the Property. Neither the Premises, nor any other part of the Property
shall be used in any manner by the Tenant for the storage of any Hazardous
Materials, except for the temporary storage of the Permitted Materials on the
Premises, provided the Permitted Materials are properly stored in a manner and
location complying with all applicable Environmental Laws. The Tenant shall be
responsible for obtaining any required authorizations, licenses or permits and
paying any fees and providing any testing required by any governmental authority
in connection with the Permitted Materials. No portion of the Premises or the
Property shall be used by the Tenant as a landfill or a dump. The Tenant shall
not install any underground tanks of any type. The Tenant shall not bring any
Hazardous Materials onto the Premises or the Property, except for the Permitted
Materials, and if so brought or found thereon, the Tenant, at its sole cost and
expense, shall immediately remove, properly dispose of, and diligently undertake
all required cleanup procedures with respect to the same pursuant to all
applicable Environmental Laws.
33
<PAGE>
(b ) The Landlord and the Landlord's representatives shall have the
right, but not the obligation, during normal business hours upon twenty four
(24) hours prior notice (except in the case of an emergency) to enter the
Premises for the purpose of inspecting the storage, use and disposal of
Hazardous Materials and to ensure compliance with all Environmental Laws.
Should it be determined, in the Landlord's reasonable opinion, that any
Hazardous Materials are being improperly stored, used or disposed of, the Tenant
shall immediately take such corrective action, as reasonably requested by the
Landlord. Should the Tenant fail to commence such corrective action as promptly
as is reasonably possible, but in no event less than ten (10) business days
after receiving notice following the Tenant's receipt of Landlord's written
notice thereof (except that only notice as may be practical shall be required in
an emergency), the Landlord shall have the right to perform the corrective
action, and the Tenant shall reimburse Landlord upon demand as Additional Rent
for any and all costs associated with the corrective action. If, at any time
during or after the Term, the Premises or any other part of the Property are
deemed by a governmental agency to be in violation of any Environmental Law as a
result of the Tenant's Permitted Materials or any other Hazardous Materials
produced, stored or brought onto the Premises, or the Tenant's use or occupancy
of, or activity on or about the Premises or the Property, then the Tenant shall
diligently institute and prosecute to completion remediation and cleanup
procedures in full compliance with all Environmental Laws.
(c) Tenant shall give written notice to Landlord as soon as reasonably
practicable of (i) any communication received by Tenant from any governmental
authority concerning Hazardous Materials which relates to the Premises or the
Property, and (ii) any Environmental Condition of which Tenant is aware to the
extent the Environmental Condition is on the Premises, and of which Tenant has
actual knowledge to the extent the Environmental Condition is on the Property in
a location other than the Premises. For purposes hereof, "Environmental
Condition" shall mean any disposal, release or threat of release of Hazardous
Materials on, from or about the Premises or the Property or storage of Hazardous
Materials on the Property. The Tenant shall provide to the Landlord, as and when
required by the Landlord (which may be required by Landlord whenever it has
reasonable cause to so require and, otherwise, no more often than once in any
when required by the Landlord (which may be required by Landlord whenever it has
twelve (12) month period), evidence that the Tenant is using such Hazardous
Materials in compliance with all Environmental Laws, and the Tenant shall comply
with reasonable safeguards established by the Landlord for the Property Common
Areas with respect to the delivery and transportation of the Hazardous Materials
to the Premises.
10.2 Tenant's Environmental Indemnification. The Tenant agrees to
--------------------------------------
indemnify, defend and hold harmless the Master Landlord, the Landlord and any
prior or successor tenant under the Master Lease and their respective
shareholders, officers, directors, employees, agents, successors and assigns
(together, the "Landlord Indemnitees"), from and against any and all claims,
demands, liabilities, damages, losses, deficiencies, and expenses (including,
without limitation, reasonable legal, accounting, consulting, engineering, and
other expenses), which may be imposed upon, incurred by, or asserted against any
of the Landlord Indemnitees by any other party or parties (including, without
limitation, a governmental entity), arising out of, in connection with, or
relating to the subject matter of:
(a ) any actual or alleged Release or Threat of Release of any
Hazardous Material at or from the Premises in connection with the use and
possession of the Premises by the Tenant or
34
<PAGE>
any assignee or subtenant of the Tenant, or in connection with any operations of
the Tenant or any assignee or subtenant of the Tenant at the Premises, including
without limitation, a Release or Threat of Release of Hazardous Material which
was first located at the Premises and was subsequently transported to another
location; or
(b) any actual or alleged violation of an Environmental Law in connection
with the use and possession of the Premises by the Tenant or any assignee or
subtenant of the Tenant, or with any operations of the Tenant or any assignee or
subtenant of the Tenant thereon; or
(c) The parties agree that (i) the Tenant shall not be responsible for any
environmental condition or contamination either at the Premises or at the
Property unless caused by the acts or omissions of Tenant, its servants, agents
or invitees and arising from and after the Commencement Date, and that while,
(ii) Tenant shall not be responsible for any environmental condition or
contamination at the Premises unless caused by Tenant, its servants, agents or
invitees; there shall be a rebuttable presumption as to any such environmental
condition or contamination arising after the Commencement Date within the
Premises that the same was caused by the Tenant unless the Tenant can rebut such
presumption. Notwithstanding anything to the contrary contained herein, the
Tenant shall not be responsible for any environmental condition or contamination
outside the Premises unless the same was caused by the Tenant, its servants,
agents or invitees, and there shall be a rebuttable presumption that the same
was not caused by the Tenant, its servants, agents, invitees, assignees or
subtenants if such condition arises outside of the Premises.
The provisions of this Section shall survive the expiration or earlier
termination of the Term.
10.3 Landlord's Environmental Indemnification. The Landlord agrees to
----------------------------------------
indemnify, defend and hold harmless the Tenant and its shareholders, officers,
directors, employees, agents, successors and assigns (together, the "Tenant
Indemnitees") from and against any and all claims, demands, liabilities,
damages, losses, deficiencies and expenses (including without limitation
reasonable legal, accounting, consulting, engineering, and other expenses),
which may be imposed upon, incurred by, or asserted against any of the Tenant
Indemnitees by any other party or parties (including, without limitation, a
governmental entity), arising out of, in connection with, or relating to the
subject matter of:
(a) any actual or alleged Release or Threat of Release of any Hazardous
Material at or from the Property in connection with the use and/or possession of
the Property by the Landlord, and any predecessor, assignee or subtenant of the
Landlord, or in connection with any operations of the Landlord any predecessor,
assignee or subtenant of the Landlord), including without limitation, a Release
or Threat of Release of Hazardous Material which was first located at the
Property and was subsequently transported to another location; or
(b) any actual or alleged violation of an Environmental Law in connection
with the use and/or possession of the Property by the Landlord and any
predecessor, assignee or subtenant of the Landlord), or with any operations of
the Landlord (and any predecessor, assignee or subtenant of the Landlord)
thereon.
35
<PAGE>
The provisions of this Section shall survive the expiration or earlier
termination of the Term.
11. Mortgagees' and Ground Lessors' Rights.
--------------------------------------
11.1 Subordination, Non-Disturbance and Attornment. This Lease shall be
---------------------------------------------
subject and subordinate to any future mortgage or ground lease on the Property,
provided that the Tenant receives as part of such subordination an agreement of
non-disturbance and attornment from the holder. If such subordination shall run
in favor of an institutional holder of any future mortgage or in favor of an
institutional landlord under the Master Lease, such document shall be in form
and substance acceptable to any such institutional holder or institutional
landlord under the Master Lease. As used herein, the term "institutional
holder" or "institution" means a bank, trust company, insurance company, pension
fund, or credit issuing organization such as GECC or GMAC. If such
subordination is to run in favor of a non-institutional holder or of a non-
institutional landlord under the Master Lease, then the subordination is to be
in reasonable and customary form. The Tenant agrees on request of the Landlord
to execute, acknowledge and deliver from time to time any reasonable
documentation necessary to effectuate the provisions of this Section 11.1, and
shall execute and return such document within fifteen (15) days of receipt
thereof the failure of which shall constitute a default hereunder., upon the
expiration of five (5) days after Landlord has given Tenant notice of such
failure unless Tenant shall have complied within said five (5) days. Landlord
shall exercise diligent efforts to obtain a non-disturbance agreement from the
then current mortgagee of the Property, if any. Any subordination requested
from a future mortgagee of the Premises must include a standard and customary
form of non-disturbance agreement for the benefit of Tenant.
11.2 Estoppel Certificates. The Tenant shall from time to time, upon not
---------------------
less than fifteen (15) days' prior written request by the Landlord, execute,
acknowledge and deliver to the Landlord a written certification, with a true and
correct copy of this Lease attached thereto, (i) that this Lease is unmodified
and in full force and effect (or, if there have been any modifications, that the
same is in full force and effect as modified and stating the modifications);
(ii) that the Tenant has no knowledge of any defenses, offsets or counterclaims
against its obligations to pay the Annual Fixed Rent and Additional Rent and to
perform its other covenants under this Lease (or if there are any defenses,
offsets, or counterclaims, setting them forth in reasonable detail); (iii) that
there are no known uncured defaults of the Landlord or the Tenant under this
Lease (or if there are known defaults, setting them forth in reasonable detail);
(iv) the dates to which the Annual Fixed Rent, Additional Rent and other charges
have been paid; (v) that the Tenant has accepted and is in full possession of
the Premises (to the extent that the same is true) ; (vi) the Term, the
Commencement Date, and any other relevant dates, and that the Tenant has been in
occupancy since the Commencement Date and paying rent since the specified date;
(vii) that, except as set forth in this lease, no monetary or other
considerations, including, but not limited to, rental concessions, special
tenant improvements or Landlord's assumption of prior lease obligations of
Tenant have been granted to Tenant by Landlord for entering into this Lease;
(viii) the extent to which the Tenant has exercised the options set forth in
Section 2.5; and (ix) such other matters with respect to the Tenant and this
Lease as the Landlord may request and as are customarily to be included in such
certifications. Failure by Tenant to comply with the terms of this Section
11.2 shall constitute a default hereunder upon the expiration of five (5)
business days after Landlord has given Tenant notice of such failure unless the
Tenant shall have
36
<PAGE>
complied within said five (5) business days. On the Commencement Date, either
party shall, at the request of the other, promptly execute, acknowledge and
deliver to the other a statement in writing that the Commencement Date has
occurred. The parties intend that this section 11.2 be reciprocal so that the
Tenant shall be entitled also to such written certification upon request from
time to time and this paragraph shall be read as if it had so been made
reciprocal; provided, however, Landlord's failure to provide such certification
on a timely basis hereunder shall not constitute a default by Landlord
hereunder.
12. Miscellaneous.
-------------
12.1 Intentionally Deleted
---------------------
12.2 Notices. Whenever any notice, approval, consent, request, election,
-------
offer or acceptance is given or made pursuant to this Lease, it shall be in
writing. Communications and payments shall be addressed, if to the Landlord, at
both the Landlord's Address and the Landlord's Counsel Address for Notices as
set forth in Exhibit A or at such other address as may have been specified by
---------
prior notice to the Tenant; and if to the Tenant, at the Tenant's Address for
Notices, but in each case also at the Tenant's Counsel Address for Notices, or
at such other place as may have been specified by prior notice to the Landlord.
Any communication so addressed shall be deemed duly given on the earlier of (i)
the date received or (ii) on the date on which tender of delivery is made. If
the Landlord by notice to the Tenant at any time designates some other person to
receive payments or notices, all payments or notices thereafter by the Tenant
shall be paid or given to the agent designated until notice to the contrary is
received by the Tenant from the Landlord. If the Tenant by notice to the
Landlord at any time designates some other person to receive payments or
notices, all payments or notices thereafter by the Landlord shall be paid or
given to the agent designated until notice to the contrary is received by the
Landlord from the Tenant.
12.3 Successors and Limitation on Liability of the Landlord. The
------------------------------------------------------
obligations of this Lease shall run with the land, and this Lease shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, subject to the limitations on the Tenant's rights set
forth herein above, and except that the Landlord and each successor landlord
shall be liable only for obligations accruing during the period of its tenancy
under the Master Lease, or if applicable, its ownership of the Property. The
obligations of the Landlord shall be binding upon the assets of the Landlord
consisting of its equity ownership of the Property, if so owned, and if not, the
Landlord's interest in the Master Lease, if any, and if not, there shall be no
such limitation. So long as the Landlord shall then own the equity in the
Property or be the sole owner of the Tenant's interest in the Master Lease,
neither the Tenant, nor anyone claiming by, under or through the Tenant, shall
be entitled to obtain any judgment creating personal liability on the part of
the Landlord or enforcing any obligations of the Landlord against any assets of
the Landlord other than its equity ownership of the Property, or of the
leasehold interest under the Master Lease.
12.4 Waivers. The failure of the Landlord or the Tenant to seek redress
-------
for violation of, or to insist upon strict performance of, any covenant or
condition of this Lease, shall not be deemed a waiver of such violation nor
prevent a subsequent act, which would have originally
37
<PAGE>
constituted a violation, from having all the force and effect of an original
violation. The receipt by the Landlord of Annual Fixed Rent or Additional Rent
with knowledge of the breach of any covenant of this Lease shall not be deemed a
waiver of such breach. No provision of this Lease shall be deemed to have been
waived by either party, unless such waiver be in writing signed by such party.
No consent or waiver, express or implied by either party to or of any breach of
any agreement or duty shall be construed as a waiver or consent to or of any
other breach of the same or any other agreement or duty.
12.5 Acceptance of Partial Payments of Rent. No acceptance by the Landlord
--------------------------------------
of a lesser sum than the Annual Fixed Rent and Additional Rent then due shall be
deemed to be other than a partial installment of such rent due, nor shall any
endorsement or statement on any check or any letter accompanying any check or
payment as rent be deemed an accord and satisfaction, and the Landlord may
accept such check or payment without prejudice to the Landlord's right to
recover the balance of such installment or pursue any other remedy in this Lease
provided. The delivery of keys to any employee of the Landlord or to the
Landlord's agent or any employee thereof shall not operate as a termination of
this Lease or a surrender of the Premises.
12.6 Interpretation and Partial Invalidity. If any term of this Lease, or
-------------------------------------
the application thereof to any person or circumstances, shall to any extent be
invalid or unenforceable, the remainder of this Lease, or the application of
such term to persons or circumstances other than those as to which it is invalid
or unenforceable, shall not be affected thereby, and each term of this Lease
shall be valid and enforceable to the fullest extent permitted by law. The
titles of the Articles and Sections are for convenience only and not to be
considered in construing this Lease. This Lease contains all of the agreements
of the parties with respect to the subject matter thereof and supersedes all
prior dealings between them with respect to such subject matter.
12.7 Quiet Enjoyment. So long as the Tenant pays Annual Fixed Rent and
---------------
Additional Rent, performs all other Tenant covenants of this Lease and observes
all conditions hereof, the Tenant shall peaceably and quietly have, hold and
enjoy the Premises free of any claims by, through or under the Landlord, subject
to Landlord's right to terminate this Lease pursuant to Article 8. Tenant
acknowledges that Landlord has informed it that Landlord may expand the building
in which the Premises are located, and Tenant hereby accepts the fact that there
may be noise and other disruptions incident to any such construction. Tenant
hereby agrees that such construction work and noise shall not be a default of
this Lease so long as the construction and noise do not materially interfere
with Tenant's access to the Premises or render Tenant's use of the Premises.
Landlord will exercise reasonable efforts to minimize any such disruptions;
however, the exercise of such efforts shall not include a requirement that the
construction work take place at other than regular business hours.
12.8 Brokerage. The Tenant and Landlord both represent and warrant to the
---------
other that it has had no dealings with any broker or agent in connection with
this Lease other than NAI Hunneman Commercial Company and Grubb & Ellis and each
shall indemnify and hold the other harmless from claims for any brokerage
commission predicated upon prior dealings with the Landlord or Tenant,
respectively, by any broker other than the brokers named in this Section. The
Landlord shall be responsible to pay the aforesaid brokers all amounts owed them
in connection with the execution of this Lease.
38
<PAGE>
12.9 Surrender of Premises and Holding Over. The Tenant shall surrender
--------------------------------------
possession of the Premises on the last day of the Term and the Tenant waives the
right to any notice of termination or notice to quit. The Tenant covenants that
upon the expiration or sooner termination of this Lease, it shall, without
notice, deliver up and surrender possession of the Premises in the same
condition in which the Tenant has agreed to keep the same during the continuance
of this Lease and in accordance with the terms hereof, reasonable wear and tear
and damage by fire or other casualty or as a consequence of the exercise of
eminent domain excepted, first removing therefrom all goods and effects of the
Tenant and, to the extent required or permitted under Section 4.2, any leasehold
improvements, and repairing all damage caused by such removal. Upon the
expiration of this Lease, or, if the Premises should be abandoned by the Tenant,
at the time of such expiration or abandonment, if the Tenant or the Tenant's
agents, subtenants or any other person should leave any property of any kind or
character on or in the Premises, the fact of such leaving of property on or in
the Premises shall be conclusive evidence of intent by the Tenant, and
individuals and entities deriving their rights through the Tenant, to abandon
such property so left in or upon the Premises, and such leaving shall constitute
abandonment of the property. Landlord shall have the right and authority
without notice to the Tenant or anyone else, to remove and destroy, or to sell
or authorize disposal of such property, or any part thereof, without being in
any way liable to the Tenant therefor and the proceeds thereof shall belong to
the Landlord as compensation for the removal and disposition of such property.
If the Tenant fails to surrender possession of the Premises upon the
expiration or sooner termination of this Lease, the Tenant shall pay to
Landlord, as rent for any period after the expiration or sooner termination of
this Lease an amount equal to one and one-half (1 1/2) times the Annual Fixed
Rent and the Additional Rent required to be paid under this Lease as of the
expiration or termination of the Term. Acceptance by the Landlord of such
payments shall not constitute a consent to a holdover hereunder or result in a
renewal or extension of the Tenant's rights of occupancy. Such payments shall
be in addition to and shall not affect or limit the Landlord's right of re-
entry, Landlord's right to collect such damages as may be available at law, or
any other rights of the Landlord under this Lease or as provided by law.
12.10 Exhibits. Exhibits A through Exhibit G attached to this Lease are
-------- ---------- ----------
hereby incorporated in and made a part of this Lease.
12.11 Master Lease Landlord shall at all times keep the Master Lease in
------------
full force and effect, except in connection with the exercise of a termination
right by reason of a casualty or condemnation of the Premises pursuant to
Section 11 or Section 12 of the Master Lease, subject to the limitations set
forth in Section 2.1 of this Lease or in connection with a termination of the
Master Lease pursuant to a purchase of the Property by Landlord. In the event
that Landlord purchases the Property or the Premises (whether pursuant to the
exercise of a right contained within the Master Lease or otherwise), then in
any such event this Lease shall become a direct lease between Landlord and
Tenant and shall remain in full force and effect despite the termination of the
Master Lease or the merger of the Premises demised by the Master Lease with fee
simple title to the Property or the Premises. In the event that the consent of
the Master Landlord is required pursuant to this Lease, then Landlord shall use
reasonable efforts to obtain such consent from the Master Landlord. If the
performance of any obligation of Landlord
39
<PAGE>
hereunder requires either the performance of the Master Landlord or the consent
of the master Landlord, then Landlord shall exercise reasonable efforts to
obtain the same from Master Landlord and shall exercise reasonable efforts to
enforce any right that it has under the Master Lease to such performance against
Master Landlord.
12.12 Financial Information. Tenant will cooperate with Landlord's
-----------------------
request that Tenant provide reasonable information about its own financial
status for the benefit of lenders and prospective lenders of Landlord's whenever
Landlord may so request.
EXECUTED as an instrument under seal as of the day and year first set forth
above.
LANDLORD:
NEWTON TECHNOLOGY PARK LLC
By: NTP Management Company LLC
By: /s/ John W. Hueber
------------------------------------
JOHN W. HUEBER, Manager
TENANT:
LIFEF/X, INC.
By: /s/ Lucie Salmany
-----------------------------
Name: Lucie Salmany
Title: CHIEF EXECUTIVE OFFICER
40
<PAGE>
EXHIBIT A
Basic Lease Terms
-----------------
<TABLE>
<CAPTION>
Annual Fixed Rent Annual Monthly
for Office(10,000 rsf) Electricity Charge Total Payment
years 1-5 ---------------------------------------------------------------------------
<S> <C> <C> <C>
$290,000 (29.00/Sq. Ft.) $10,000 $300,000 $25,000
</TABLE>
Initial Term: Five years commencing on the Commencement Date (as
- ------------ defined in Section 2.6 of the Lease) and expiring on
the last day of the calendar month in which the 5th
anniversary of the Commencement Date falls (unless
sooner terminated pursuant to the Lease).
Landlord's
- ----------
Address:
-------
c/o Crosspoint Associates, Inc.
217 West Central Street
Natick, Massachusetts 01760
Attention: John W. Hueber
and James F. Carlin, III
Landlord's Counsel
- ------------------
Address for Notices: Kotin, Crabtree & Strong, LLP
- ------------------- One Bowdoin Square
Boston, Massachusetts 02114
Attn: Dolph J. Vanderpol, Esquire
Premises: All of the second floor of the Building N1, 153
- -------- Needham Street, Newton, Massachusetts, consisting of
10,000 rentable square feet as shown on the floor plan
attached as Exhibit D.
---------
Rentable Floor Area
of the Premises: 10,000 square feet
- ---------------
Permitted Uses: Office use and other uses permitted by law, but not
- -------------- any retail use. If Tenant shall receive notice from
the City of Newton that the conduct of Tenant's
business of developing, maintaining and marketing
software and communication technology is in violation
of the applicable zoning and use laws, in such event,
if Tenant is unable to obtain the necessary approval
to conduct such business, Tenant may elect to
terminate this Lease by notice to Landlord and payment
of an amount equal to six (6) months Fixed Rent. Such
election must be exercised by written notice not later
than thirty
41
<PAGE>
(30) days following (i) receipt of such notice from
the City of Newton or (ii) unsuccessful conclusion of
any administrative or judicial proceedings either by
way of appealing any such contention by the City of
Newton or seeking to establish the validity of
Tenant's position that the Premises may be used for
the conduct of its business as aforesaid, whichever is
later.
Tenant's
- --------
Address for Notices: Attention: Chief Executive Officer
- ------------------- LIFEF/X, INC.
153 Needham Street
Newton, Massachusetts 02164
Tenant's Counsel Richard J. Hindlian, Esq.
- ---------------- Holland & Knight LLP
Address for Notices: One Beacon Street
- ------------------- Boston, Massachusetts 02108
42
<PAGE>
EXHIBIT B
Legal Description of the Land
-----------------------------
A certain parcel of land with the buildings thereon situated in Newton,
Middlesex County, Commonwealth of Massachusetts, being shown as a lot containing
486,128 square feet more or less on a plan entitled "Plan of Land in Newton
Mass", dated August 4, 1967, by Edward F. Carney, Registered Surveyor, bounded
and described, as shown on said plan, as follows:
SOUTHEASTERLY by Needham Street, 843.87 feet;
SOUTHWESTERLY by land now or formerly of Dearfoot Farms Co., formerly
National Dairies Co., 701.55 feet;
NORTHWESTERLY by land of N.Y.N.H. & Hartford Railroad, 790.79 feet;
NORTHERLY by land now or formerly of New England Concrete Pipe Co.,
176.05 feet; and
NORTHEASTERLY by land now or formerly of said New England Concrete Pipe Co.,
492.74 feet.
43
<PAGE>
EXHIBIT C
Site Plan
---------
44
<PAGE>
EXHIBIT C
[MAP APPEARS HERE]
<PAGE>
EXHIBIT D
Floor Plan
----------
45
<PAGE>
EXHIBIT D
Floor Plan
----------
[MAP APPEARS HERE]
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Building 1, Needham St. CrossPoint Associates, Inc.
Newton, MA Second Floor Plan 217 West Central St. Nelick, MA 01760 (508) 655-0505
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT E
Rules and Regulations
---------------------
I. The following regulations are generally applicable:
(a) The public sidewalks and parking areas and other Property Common
Areas shall not be obstructed or encumbered by Tenant or used for any purpose
other than their intended use.
(b) No awnings, curtains, blinds shades, screens or other projections
shall be attached to or hung on any outside wall of any of the Buildings.
(c) No show cases or other articles shall be put in front of or affixed
to any part of the exterior of any of the Buildings.
(d) Tenant shall not use the Premises or any part thereof or permit the
Premises or any part thereof to be used as a public employment bureau or for the
sale of property of any kind at auction, except in connection with Tenant's
business.
(e) Tenant must, upon the termination of its tenancy, deliver to the
Landlord all locks, cylinders and keys for the interior and exterior of the
Premises.
(f) Tenant shall not make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with occupants of neighboring
buildings or premises or those having business with them.
(g) The Premises shall not be used for lodging or sleeping or for any
immoral or illegal purpose.
(h) The Landlord shall have the right, exercisable upon thirty days prior
notice to Tenant and without liability to any tenant, to change the name and
street address of the Buildings; however, in the event of any such change made
by the Landlord, Landlord shall reimburse Tenant for the reasonable expenses
incurred by Tenant in changing its letterhead, business cards and other
stationary;
II. The following regulations are applicable to any additions, alterations or
improvements being undertaken by or for Tenant in the Premises:
A. General
-------
1. All alterations, installations or improvements ("Alterations") to be
made by Tenant in, to or about the Premises shall be made in accordance with the
requirements of the Lease itself as further modified by this Exhibit and by
contractors or mechanics approved by Landlord.
2. Tenant shall, prior to the commencement of any work other than Minor
Alterations ("Major Alterations"), submit for Landlord's written approval,
complete plans for any Alterations,
48
<PAGE>
although in the case of Minor Alterations such plans may simply be schematic
plans and need not be certified to by an architect or engineer.. Drawings are to
be complete with full details and specifications for all of the Major
Alterations. (Drawings presented for Landlord's review need not include detailed
layout or mapping of voice and data cables.)
3. Alterations must comply with the Building Code applicable to the
Property and the requirements, rules and regulations and any other governmental
agencies having jurisdiction.
4. No work shall be permitted to commence without the Landlord being
furnished with a valid permit and all other necessary approvals from agencies
having jurisdiction (to the extent but only to the extent that same are required
to commence and perform the alterations).
5. All demolition, removals or other categories of work that may
inconvenience other tenants or disturb Property operations must be scheduled in
advance and performed before or after normal working hours and Tenant shall
provide the Landlord with at least 24 hours' notice prior to proceeding with
such work; however, any such demolition, removal and other categories of work
that are conducted entirely inside Building N2 may be performed during normal
working hours but shall be performed so as to minimize disruption to other
tenants to the maximum extent possible, and any related delivery or removal of
materials shall take place at the loading dock at the back of Building N2.
B. Prior to Commencement of Work
-----------------------------
1. Tenant shall submit to the Landlord a request to perform the work.
The request shall include the following enclosures:
(i) A list of Tenant's contractors and/or subcontractors for
Landlord's approval.
(ii) A complete set of plans and specifications properly stamped by a
registered architect or professional engineer, if required under this Lease.
(iii) A properly executed building permit application form if
required.
(iv) Four executed copies of the Insurance Requirements agreement in
the form attached to these Tenant's Work Requirements as Exhibit IR from
Tenant's contractor and if requested by Landlord from the contractor's
subcontractors.
(v) Contractor's and subcontractor's insurance certificates
including an indemnity in accordance with the Insurance Requirements agreement.
In connection with Minor Alterations, Tenant shall provide Landlord with prior
written notice of the nature and timing of such Minor Alterations as well as
copies of plans and specifications, if any, concerning such modifications.
2. Landlord will return the following to Tenant:
49
<PAGE>
(i) Two sets of plans approved or a disapproval with specific
comments as to the reasons therefor (such approval or comments shall not
constitute a waiver of approval of governmental agencies).
(ii) Two fully executed copies of the Insurance Requirements
agreement.
3. To the extent required to perform any Alterations, Tenant shall obtain
a building permit and other necessary permits from other governmental agencies.
Tenant shall be responsible for keeping current all permits. Tenant shall submit
copies of all approved plans and permits to Landlord and shall post the original
permit on the Premises prior to the commencement of any work. All work, if
performed by a contractor or subcontractor, shall be subject to reasonable
supervision and inspection by Landlord's representative during normal business
hours and upon no less than twenty four (24) hours advance notice except in the
case of emergencies for which no advance notice shall be required.
C. Requirements and Procedures
---------------------------
1. Tenant's contractor shall:
(i) have a superintendent or foreman on the Premises at all times;
(ii) police the job at all times, continually keeping the Premises
orderly;
(iii) minimize disruption to other tenants.
2. If Tenant's contractor is negligent in any of its responsibilities,
Tenant shall be charged for corrective work arising from such negligence.
3. Upon completion of the Alterations, and to the extent required by
applicable law for the lawful occupancy of the Alterations Tenant shall submit
to Landlord an unconditional t certificate of occupancy and final approval by
the other governmental agencies having jurisdiction.
4. Tenant shall submit to Landlord a final "as-built" set of drawings
showing all items of the Alterations in full detail.
5. Additional and differing provisions in the Lease (including without
limitation the provisions of Article 4 thereof),if any, will be applicable and
will take precedence.
6. Landlord's approval of the plans, drawings, specifications or other
submissions in respect of any work, addition, alteration or improvement to be
undertaken by or on behalf of Tenant shall create no liability or responsibility
on the part of Landlord for their completeness, design sufficiency or compliance
with requirements of any applicable laws, rules or regulations of any
governmental or quasi-governmental agency, board or authority.
50
<PAGE>
Attachment IR to Exhibit E
Contractor's Insurance Requirements
-----------------------------------
Building: ____________________________
Landlord: ____________________________
Tenant: ______________________________
Premises: ____________________________
The undersigned contractor or subcontractor ("Contractor") has been hired by the
tenant or occupant (hereinafter called "Tenant") of the Building named above (or
by Tenant's contractor) to perform certain work ("Work") for Tenant in the
Building identified above. Contractor and Tenant have requested the undersigned
landlord ("Landlord") to grant Contractor access to the Building and its
facilities in connection with the performance of the Work, and Landlord agrees
to grant such access to Contractor upon and subject to the following terms and
conditions:
1. Contractor agrees to indemnify and save harmless the Landlord, and its
officers, employees and agents and their affiliates, subsidiaries and partners,
and each of them, from and with respect to any claims, demands, suits,
liabilities, losses and expenses, including reasonable attorneys' fees, arising
out of or in connection with the Work (and/or imposed by law upon any or all of
them) because of personal injuries, bodily injury (including death at any time
resulting therefrom) and loss of or damage to property, including consequential
damages, to the extent that such injuries to person or property are claimed to
be due to negligence of the Contractor except to the extent specifically
prohibited by law (and any such prohibition shall not void this Agreement but
shall be applied only to the minimum extent required by law). [Landlord agrees
to revise this Section to the extent reasonably requested by Contractor].
2. Contractor shall provide and maintain at its own expense, until
completion of the Work, the following insurance:
(a) Workmen's Compensation and Employers, Liability Insurance covering
each and every workman employed in, about or upon the Work, as provided for by
applicable law.
(b) Comprehensive General Liability Insurance including coverages for
Protective and Contractual Liability (to specifically include coverage for the
indemnification clause of this Agreement) for not less than the following
limits:
Personal Injury:
$3,000,000 per person
$10,000,000 per occurrence
51
<PAGE>
Property Damage:
$3,000,000 per occurrence $3,000,000 aggregate
In the case of Minor Alterations, the Personal Injury limits may
be reduced to $1,000,000 per person and $5,000,000 per
occurrence.
(c) Comprehensive Automobile Liability Insurance (covering all owned,
non-owned and/or hired motor vehicles to be used in connection with the Work)
for not less than the following limits:
Bodily Injury:
$1,000,000 per person
$1,000,000 per occurrence
Property Damage:
$1,000,000 per occurrence
Contractor shall furnish a certificate from its insurance carrier or
carriers to the Building office before commencing the Work, showing that it has
complied with the above requirements regarding insurance and providing that the
insurer will give Landlord ten (10) days' prior written notice of the
cancellation of any of the foregoing policies.
3. Contractor shall require all of its subcontractors engaged in the Work
to provide the following insurance:
(a) Comprehensive General Liability Insurance including Protective and
Contractual Liability coverages with limits of liability at least equal to the
limits stated in paragraph 2(b).
(b) Comprehensive Automobile Liability Insurance (covering all owned,
non-owned and/or hired motor vehicles to be used in connection with the Work)
with limits of liability at least equal to the limits stated in paragraph 2(c).
52
<PAGE>
Upon the request of Landlord, Contractor shall require all of its
subcontractors engaged in the Work to execute an Insurance Requirements
agreement in the same form as this Agreement.
Agreed to and executed this ___ day of _____________, 2000.
Contractor:
By: ________________________
By: ________________________
By: ________________________
53
<PAGE>
EXHIBIT F
Exclusions from Operating Expenses
----------------------------------
(1) costs of repairs or replacements to the extent reimbursed by insurance,
other tenants of the Property or other third parties or resulting from
eminent domain takings to the extent covered by the award;
(2) Real Estate Taxes on the Property, and any costs which have been previously
included in Operating Expenses (whether under the same or a different
category);
(3) financing and refinancing costs in respect of any mortgage or ground lease
placed upon the Property or leasehold estate or the Master Lease,
including, without limitation, debt service, amortization, points and
commissions in connection therewith and rent or other charges payable under
any ground or underlying lease (including, without limitation, the Master
Lease);
(4) costs of selling or syndicating any of Landlord's interest in the Premises,
leasehold estate, and/or the Property;
(5) brokerage fees or commissions;
(6) interest or penalties for any delinquent payments by Landlord unless and to
the extent resulting from the Tenant's failure to pay, when and as due, the
Tenant's Operating Expenses or Taxes Allocable to the Premises (in which
case the Tenant shall be responsible for 100% of such interest or
penalties);
(7) the cost of making leasehold improvements and decorations to any leasable
space including, without limitation, to prepare the same for occupancy by a
tenant thereof, or thereafter for the benefit of a particular tenant or
tenants, or other costs for rentable space that would normally be borne by
the Tenant of such space, such as repairs within the space, or utility
service or consumption for that space, whether or not vacant.
(8) any expenditures on account of Landlord's acquisition of air or similar
development rights unless said development rights provide additional
parking or amenities for the benefit of all Tenants;
(9) the cost of capital improvements or replacements in excess of the
------------
amortization therefor on a straight-line basis over the useful life of the
item as determined by taking the average of the useful life as determined
by industry standards and as determined in accordance with generally
accepted accounting principles, consistently applied, together with
interest on the unamortized balance at Landlord's actual borrowing rate on
funds borrowed for the purpose of constructing such capital improvements or
replacements or at the Interest Rate if there is no such borrowing;
54
<PAGE>
(10) costs of constructing additions to any existing buildings on the Property,
or new buildings on the Property, or otherwise further developing
additional rentable space on the Property;
(11) Landlord's depreciation of the Buildings or other improvements or
amortization of personal property or equipment, except as provided in
clause (12) above;
(12) the cost of providing any service to Tenant for which Landlord shall
receive direct payment from the Tenant; and
(13) salaries and other compensation (including, without limitation, fringe
benefits) of executives or principals of Landlord, or of employees not
employed at and for the benefit of the Property, except as to such
employees, only to the extent for actual services performed at the
Property; and
(14) any environmental costs, including, without implied limitation, for
evaluating or remediating any environmental condition, contamination or
release.
55
<PAGE>
EXHIBIT G
Landlord's Work
---------------
Landlord shall paint premises, clean carpets and provide new vestibule.
56
<PAGE>
EXHIBIT H
Master Lease
57
<PAGE>
EXHIBIT 21.1
LIFEF/X, INC.
SUBSIDIARIES
The following is a list of the parent and its subsidiary, reflecting ownership
and the state of incorporation:
<TABLE>
<CAPTION>
% of Voting
Securities
Parent Subsidiaries Owned
- ------ ------------ -----------
<S> <C> <C>
Lifef/x, Inc. Lifef/x Networks, Inc. 100%
(Nevada) (Delaware)
</TABLE>
All subsidiaries are included in the consolidated financial statements.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
LifeF/X, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
(signed) KPMG LLP
Los Angeles, California
March 20, 2000
<PAGE>
CERTIFICATE OF SECRETARY
The undersigned hereby certifies that he is the duly authorized Secretary
of Lifef/x, Inc. (the "Corporation"), a Nevada corporation, and that the
following resolutions were adopted by unanimous written consent of the Board of
Directors of the Corporation on March 16, 2000:
REGISTRATION AND QUALIFICATION
------------------------------
RESOLVED, that the Chairman, Chief Executive Officer and Chief
Financial Officer of the Corporation be, and each of them acting
singly hereby is, authorized and directed for and on behalf of the
Corporation (i) to prepare (or cause to be prepared), execute and file
with the Securities and Exchange Commission (the "Commission") a
Registration Statement on Form SB-2 (the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"),
relating to the registration for public offering of up to 18,000,000
shares of Common Stock held by the Corporation's stockholders (the
"Offered Shares") under the Securities Act, in such form as may be
approved by the Chairman, Chief Executive Officer and Chief Financial
Officer, the execution and filing thereof to be conclusive evidence of
such approval; (ii) to prepare (or cause to be prepared), execute and
file with the Commission such amendments (both pre- and post-
effectiveness) and supplements to the Registration Statement or the
Prospectus included therein, and any registration statement in
connection with the offering of the Offered Shares that is to be
effective upon filing pursuant to the rules promulgated under the
Securities Act, as any of such officers may deem necessary,
appropriate or desirable, their execution and filing thereof to be
conclusive evidence of such approval; (iii) to take all such further
action and file (or cause to be filed) such amendments, supplements
and requests as any of such officers may deem necessary, appropriate
or desirable to cause the Registration Statement (or any amendment or
supplement) to become effective and to comply with the Corporation's
obligations in connection with the private placement of $18 million in
units heretofore conducted by the Corporation.
RESOLVED, FURTHER, that Lucille Salhany and Richard A. Guttendorf be,
and each of them hereby is, appointed as true and lawful attorney for
the Board of Directors, with full power of substitution and
resubstitution, to execute and file with the Commission under the
Securities Act the Registration Statement, any and all amendments
(both pre- and post-effectiveness) and supplements thereto and
exhibits, and
<PAGE>
any registration statement in connection with the offering of the
Offered Shares that is to be effective upon filing pursuant to rules
promulgated under the Securities Act, and other documents in
connection therewith, each of such attorneys to have full power to act
alone and to do and perform any and all acts and things whatsoever
necessary, appropriate or desirable to be done in the premises, all in
the name, place and stead of the Board of Directors, as fully and to
all intents and purposes as such directors might or could do in
person, and such acts of such attorneys or any of them and any such
substitute are hereby ratified and approved.
RESOLVED, FURTHER, that Lucille Salhany be, and hereby is, appointed
agent for service of process for the Corporation and is authorized to
receive, on behalf of the Corporation, all notices or communications
which may be issued by the Commission in connection with the
Registration Statement and to exercise all powers provided by any
rules or regulations of the Commission to be conferred upon a person
so designated.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Secretary as of March 21, 2000.
/s/ Richard A. Guttendorf
---------------------------------
Richard A. Guttendorf, Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 7,778,040
<SECURITIES> 0
<RECEIVABLES> 9,068,249
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,021,289
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,472,990
<CURRENT-LIABILITIES> 10,462,495
<BONDS> 0
0
0
<COMMON> 18,992
<OTHER-SE> 10,634,253
<TOTAL-LIABILITY-AND-EQUITY> 21,472,990
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 13,995,316
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68,453
<INCOME-PRETAX> (14,063,769)
<INCOME-TAX> 800
<INCOME-CONTINUING> (14,064,569)
<DISCONTINUED> (18,552,206)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (32,616,775)
<EPS-BASIC> (25.69)
<EPS-DILUTED> (25.69)
</TABLE>
