-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Abgd1pj7v2CJRCwNvDZGtarXkmsONzLqXYqLSRCi8B0FN9zYVNIPpByJQBnl3eyz wFsYju9CuZsZbT+cklgd+w== 0000898430-99-004547.txt : 19991217 0000898430-99-004547.hdr.sgml : 19991217 ACCESSION NUMBER: 0000898430-99-004547 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991215 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19991215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIFEF/X INC CENTRAL INDEX KEY: 0001072914 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS SHOPPING GOODS STORES [5940] IRS NUMBER: 841385529 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-25171 FILM NUMBER: 99775499 BUSINESS ADDRESS: STREET 1: 5525 SOUTH 900 E STREET 2: SUITE 110 CITY: SALT LAKE CITY STATE: UT ZIP: 84117 BUSINESS PHONE: 8012628844 MAIL ADDRESS: STREET 1: 5525 SOUTH 900 E STREET 2: SUITE 110 CITY: SALT LAKE CITY STATE: UT ZIP: 84117 FORMER COMPANY: FORMER CONFORMED NAME: FIN SPORTS USA INC DATE OF NAME CHANGE: 19981103 8-K 1 FORM 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): December 15, 1999 LIFEF/X, INC. (Exact name of registrant as specified in its charter) Nevada 0-25171 84-1385529 (State or other jurisdiction (Commission File Number) (I.R.S. Employer of incorporation) Identification Number)
331 Dudley Road Newton, Massachusetts 02459 (Address of principal executive offices) Registrant's telephone number, including area code: (617)551-5860 FIN SPORTS U.S.A., INC. 5525 South 900 East, Suite 110 Salt Lake City, Utah 84117 (Former name or former address, if changed since last report) Item 1. CHANGES IN CONTROL OF REGISTRANT Pursuant to that certain Agreement and Plan of Merger dated as of December 14, 1999 (the "Merger Agreement") between Lifef/x, Inc. (formerly known as Fin Sports U.S.A., Inc.) (the "Company") and PTM Acquisition Corp. ("Sub"), a newly formed wholly owned subsidiary of the Company, on the one hand; and Pacific Title/Mirage, Inc. ("PTM"), on the other hand, the Company acquired all of the outstanding capital stock of PTM on December 14, 1999 (the "Closing"), in consideration of the issuance to the PTM stockholders of an aggregate of 11,294,084 shares of the Company's common stock and warrants for 27,790,917 shares of the Company's common stock. The transaction was effected through the merger of Sub with and into PTM, with PTM being the surviving corporation (the "Merger"). As a result of the Merger, PTM became a wholly-owned subsidiary of the Company. In connection with the Merger, the corporate name of the Company was changed to Lifef/x, Inc. and the corporate name of PTM was changed to Lifef/x Networks, Inc. Concurrent with the Closing, the Company completed the first closing of a private placement (the "Private Placement") of 2,983,000 of the Company's units, each unit consisting of one share of the Company's common stock and a warrant to purchase .01 share of the Company's common stock at an exercise price of $7.50 per share. At the Closing, the Company also issued (a) warrants to purchase 100,000 shares of the Company's common stock to MG Securities Group, Inc., the placement agent in the Private Placement and (b) 39,167 units to attorneys for legal services rendered in connection with the Private Placement. The Private Placement is for up to $18 million of units. The Company may continue to accept subscriptions for the units until the maximum offering is met. All shares of common stock as part of the units and the shares of common stock underlying the warrants as part of the units are subject to the Lock- Up/Leak-Out restrictions discussed elsewhere in this report. Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information and after giving effect to the issuance of securities at the Closing with respect to the beneficial ownership of the outstanding shares of the Company's common stock by the Company's directors, executive officers and each person known to the Company who owns in excess of 5% of the outstanding shares of common stock and the directors and executive officers of the Company as a group. As used in this section, the term beneficial ownership with respect to a security is defined by Rule 13d-3 under the Securities and Exchange Act of 1934, as amended, as consisting of sole or shared voting power (including the power to vote or direct the vote) and/or sole or shared investment power (including the power to dispose of or direct the disposition of) with respect to the security through any contract, arrangement, understanding, relationship or 1 otherwise, subject to community property laws where applicable. Each person has sole voting and investment power with respect to the shares of common stock, except as otherwise indicated. Beneficial ownership consists of a direct interest in the shares of common stock, except as otherwise indicated. The address of those individuals for which an address is not otherwise indicated is: 331 Dudley Road, Newton, Massachusetts 02459.
Beneficial Ownership -------------------- Number of Percentage Shares of Total(1) --------- ------------ Directors and Officers - ---------------------- Michael Rosenblatt..................................... 7,059,274(2) 43.53% Lucille S. Salhany..................................... 390,492(3) 2.38% Richard Guttendorf..................................... 70,000(4) *% Ian Hunter............................................. -- -- Robert Verratti........................................ 524,997(5) 3.25% All Directors and Executive Officers (5 persons)................................... 8,044,763 47.73% 5% or More Beneficial Ownership - ------------------------------- Safeguard Scientifics (Delaware), Inc. 435 Devon Park Drive Wayne, PA 19087 4,455,773(6) 27.87% Duane S. Jenson Fin Partnership 5525 South 900 East, Suite 110 Salt Lake City, Utah 84117 1,302,383 8.15%
______________ * Less than 1%. (1) Calculations based upon 15,983,750 shares outstanding on December 14, 1999. (2) Consists of 6,824,979 shares owned by Mirage Technologies L.P. and 234,295 shares issuable upon currently exercisable options. Mr. Rosenblatt is the President and controlling equity owner of Mirage Technologies, Inc., the corporate general partner of Mirage Technologies L.P. (3) Consists of 390,492 shares issuable upon currently exercisable options. (4) Consists of 70,000 shares issuable upon currently exercisable options. (5) Includes 174,999 shares issuable upon currently exercisable options. (6) Includes 3,333 shares issuable upon currently exercisable warrants. 2 Item 2. ACQUSITION OR DISPOSITION OF ASSETS As described in Item 1 above, pursuant to the Merger Agreement, at the Closing, the Company acquired from the PTM stockholders all the issued and outstanding capital stock of PTM. In consideration therefore, the Company issued to the PTM stockholders an aggregate of 11,294,084 shares of the Company's common stock and warrants for 27,790,917 shares of the Company's common stock. The consideration for the acquisition of PTM was negotiated on an arm's length basis between the Company and the PTM stockholders. Effective upon the Merger, the Company became a co-obligor with PTM with respect to certain debt of PTM owed to Safeguard Scientifics (Delaware), Inc., a principal shareholder of PTM, together with its affiliates ("Safeguard") totaling $13,325,000 at September 30, 1999. Following the Merger, such debt will be converted into the right to receive penny warrants for 3,997,500 shares of common stock at the rate of $2.50 per share for 50% of the debt and $5.00 per share for the remaining 50% of the debt. The warrants have a term of 10 years and are exercisable one year after the Merger, at an exercise price of $0.01 per share subject to certain early exercise events specified in the warrants. In connection with the Merger, the warrants for 11,725,000 PTM shares (the "PTM Warrants") held by Safeguard prior to the Merger were carried forward on a share for share basis as warrants for common stock. Fifty percent (50%) of the PTM Warrants held by Safeguard were carried forward as warrants to purchase 5,862,500 shares of common stock at an exercise price of $2.50 per share and the remaining 50% of the PTM Warrants were carried forward as warrants to purchase 5,862,500 shares of common stock at an exercise price of $5.00 per share. In addition, Safeguard received warrants to purchase 5,862,500 shares of common stock at an exercise price of $6.00 per share. The total number of shares of common stock issuable upon exercise of the warrants held by Safeguard after the Merger (including the debt conversion) will be 27,790,917 shares of common stock. All of these warrants have a term of 10 years and are exercisable one year after the Merger subject to certain early exercise events specified in the warrants. Effective upon the Merger, the PTM 1997 Equity Compensation Plan (the "PTM Plan") was terminated and the Company adopted a new long term incentive plan with terms substantially similar to that of the PTM Plan. Following the adoption of the new plan, the Company assumed the obligations of outstanding options granted to certain PTM employees under the PTM Plan. These outstanding option obligations included an option grant to Lucille Salhany (the Chief Executive Officer, Co-President and a director of the Company) for 1,952,458 shares of common stock (after adjusting for the conversion from PTM shares to common stock). This option grant was made by PTM at $1,641 per share and is subject to a vesting schedule. If and to the extent this $1,641 per share exercise price is less than the fair market value of the PTM common stock on the date of grant, the Company will have to recognize non-cash compensation expense. In addition, in connection with the Merger, the Company granted stock options to various employees of the Company, subject to vesting schedules. 3 The Company plans to spin off all of its non-Lifef/x assets and liabilities (collectively, the "Spin Off Assets and Liabilities") to an entity ("Newco") owned by the pre-Merger PTM stockholders. The Spin Off Assets and Liabilities consist primarily of the assets and liabilities relating to PTM's Optical Division, Scanning and Recording Division and now defunct Digital Division, certain leased and owned real property, outstanding debt to Silicon Valley Bank and certain debt owed by PTM to Safeguard for loans made by Safeguard to PTM during the period between October 1, 1999 and the consummation of the spin off transaction (the "Post September 30 Debt"). The value of the Spin Off Assets and Liabilities is not currently known, however the value of the Spin Off Assets may exceed the value of the Spin Off Liabilities. All the Spin Off Assets and Liabilities are expected to be transferred to Newco following the Merger once the requisite third party consents have been obtained. Until such time as the spin off transaction has been completed in its entirety, the Company will hold the Spin Off Assets and Liabilities (or any portion thereof that has not been transferred to Newco) and the proceeds thereof in trust for the benefit of Newco, and neither the Company nor its stockholders will be entitled to any beneficial interest in the Spin Off Assets and Liabilities. Newco may direct the Company to dispose of any of the Spin Off Assets and Liabilities on its behalf provided such disposition will not have any material adverse effect on the Company. In connection with the spin off transaction, the Company is required to obtain consents from a number of third parties, including its lender, Silicon Valley Bank, which holds a lien covering all of its assets, including the Lifef/x technology. As part of the spin off transaction, the Company plans to transfer this loan to Newco and to seek the release of Silicon Valley Bank's lien on the Lifef/x assets. If the Company is unable to obtain a complete release from Silicon Valley Bank, Safeguard has agreed to indemnify PTM from and against any and all losses and liabilities relating to or arising from the Silicon Valley Bank loan. In addition, in connection with the spin off transaction, Newco and Safeguard will provide certain indemnities for the Spin Off Assets and Liabilities as follows: Newco will indemnify the Company for any losses or liabilities relating to or arising from the Spin Off Assets and Liabilities, including certain equipment leases totaling approximately $4 million and a lease for facilities in Hollywood, California with current monthly rental payments of $60,000. Until the spin off transaction is complete, Safeguard will indemnify the Company for any and all amounts due and payable in the ordinary course to the real estate and equipment lessors arising under the real estate lease and approximately $2 million in equipment leases that are not yet transferred to Newco. However, this indemnity will not extend to claims, losses and liabilities arising outside the ordinary course of conduct under these leases. In consideration for the Safeguard indemnification, subject to any senior liens, Safeguard will be granted a security interest in the Spin Off Assets and Liabilities and will be entitled to any excess operating proceeds or sale proceeds from the Spin Off Assets and Liabilities to secure repayment of the Post September 30 Debt and Newco's reimbursement of indemnification amounts paid by Safeguard to the Company. In addition to the Safeguard indemnity described above, Safeguard will indemnify the Company for shortfalls in the day to day operating expenses of the Optical and Scanning and Recording Divisions under contracts and other arrangements entered into in the ordinary course of business of such Divisions, but not for claims, losses or liabilities outside the ordinary course of the day to day operations of these Divisions or any other unusual claims or liabilities, including, without limitation, any disputes, litigation or other proceedings whether arising under contracts or other arrangements entered into in the ordinary course or otherwise, claims by 4 present or former employees and claims relating to any sale or transfer (whether or not consummated) of any or all of the Spin Off Assets and Liabilities. Neither Newco nor Safeguard will indemnify PTM for any losses or liabilities relating to any Spin Off Assets and Liabilities to the extent they are actually used in the Lifef/x business. Business In accordance with "plain English" guidelines provided by the Securities and Exchange Commission ("SEC"), the Business description of the Company has been written in the first person. We were formed in 1987. Prior to September 1993, we manufactured and marketed tennis racquets and sports equipment under the tradename "FIN" in the United States. Since September 1993, we have had no active business operations and have been engaged in reviewing possible acquisition candidates. We acquired all of the capital stock of PTM through the Merger whereby a wholly-owned subsidiary of ours was merged with and into PTM, with PTM as the surviving corporation. Following the Merger, our corporate name was changed to Lifef/x, Inc. and the corporate name of PTM was changed to Lifef/x Networks, Inc. PTM holds an exclusive, worldwide, perpetual license from Auckland Uniservices Limited ("Uniservices") to use certain continuum modeling technology, in commercial applications, excluding professional medical, engineering and scientific applications. In addition, PTM has one registered patent and two patents pending with the United States Patent Office relating to computer graphics and motion capture technologies. These combined technologies are known as "Lifef/x." The Lifef/x technology is capable of creating photo realistic 3D computer animation of biological entities, including humans animated in real time. Because of the Uniservices license relationship, PTM does not own all of the Lifef/x technology. Our Combined Companies Our goal is to become the leading provider of branded photo realistic 3D computer animation products and services that enhance digital communication across a multitude of media platforms. Our primary focus is to commercialize the Lifef/x technology for Internet applications. We believe that there are numerous applications for the Lifef/x technology for the World Wide Web, including but not limited to electronic commerce, e-mail, chatrooms, distance learning, bill presentment, electronic direct mail and PC gaming. The Lifef/x technology enables the creation of interactive virtual humans as hosts, salespeople, teachers, entertainers, game characters, personal avatars, corporate representatives and advertising personalities on the Internet at bandwidths of 28.8Kbps or more. In addition to the Internet, we also intend to explore other applications for the Lifef/x technology on terms that minimize the expense to the Company, including, without limitation, applications in the theatrical and motion picture industry. Growth of the Internet The Internet has grown rapidly in recent years, driven by the development of the World Wide Web and graphically intuitive Web browsers, the proliferation of multimedia PCs, increasingly robust network architectures and the emergence of compelling Web-based content 5 and commercial applications. Both consumers and businesses are increasingly relying on the Internet to access and share information. According to Internet industry analyst International Data Corporation ("IDC"), at the end of 1998 an estimated 97 million people were using the Internet to communicate with friends and family, participate in discussion forums and obtain information about goods and services. IDC projects that this user base will grow to 319 million by 2002. As an interactive, searchable, user-controlled medium, the Web provides for a highly engaging experience and allows users to access an almost unlimited variety and supply of content at their convenience. The Web also enables content providers and advertisers to establish personalized experiences for, and communications with, consumers. We believe that the growth in the Internet market represents a significant opportunity for a company providing products and services that enhance a Web user's experience. Lifef/x Technology The Lifef/x technology was originally developed for accurate modeling of soft biological tissues which undergo large nonlinear deformations. The first virtual face was subsequently developed for tele-robotic surgery, a professional medical application, and is biologically correct. The Lifef/x technology was developed in collaboration by a team of experts that include: Dr. Peter Hunter of the University of Auckland, whose field of expertise is in soft tissue biomechanics; Drs. Ian Hunter and Serge Lafontaine, who are experts in tele- micro-surgical robotics; and Drs. Mark Sagar and Paul Charette, who are experts in integrating robotic and tissue biomechanics into computer graphics applications. The Lifef/x technology is based on continuum modeling techniques, which are mathematical tools developed to represent material properties of solids (tissues) down to the microscopic level or the cellular level in the case of biological tissues. Large complex structures are broken down into smaller components with geometrical shapes described by nodes and surfaces. A human face is modeled using 500 nodes and rendered using 20,000 polygons. Movement or animation of a human face model is achieved by applying a set of constitutive mathematical equations that replicate properties associated with biological muscle movement. The mathematical equations can replicate such properties as anisotropic skin elasticity, electrical impedance, thermal capacity, conductivity and optical properties. By beginning with the exact representation of biological tissues and computing the interaction between structures, such as force generated by muscles, skin elasticity and bone geometry, photo realistic 3D animation can be achieved. To date, we have primarily focused on applying the Lifef/x technology to the most demanding application, motion pictures. A computer model is created by first acquiring the 3D geometry of a performer's face using a laser-scanning device such as the Cyberscan developed by CyberOptics Corporation. The second step in the process consists of a still photo session to acquire textures. The actual performance is acquired in real time by our proprietary motion capture system driven by the Lifef/x technology, which is followed by our proprietary video data digitization and tracking analysis. The result of this analysis is a series of node coordinates that track material features as they move in time. This results in acquiring even the subtlest change in face geometry as the performer goes through his motions and expressions. As a final check and 6 quality control an artist verifies and retouches required details, particularly, tongue and eye movements. To date, all prototypes of the Lifef/x technology that we have produced are for the motion picture industry. These are full 3D models created from captured live performances, capable of being viewed from any angle. Our initial Internet consumer applications will be models capable of being viewed from only one angle and will be driven by text or speech input, not live performances. Therefore, the initial Internet application may be of significantly lower spatial resolution but of higher temporal resolution than the prototypes produced to date. Our objective for future development is to adapt the existing Lifef/x technology to the Internet and to be the network for and a leading provider of branded products and services that enable the delivery of cost-effective, real time content production of photo realistic 3D models for a broad range of market applications with primary emphasis on internet-related B2B and B2C opportunities. Our objective is to create a paradigm shift to a "network" for interpersonal and intercorporate interactive communication in which Lifef/x will be the embedded standard. To this end a number of new products are under development and are described below under "Our Products under Development." Our Business Plan for Lifef/x on the Internet Our initial strategy is to achieve the rapid and widespread distribution of our system that personalizes the interactive communications between Internet- related B2B and B2C activities. Lifef/x has the opportunity to change the Internet from catalogue to dialogue and become the "Sales force of the Internet." E-mail is the most widely adopted Internet application, ranging from a personal messaging tool to a strategic business tool. According to Electronic Mail and Messaging Systems, there were approximately 325 million e-mail accounts in operation at the end of 1998. E-mail has surpassed the telephone as the primary business communication tool according to the American Marketing Association. Online messaging is fast approaching e-mail as a universal means of online communications. E-mail and online messaging have increased in volume and functionality, and this trend is expected to continue. The Lifef/x technology provides a significant value-add as it will allow individuals to send e-mails and online messagings embedded with animation commands. These commands will direct photo realistic 3D models already downloaded on the recipient's computer that evoke the computer to read the e-mail or message to the recipient using our proprietary software. As the Web continues to evolve, many businesses and content providers will seek interactive audio, video and other multi-media content as a means to enrich and differentiate their Web sites. We believe that a substantial opportunity exists to provide software solutions, services and content aggregation and delivery services that deliver content through photo realistic 3D models that are compelling, interactive and can be animated in real time over bandwidths as low as 28.8Kbps. We envision that Web sites can utilize photo realistic 3D human models as guides, corporate spokespersons, teachers, entertainers, game characters, personal avatars, advertising personalities and individual sales help, and that the available applications can be extended to include not only the traditional opportunities for email, instant messaging and chatrooms, but also for training, product support, human resources, supply chain software, ISP's, ASP's, distance learning, bill presentment, and PC gaming, among others. Now that the novelty of online shopping is over for many, e-tailers realize that they must make substantial improvements in their customer's shopping experience to prevent the loss of customers to other novel sites. In their effort to turn shoppers into buyers and customers into repeat customers, web businesses seek ways to improve customer support and the overall shopping experience. . According to a BizRate.com industry study during the first quarter of 1999, online shoppers rated 'customer support' among the weak links of e- commerce sites. . Research firm Jupiter Communication report that consumers spent an average of $375 in 1997 and $700 in 1998 on line, but that 37% in 1997 and $700 in 1998 on line, but that 37% of buyers said that they would spend more if they had access to real-time advice. . One in five Amazon.com employees work in customer support. . 75% of Mindspring employees work in the customer support area. The value-add provided by LifeF/x is the development of a standard platform for a network that facilitates the ultimate in differentiated, personalized communications, regardless of the application. 7 Our Strategy Our objective is to be a leading provider of branded software products and services that enable the delivery of cost-effective, real time content production of photo realistic 3D models as hosts, salespeople, teachers, entertainers, game characters, personal avatars, corporate representative and advertising personalities over the Internet at bandwidths of 28.8Kbps or greater utilizing the Lifef/x technology. To achieve this objective, our strategy includes the following key elements: Create our Brand Name. We intend to create our brand recognition through a variety of marketing and promotional techniques, including the creation of our Web site. Also, by offering our Lifef/x Internet software to individual users free of charge we will promote the widespread adoption of our Lifef/x software architecture and speed the acceptance of photo realistic 3D animation and co-marketing and co-branding agreements with strategic partners. We also intend to promote our brand by conducting ongoing public relations campaigns and developing affiliations and affinity programs. We believe that building the brand awareness of our Lifef/x Internet software is critical to attracting and expanding our customer base. Enter into Strategic Partnerships. We intend to develop and utilize strategic partnerships to gain access to large numbers of potential users, cooperatively market products and services, cross-sell additional services and gain entry into new markets such as computer and online gaming, distance learning, e-commerce, e-mail and online messaging. Establish First-to-Market Advantages. We believe that our Lifef/x Internet software will be the first to offer photo realistic, interactive 3D animation capabilities that will have significant first-to-market advantages as an animation software in the Internet communication and entertainment media market. We intend to use this first-to-market advantage to rapidly establish our brand and grow our customer and user base. We also believe that our potential market position is enhanced by the significant barrier to entry resulting from the more than 30 years of mathematical and biological development effort of our licensor, Uniservices. Focus on Differentiating Our Brand. We believe that our Lifef/x Internet software can achieve rapid distribution to users and market penetration because our product enhances e-mail and online messaging, two of the most widely adopted Internet applications and will require very low bandwidth for transmission, thus making the products readily available to a very broad universe of users. Users will be offered a photo realistic 3D model of themselves ("Standin"), the Lifef/x Genesis Player on which animation of the Standin can be played and Lifef/x Director animation software for free. They will then be able to create their own content (e-mail, online messaging) in real time. In addition to users, we plan to attract customers by targeting Web development companies, advertising agencies, corporate divisions and educational institutions in the Web site development area. Estimates are that there are 100,000 such entities with over five million licensed software products. Our Products under Development We have not commercialized any of our products offerings. All of our products are currently in the research and development or planning phases. 8 Lifef/x Standins. Our lead consumer-based product is the Lifef/x Standins. Lifef/x Standins are photo realistic 3D computer models, which can be animated in real time by text or speech files. The simplest form of consumer level Standins can be created from 2D digital images, which the consumer can send to us electronically via our planned Web site, or traditional analog photo images, sent to us via the postal service. The completed digital Standins will be delivered to users via the Web. Along with the first Standin delivered to each user, they will also receive two packages of enabling software: our Lifef/x Genesis Player, the software on which animation of the Standin can be played, and our Lifef/x Director software that is used to add emotional content to the animation. We envision that the Standins can be used with e-mail, Web pages, chatrooms, PC games, corporate intranets and extranets and many other applications. We plan to make the Lifef/x Standins compatible for different products including PC games, operating systems as screen saver and e-mail, chatrooms, online help, etc. All products will share the same technology architecture and Standins will be interchangeable, serving as the foundation for an expandable and interconnected software platform. Professional Standins. More sophisticated and articulated Standins ("Professional Standins") can be created and then animated by actual human performances that can be captured utilizing our patent pending proprietary motion capture system that is driven by the Lifef/x technology. The captured performance of the Professional Standin can then be reproduced on the Lifef/x Genesis Player from downloaded Lifef/x media files. Alternatively, the user can get animation commands streamed in real time over the Web at bandwidths of 28.8Kbps or more after the Professional Standin is downloaded to the player. At speeds of 28.8Kbps, our player will be capable of reproducing photo realistic images at an animation rate either of 15 frames per second ("fps") with high quality sound or 30fps with voice-quality sound. Lifef/x Genesis Player V1.0. The Lifef/x Genesis Player will be a highly flexible, programmable player that can be used either for streaming animation commands of captured Lifef/x Standin performances over the Internet or for online, real time interactive content generation. It will be developed as a flexible programming component that can be used and programmed inside a Web browser, to read e-mail or perform a number of system interactions. When programmed using either the Jscript of VBscript languages inside Web sites, Standins will be capable of complex autonomous interactions with the user. Standins will be capable of being active or inactive, visible or not visible and will provide autonomous behavior while waiting for user interactions or Web data to be downloaded. Lifef/x Director. Our Lifef/x Director software will allow the additional animation and control of Standins for uses such as sending e-mails with embedded animation commands. Using the software, the user will be able to add four basic emotions (happy, sad, angry, surprised) and simple motions. Lifef/x Creator Software. Our Lifef/x Creator software will be offered to sophisticated Web users as an advanced tool to control Standins for integration in Web pages, e-mail or to create Lifef/x media files. This program will be a simplified version of the Lifef/x Pro-Creator (discussed below) and this software will be developed simultaneously with and have the same components as the Lifef/x Pro-Creator, except for certain customizations. The Lifef/x Creator will be expandable by adding our Lifef/x e-Motor Packs which are packages of emotional cues. 9 The Lifef/x Creator Software will have a graphical interface which will include windows where the Standins will appear, pop-up windows to specify emotions, speech rate, head rotations and movements, a time line with graphical representation of where emotions start and stop, and a graphical editor to delete, move or cut and paste part of the performance. The initial stages of development will focus on the main features of the graphical interface. Lifef/x Pro-Creator Software. The Lifef/x Pro-Creator software will allow the professional Web designer to fully animate and control Lifef/x Standins using a flexible and powerful graphical user interface. This digital studio will allow the designer to control the position, lighting, expressions, emotions, movement of the Standins and how they interact. The animated Lifef/x Standin performance captured can be included in Web pages, e-mails or other applications using the Lifef/x technology. This fully graphical interface will also have windows where the Standins will appear, pop-up windows and sliders to specify emotions, speech rate, head rotations and movements, a time line with graphical representation of where emotions start and stop, and a graphical editor which allows the designer to delete, move or cut and paste part of the performance. Lifef/x Software Developer Kit ("SDK"). We plan to develop the Lifef/x SDK as a component for software developers to include in their applications. It will integrate Lifef/x Standins in applications, such as PC games and other software, as computer hosts to lead users through new programs and equipment, or for e-mail, long distance learning, screen savers, etc. Marketing and Distribution Marketing. On the Web user level, we plan to market directly to the user via our planned Web site, as well as event marketing and large group relationships. For example, we may arrange to have a photo booth at college campuses on registration day to offer the free service of taking digital photos of the potential users and e-mailing back his or her Standin, Lifef/x Genesis Player and Lifef/x Director software. We may also provide this promotion at large sporting events or any other events with large attendance. Additionally, we may also promote to large affinity groups, such as fan clubs, boy scouts, fraternities, little leagues, political parties, as well as corporations and their employees. We believe that these promotions will enable us to gain rapid distribution and market penetration. Once we are able to gain widespread adoption of our Lifef/x technology, we will be able to sell our professional products (Lifef/x Creator and Lifef/x Pro-Creator) to domain holders who want to utilize Standins on their Web sites. There will be a built in audience for our technology. Additionally, we believe that once the domain holders become "content generators" they in turn will create a demand for our technology on the user level. Each user will get the first Standin for free. Each additional Standin will be priced initially at $19.95. We believe that users will desire to have additional Standins of themselves or other characters for use in different communication mediums. We also plan to co-brand and co-market our products with partners with whom we plan to develop strategic relationships. Distribution. In addition to our planned marketing activities, our Lifef/x Genesis Player will be available free of charge through our planned Web site. Users will need to register and 10 send in an analog or digital photo and we will send a fully functioning Standin with the Lifef/x Genesis Player and Lifef/x Director software via e-mail delivery. Users will be able to animate their Standins to speak by using the Lifef/x Director software. The player will also be available for stand alone download to reproduce captured performances on Web sites. We also envision that our strategic partners, if any, may offer our products through their branded sites or embodied in their applications, like PC games. Future Enhancements In conjunction with our licensor, Uniservices, we plan to develop a full model of the human body including higher neuro-muscular activation of muscle groups that are responsible for expressions or motion. Currently, most of the model for the face and head is completed except for the implementation of the higher level commands to speed and simplify the animation process. These higher commands will be added in the future. Having developed a generic human face that is now used as a basis for the Lifef/x Standins, we will also direct future development to adding a generic neck, arms, legs and torso. Our Strategic Partners Our objective is to achieve significant market penetration through relationships with strategic partners in each of the following categories: . Web portals, content sites and Internet service providers; . Web design software vendors; . Web development companies; and . Game companies. We believe we will benefit from these relationships by achieving positive brand association and a cost-effective means of customer acquisition. We believe our strategic partners can utilize their relationships with us to provide more value-added services to their customers. Research and Development Lifef/x Genesis Player and Standin Phase 1: Conversion of Full Head for Internet Applications. Our current model of the human face is a very high-resolution model developed for movie applications. The first objective in adapting the Lifef/x technology to the Internet consists of reducing the size of the Lifef/x Standin which is unnecessarily large for Web applications, has too many details for PCs and is too slow for real time animation. The Internet Lifef/x Standin of a human face will consist of approximately 1000 polygons, that is 20 times less than the high-resolution face. In order to develop the Internet head model, all of the elements (the face, eyes, tongue, teeth) need to be converted to a lower resolution model. 11 Phase 2: Animation of the Lifef/x Internet Standin. Standin accuracy will be evaluated by acquiring data from a real performance and subsequently re- create it using the Standin. This will display the Lifef/x Standin speaking and going through a variety of expressions. It will also display the speed of the animation algorithm in rendering our Lifef/x Standins on consumer level PCs. Phase 3: Text to Speech ("TTS") Lifef/x Player. For most applications, the Lifef/x players will be used to read text embedded as commands in Web sites or for personal communication (e-mail, etc.). To this end, a text to speech engine must be integrated into the Lifef/x player, to generate the sound and also animate the facial movements that normally produce the sound ("visemes") in a synchronized manner ("lip-synch"). Successful visemes and lip-synch tests will mark the release of the Lifef/x Player to users for Beta testing. Phase 4: Direct Voice Animation of Lifef/x Standins. Current TTS technology is still severely restricted in terms of quality of voice, range of voices, intonations and emotions that can be reproduced. Use of our standins with true recorded speech will be much more realistic than standins using TTS. To this end, we must integrate in our Lifef/x Genesis Player a set of algorithms that will allow us to map in real time a recorded voice to 3D visemes for accurate lip synchronization. Phase 5: Streaming Lifef/x Player. One of the planned markets for the Lifef/x technology will be to include Standins in Web sites that reproduce captured performances that are streamed and played in real time across the Internet. This involves integrating streaming technology in the Lifef/x player. In this phase, the Lifef/x player will be tested for its capability to transmit voice and video appropriately over a 28.8Kbps bandwidth connection. Lifef/x Consumer Standins: Service Development As part of our marketing effort, we plan to send Standins, Lifef/x Director software and the Lifef/x Genesis Player via e-mail to users who have provided us with either digital or analog 2D images. Phase 1: Feature identification software. In order to be able to efficiently process the projected high volume of user requests, the procedure for converting a photograph to a 3D Lifef/x Standin must be highly automated. In the first step of the "production process," typical photographs will be scanned. We will need to develop the software to recognize facial features, such as the face outline, hairline, jaw, ears, eye location and contours, eyebrows, lips, nose etc. Phase 2: Graphical Interface. The feature identification software component will need to be refined over a long period of time, thus some corrections will need to be done manually. To facilitate these corrections, a graphical interface that displays the scanned head overlaid with the computed outline of face features is required. This graphical interface will then take inputs from the mouse to allow adjustments to the various features. Phase 3. Optimization program. After the location of the facial features has been identified, our generic Lifef/x Standin needs to be fitted to the consumer face. Through a process of facial database matching, optimization and morphing the appropriate 3D geometry will be 12 created for the submitted photograph. We will need to develop a graphical interface to display the Standin in three dimensions and to allow corrections in three dimensions of the user's face. Phase 4: Production Facility. Before the release of the Lifef/x player, a production facility will be setup to process the commercial volume of user requests. This facility will consist of a number of production "pods," each pod including a computer, scanner and operator console to enter the user information and verify the quality of the Standin. This station will also allow corrections, as needed, to be made to the Standin. Phase 5: Web service development. Our objective is to automate the full process so users can send requests over the Internet with their photographs. Our planned Web site will have an entry giving instructions on how to send digital images. Lifef/x Director Software This Lifef/x Director software allows the user to enter emotional cues into a text and to control how the text is spoken with a choice of four basic emotions. The resulting output is text with embedded commands to the player. Phase 1: Development of the graphical interface. The user application will bring a text window on the screen along with a few sample commands at the top. The text window will allow the user to enter and edit text and include four basic emotions that his Standin will display while reading the portion of the text marked with the corresponding emotion. Phase 2: Player integration. The Lifef/x Director software will also allow the user to select different Standins to read the text and to review the result by bringing up the player to speak the text entered in the window. Phase 3: Integration to outside applications. After the text is completed, the program will allow the user to send the composed message either directly by e-mail or, alternatively, save the captured performance to a Lifef/x media file for later playback. Lifef/x Creator Software The Lifef/x Creator will be offered to the sophisticated Web users as an advanced tool to control Standins for their integration in Web sites or to create Lifef/x media files. This program is a simplified version of the Pro- Creator. It will also be expandable by adding our Lifef/x e-Motor Packs which are packages of emotional cues. Phase 1: Development of the graphical interface. This fully graphical interface will have windows wherein the Standins will appear; pop-up windows to specify emotions, speech rate, head rotations and movements; a time line with graphical representation of where emotions start and stop; and a graphical editor to delete, move or cut and paste part of the performance. The first part of the development will focus on providing, the main features of the graphical interface. Phase 2: Generation of scripts for Web pages and Lifef/x media files. The programming code will be integrated into the Lifef/x Creator to produce a script that can then be included in a Web site or other document that supports Web browser commands. 13 Phase 3: Lifef/x Creator Emotional Packages. Additional emotional packages and expression packages will be shipped with the Lifef/x Creator or offered as options. This software will be developed in our facility and tested to allow for additional packages to the Lifef/x Creator. Lifef/x Pro-Creator This full-featured enhanced version of the Lifef/x Creator software will provide the Web professional the most advanced interface capable of specifying a nearly infinite variety of emotional cues into text and have full control over Standins' performances while delivering text. It will allow users to include Standins in Web sites or create Lifef/x media files. Lifef/x Planned Future offerings Once we are able to commercially release our Lifef/x Genesis Player, Lifef/x Director software and Lifef/x Creator and Pro-Creator software, we plan to enhance our product offerings to include: . chatrooms that enable users to share their Standins with other users and see Standins talk to each other; . recording real voice for later playback as audio streams, for the highest level of realism of the Standins; and . incorporating Standins in PC gaming products. Our Competition As multi-media and graphics evolve into a central and necessary component of the Internet experience, more companies are entering the market and expending greater resources to develop software and services. The principal competitive products in the photo realistic 3D animation market include the Microsoft V-Chat 2.0, Microsoft Agent, Compaq's Faceworks, Haptek, Famous Tech, Blaxxun, Worlds Ultimate 3D Chat, Animatek International, Sven Technologies, Oz Interactive, Simberon Avatars, NetSage, Boston Dynamics, Extempo, Virtual Human, Virtual Personalities, Virtual Celebrities, Radical Mail and Avatarme. In addition, there may be photo realistic 3D computer animation products and services being developed by competitors that we may not be aware of. Many of our current and potential competitors have substantially greater financial, technical, marketing, distribution and other resources, greater name recognition and market presence, longer operating histories and lower cost structure than we do. As a result, they may be able to adapt more quickly to new or emerging technologies and changes in customer requirements. Our ability to compete successfully in the rapidly evolving Internet communication and entertainment media market will depend upon certain factors, many of which are beyond our control. There can be no assurance that we will be able to compete successfully. However, we believe that our technology and product offerings can be differentiated from our competitors in several areas, including the richness of detail resulting 14 from the extensive medical database and proprietary mathematical algorithms and low bandwidth transmission. Our Technology A significant portion of the Lifef/x technology is embedded in a system licensed from our licensor, Uniservices. This finite element system is an interactive computer program for continuum mechanics, image analysis, signal processing, and system identification. The system is a mathematical modeling environment that allows the application of finite element analysis, boundary element and collocation techniques to a variety of complex bioengineering problems. It consists of a number of modules including a graphical front end with advanced 3D display and modeling capabilities, and a computational backend that may be run remotely on powerful workstations or supercomputers. The system represents a development of over 100 man-years of effort at Uniservices. This research and development has resulted in our proprietary techniques for generating accurate reproduction of expressions and tissue wrinkling. The system provides a basis for developing advanced models of flexible materials such as tissue, which undergo large nonlinear deformations and where the material properties may be anisotropic. The Lifef/x technology is also unique because of the richness of the data incorporated in the models. The bulk of the data is generated from a real time 3D motion capture system. This motion capture system consists of a hardware system comprising a stereoscopic high-resolution digital camera system and special motion tracking filters that follow the material displacement of each point on the face and in time. This system is used to track over 500 points on the face and serves as the data set for the finite element system. Future research will include a more accurate experimental characterization of tissue properties. Our Intellectual Property We rely on a combination of patent, trade secret, copyright and trademark laws and contractual restrictions to establish and protect intellectual property rights in our products, services, know-how and information. Much our intellectual property is protected by non-disclosure, confidentiality and non- competition agreements with our employees which, if breached, may be very expensive to enforce. We do not own all of the Lifef/x technology. We have an exclusive, worldwide, perpetual license from Uniservices to use their continuum modeling technology in commercial applications, excluding professional medical, engineering and scientific applications. The license requires quarterly license fees and development payments to be made to the licensor. We have filed three patent applications in the United States and other countries specifically covering image capturing and creation. One of our patent applications has been registered and our remaining two patent applications are pending. We plan to apply for other patents in the future. The source code for the Lifef/x technology is not patented by Uniservices. Our Employees We currently has a team of six employees in research and development in Los Angeles, California. Our executive officers are based in Boston, Massachusetts. We intend to expand significantly in 2000 and will actively seek, among others, full time software developers, a Vice-President of Marketing, accounting personnel and administrative staff to be based in Boston, 15 Massachusetts. See "Risk Factors -- We Will Rely on a Relatively New Management Team and Need Additional Personnel to Grow Our Business." Our Management The following table sets forth the names and positions with the Company as of December 15, 1999 of all of the executive officers, directors and key employees of the Company after giving effect to the Merger. Also set forth below is information as to the principal occupation and background for each named person in the table.
Name Age Position - ---- --- -------- Michael Rosenblatt 48 Co-President, Chairman and Director Lucille S. Salhany 53 Chief Executive Officer, Co- President and Director Richard Guttendorf 57 Secretary, Chief Financial Officer and Director Ian Hunter 46 Director Robert Verratti 56 Director Paul Charette 36 Lifef/x Networks, Inc.: Vice President, Co- Director of Research and Development Mark Sagar 33 Lifef/x Networks, Inc.: Vice President, Co- Director of Research and Development Serge Lafontaine 50 Lifef/x Networks, Inc.: Chief Technology Officer
Michael Rosenblatt. Mr. Rosenblatt became Co-President and Chairman of the Company at the Closing. Mr. Rosenblatt has served as Vice Chairman of PTM since October, 1998, as Co-President of PTM from 1997 to October, 1998 and as a director of PTM since 1997. He is a founding partner of Mirage Technologies, Inc. Mirage Technologies, Inc. is the general partner of Mirage Technologies L.P. ("Mirage"), which together with Safeguard and Robert Verratti formed PTM in October 1997. In 1974 Mr. Rosenblatt also founded the Atlantic Entertainment Group which became one of the largest privately held motion picture production and distribution companies in the United States. Atlantic Entertainment Group, Inc. was sold by Mr. Rosenblatt in 1989. Mr. Rosenblatt also serves as Co- Chairman of the Board of Organic Systems, Burlington, Massachusetts and is on the board of EMC, Inc. of Wayne, Pennsylvania. He is also a member of the Executive Branch of the Motion Picture Academy of Arts and Science. Lucille S. Salhany. Lucille Salhany became Chief Executive Officer, Co- President and a director of the Company at the Closing. Ms. Salhany is currently President, JH Media, Ltd. an 16 advisory company with offices in Boston and LA. Ms. Salhany is past president and CEO of UPN and currently serves on the UPN operating committee. Under her guidance UPN firmly established itself as the fifth largest broadcast network in television history. Previously Ms. Salhany was Chairman of the FOX Broadcasting company, Chairman of Twentieth Television and a member of the FOX, Inc. Board of Directors. Ms. Salhany guided the networks expansion from four to seven nights of programming and was instrumental in Fox's acquisition of the NFL. Prior to that Ms. Salhany was President, Paramount Domestic Television. Ms. Salhany holds a seat on the Operating Committee of the United Paramount Network and on the Board of Directors of Compaq (a Fortune 100 company), Avid Technologies , B.R.A. Corporation of Boston, Coty, Inc. and Emerson College. Richard Guttendorf. Mr. Guttendorf became Secretary, Chief Financial Officer and a director of the Company at the Closing. Mr. Guttendorf has served as Chairman and Chief Executive Officer of PTM since October, 1998 and as a director of PTM since its inception in 1997. Mr. Guttendorf is also Vice President and Director of Research for Safeguard. Mr. Guttendorf was previously Chief Executive Officer of Laser Communications, Inc., a leading manufacturer of short haul, laser optic wireless communications equipment. Prior to LCI, he was Chief Financial Officer of InterDigital Communications Corporation, a manufacturer and licensor of digital wireless telephone equipment and was Chief Financial Officer of Atlantic Financial, an $8 billion financial institution. Mr. Guttendorf is a Certified Public Accountant and has a Bachelor of Science degree in accounting from St. Francis College and a Master of Science degree in finance and accounting from Pennsylvania State University. Ian Hunter. Dr. Hunter became a director of the Company at the Closing and served as a director of PTM from 1997 to the Closing. Prior to the Closing, Dr. Hunter was the Director of Research and Development at PTM. Dr. Hunter is the Hatsopolous Professor of Mechanical Engineering and Bio-Engineering at the Massachusetts Institute of Technology. Dr. Hunter is also the General Motors Fellow. Robert Verratti. Mr. Verratti became a director of the Company at the Closing. Mr. Verratti served as a director of PTM from 1997 to the Closing and as Chief Executive Officer and Chairman of the Board of PTM from 1997 to October, 1998. Mr. Verratti has been the President of Charlestown Investments, Ltd., a company specializing in investments in companies in turn around or undervalued situations since 1980. Mr. Verratti is also a venture partner and consultant to the Chairman of Safeguard and TL Ventures. Mr. Verratti serves on the board of directors of CRWF Inc., Axcess Financial Inc., Net Effects, Inc. and Netsvision, Inc. Mr. Verratti graduated from the U.S. Naval Academy in 1966 with a Bachelor of Science degree in nuclear engineering. Paul Charette. Dr. Charette is Vice President and Co-Director of Research and Development of Lifef/x Networks, Inc. and has held such position since 1997. Dr. Charette received his Bachelor of Science degree with honors from McGill University in Electrical Engineering in 1986. He then worked for three years as a software design engineer at Matrox Electronic Systems LTD, a leading Canadian graphics, image processing and hardware manufacturer. In 1989, he joined MPB Technologies LTD as a research scientist for the laser and optics division. Then in 1994, he obtained his doctorate degree from McGill for his work on medical studies of biological membranes using laser speckle interferometry. Dr. Charette has experience in the areas of laser and optics, image processing, applied mathematics, and bioengineering mechanics. Currently, Dr. Charette holds a Post- Doctoral fellowship in the Biomechanics Group at the University of Auckland in New Zealand. 17 Mark Sagar. Dr. Sagar has held the position of Vice President and Co- Director of Research and Development of Lifef/x Networks, Inc. and has held such position since 1997. In 1992 Dr. Sagar became a member of the Bio-engineering group at the University of Auckland where he developed an anatomically accurate computer model of the human eye. Dr. Sagar completed his Ph.D in 1996 and was appointed as a Post-doctoral fellow at Dr. Ian Hunter's laboratory at the Massachusetts Institute of Technology. Dr. Sagar pursued and completed a Bachelor of Science degree in Physics and Mathematics at the University of Auckland in 1987; winning senior prizes in both subjects. Serge Lafontaine. Dr. Lafontaine became the Chief Technology Officer of the Company at the Closing. Dr. Lafontaine is presently a post-doctoral research associate in mechanical engineering at the Massachusetts Institute of Technology. Before completing his Ph.D. he worked as systems engineer in software development and systems administration. He subsequently co-developed a number of instruments and devices including a cardiac mapping system with 3D digital mapping of the heart electrical activity, a retinal tele-micro-surgical system and virtual operating environment, and various real time data acquisition and control systems. Properties We currently leases premises at 1149 N. Gower Street, Hollywood, California, housing the Lifef/x operations, the Scanning and Recording Division and the now defunct Digital Division. We own premises at 6350 Santa Monica Boulevard, Hollywood, California, housing the Optical Division. Both of these real property interests are included in the Spin Off Assets and Liabilities. Following the Merger, we intend to relocate the Lifef/x operations from the Gower facility. We plan to have approximately 5,000 square feet of research and development space in the greater Los Angeles area and approximately 7,000 square feet of administrative and research and development space in the greater Boston area. Legal Proceedings A former employee has asserted certain claims arising from such employee's prior employment with PTM, including, without limitation, harassment claims. At this time, we are unable to determine the possible outcome of these asserted claims. However, we believe these claims are without merit and intend to vigorously defend any action asserted for the claims. Except for these claims, we are not involved in any claims or legal proceedings, nor have we been involved in any such proceedings that have had or may have a significant effect on our financial position. 18 RISK FACTORS You should carefully consider the risks described below before making an investment decision in our company. The risks and uncertainties described below are not the only ones facing our company and there may be additional risks that we do not presently know of or that we currently deem immaterial. All of these risks may impair our business operations. This document also contains forward- looking statements that involve risks and uncertainties and actual results may differ materially from the results we discuss in the forward-looking statements. If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected. In such case, the trading price of our common stock could decline, and you may lose all or part of your investment. In accordance with "plain English" guidelines provided by the SEC, the risk factors have been written in the first person. Our business would be seriously impaired if our rights in the Lifef/x technology are compromised in any way. We have one registered patent and two patents pending with the United States Patent Office relating to computer graphics and motion capture technologies, but we do not own all of the Lifef/x technology. We license a significant portion of the Lifef/x technology from Uniservices. The source code for the Lifef/x technology is not patented by Uniservices. Therefore, we rely on non-disclosure, confidentiality and non-competition agreements with our employees to protect many of our rights in the Lifef/x technology. If these agreements are breached by our employees, it may be necessary for us incur significant expenses to enforce our contractual rights and protect our rights in the Lifef/x technology. Our business plan and strategy are to commercialize the Lifef/x technology. Termination of our relationship with Uniservices for any reason, termination of our exclusive rights to the Lifef/x technology for failure to make development fee payments or unauthorized disclosure of the Lifef/x technology to third parties would result in serious harm to our business, financial position and results of operations. We have a history of losses and expect to incur losses in the future, and we may never achieve profitability. As of September 30, 1999, we had no sales from the Internet application of our Lifef/x technology and PTM had an accumulated deficit of $3.9 million for all of its operating divisions. Such deficit includes amounts attributable to PTM's film production and other activities not directly attributable to Lifef/x. Our lack of revenues for Lifef/x can be attributed primarily to the fact that Internet application of our Lifef/x technology is in the research and development or planning phase and has not been commercially released. In the course of our pre-commercial development activities, we have not achieved profitability and expect to continue to incur net losses for at least the next several quarters. Due to the need to establish our brand and service, we expect to incur increasing sales and marketing, product development and administrative expenses. As a result, we will need to generate significant revenues to achieve and maintain profitability. 19 Our technology has not been fully developed for its proposed application. To date, we have primarily focused on applying the Lifef/x technology to motion pictures. Our business plan and strategy are to commercialize the Lifef/x technology for Internet applications. We have not commercialized any of our Internet-based product offerings and all such products are currently in the research and development or planning phases. If we are unable to develop our products for their proposed applications, our business will suffer and our financial condition and results of operations will be seriously affected. The photo realistic 3D animation market is new and uncertain and our business may not develop. The market for photo realistic 3D computer animation products and services over the Internet has not developed, and its development is subject to substantial uncertainty. We cannot assure you that this market will develop. We depend on the commercial acceptance of our Lifef/x technology. We have very limited experience conducting marketing campaigns, and we may fail to generate significant interest. On the other hand, if we experience extensive interest in our photo realistic 3D computer animation products and services, we may fail to meet the expectations of customers due to the strains this demand will place on our Web site, network infrastructure and our systems. If potential users choose the Internet to produce animation content, we cannot be certain that these users will adopt our technology. If we do not achieve brand recognition necessary to succeed in the Internet market, our business will suffer. We must quickly build our Lifef/x brand to gain market acceptance for our photo realistic 3D computer animation products and services. We believe it is imperative to our long term success that we obtain significant market share for our products and services before other competitors enter the Internet communication and entertainment media market. We must make substantial expenditures on product development, strategic relationships and marketing initiatives in an effort to establish our brand awareness. We cannot be certain that we will have sufficient resources to build our brand and realize commercial acceptance of our products and services. If we fail to gain market acceptance for our photo realistic 3D computer animation products and services, our business will suffer dramatically. If we do not expand our product and services offerings, our business may not grow. We may pursue the strategic partnerships with new or complementary businesses in an effort to enter into new business areas, diversify our sources of revenue and expand our photo realistic 3D computer animation product and services offerings. At present, we have no commitments or agreements for any strategic partner. To the extent we pursue strategic partnerships with new or complementary businesses, we may not be able to expand our Internet focused products or service offerings and related operations in a cost-effective or timely manner. We may experience increased costs, delays and diversions of management's attention when commencing any new businesses or services. Furthermore, any new business or service we launch that is not favorably received by users could damage our reputation and brand name in the Internet communication and entertainment media market. We also cannot be certain that we will generate satisfactory revenues from any expanded services or products to offset related costs. 20 Any expansion of our operations may require additional expenses, and these efforts may strain our management, financial and operational resources. If we cannot effectively manage our growth, our ability to provide services will suffer. Our reputation and our ability to attract, retain and serve our customers depend upon the reliable performance of our Web site, network infrastructure and systems. We have a limited basis upon which to evaluate the capability of our systems to handle controlled or full commercial availability of our photo realistic 3D computer animation products and services. We anticipate that we will expand our operations significantly in the near future, and further expansion will be required to address the anticipated growth in our user base and market opportunities. To manage the expected growth of operations and personnel, we will need to improve existing and implement new systems, procedures and controls. In addition, we will need to expand, train and manage an increasing employee base. We will also need to expand our finance, administrative and operations staff. We may not be able to effectively manage this growth. Our planned expansion in the near future will place and we expect our future expansion to continue to place a significant strain on our managerial, operational and financial resources. Our planned personnel, systems, procedures and controls may be inadequate to support our future operations. If we are unable to manage growth effectively or experience disruptions during our expansion, our business will suffer and our financial condition and results of operations will be seriously affected. If we are unable to compete successfully, our revenues and operating results will suffer. The market for photo realistic 3D computer animation products and services over the Internet is new and we expect it to be competitive. The principal competitive products in the photo realistic 3D computer animation market include the Microsoft V-Chat 2.0, Microsoft Agent, Compaq's Faceworks, Haptek, Famous Tech, Blaxxun, Worlds Ultimate 3D Chat, Animatek International, Sven Technologies, Oz Ineractive, Simberon Avatars, NetSage, Boston Dynamics, Extempo, Virtual Human, Virtual Personalities, Virtual Celebrities, Radical Mail and Avatarme. In addition, there may be photo realistic 3D computer animation products and services being developed by competitors that we may not be aware of. If the photo realistic animation market becomes a viable market, we may not be able to establish or maintain a competitive position against current or potential competitors as they enter the market. Many of our current and potential competitors have substantially greater financial, technical, marketing, distribution and other resources, greater name recognition and market presence, longer operating histories and lower cost structure than us. As a result, they may be able to adapt more quickly to new or emerging technologies and changes in customer requirements. Our ability to compete successfully in the rapidly evolving Internet communication and entertainment media market will depend upon certain factors, many of which are beyond our control. There can be no assurance that we will be able to compete successfully. If the market for photo realistic 3D computer animation develops, we could face competitive pressures from new technologies or the expansion of existing technologies. We may also face competition from a number of indirect competitors that specialize in electronic commerce and other companies with substantial customer bases in the computer and other 21 technical fields. Additionally, companies that control access to transactions through a network or Web browsers could also promote our competitors or charge us a substantial fee for inclusion. Our competitors may also be acquired by, receive investments from or enter into other commercial relationships with larger, better-established and better-financed companies as use of the Internet and other online services increases. We may be unable to compete successfully against current and potential competitors, and the competitive pressures we face could seriously harm our business. Our growth and operating results could be impaired if we are unable to meet our future capital requirements. We believe that our current cash balances will allow us to fund our operations for at least the next 14 months. However, we will require substantial working capital to fund our business and we will need to raise additional capital. We plan to seek additional funding in the form of equity or debt, or a combination thereof, in 12 months to meet the cash requirements of our business. We cannot be certain that additional funds will be available on satisfactory terms when needed, if at all. Our future capital needs depend on many factors, including: . the timing of our development efforts; . market acceptance of our Lifef/x technology; . the level of promotion and advertising required to launch our services; and . changes in technology. The various elements of our business and growth strategies, including our plans to support fully the commercial release of our photo realistic 3D computer animation products and services, our introduction of new products and services and our investments in infrastructure will require additional capital. If we are unable to raise additional necessary capital in the future, we may be required to curtail our operations significantly or obtain funding through the relinquishment of significant technology or markets. Also, raising additional equity capital would have a dilutive effect on existing stockholders. We are dependent on our key personnel and also need additional personnel to grow our business. We depend to a large extent on the abilities of our key technical personnel. We also intend to hire key management personnel, including a Vice- President of Marketing and a Chief Operating Officer. There can be no assurance that we will successfully assimilate newly hired employees or that we can successfully locate, hire, assimilate and retain qualified key management personnel. The loss of any key employee or our inability to attract or retain other qualified employees could have a material adverse effect on our results of operations and financial condition. Our future success depends on our ability to attract, retain and motivate highly skilled technical, marketing, accounting and administrative personnel. We plan to hire additional personnel in all areas of our business. Competition for qualified personnel is intense, particularly in the Internet and high technology industries. As a result, we may be unable to successfully attract, assimilate or retain qualified personnel. Further, we may be unable to retain the employees we currently employ or attract additional technical personnel. The failure to retain 22 and attract the necessary personnel could seriously harm our business, financial condition and results of operations. System and online security failures could harm our business and operating results. The operation of our planned Web site for download of and sale of our planned Lifef/x product offerings depends on the efficient and uninterrupted operation of our computer and communications hardware systems. Our systems and operations will be vulnerable to damage or interruption from a number of sources, including fire, flood, power loss, telecommunications failure, physical facility break-ins, earthquakes and similar events. Our servers will also be vulnerable to computer viruses, physical or electronic break-ins and similar disruptions. Any substantial interruptions in the future could result in the loss of data and could completely impair our ability to generate revenues from our service. A significant barrier to electronic commerce and communications is the secure transmission of confidential information over public networks. Anyone who is able to circumvent our security measures could misappropriate confidential information or cause interruptions in our operations. We may be required to expend significant capital and other resources to protect against potential security breaches or to alleviate problems caused by any breach. If we do not respond effectively to technological change, our products and service could become obsolete and our business will suffer. The development of our photo realistic 3D computer animation products and services and other technology entails significant technical and business risks. To remain competitive, we must continue to enhance and improve the responsiveness, functionality and features of our Lifef/x product offerings. The Internet and the electronic commerce industry are characterized by: . rapid technological change; . changes in user and customer requirements and preferences; . frequent new product and services introductions embodying new technologies; and . the emergence of new industry standards and practices. The evolving nature of the Internet could render our existing technology and systems obsolete. Our success will depend, in part, on our ability to: . license or acquire leading technologies useful in our business; . develop new services and technology that address the increasingly sophisticated and varied needs of our users; and . respond to technological advances and emerging industry and regulatory standards and practices in a cost-effective and timely manner. Future advances in technology may not be beneficial to, or compatible with, our business. Furthermore, we may not successfully use new technologies effectively or adapt our technology and systems to user requirements or emerging industry standards on a timely basis. Our ability to remain technologically competitive may require substantial expenditures and lead time If we 23 are unable to adapt in a timely manner to changing market conditions or user requirements, our business, financial condition and results of operations could be seriously harmed. If the internal and third-party equipment and software that we use are not Year 2000 compliant, our operating results, brand and reputation could be impaired and we could lose users. Many existing computer systems and software products are coded to accept only two digit entries in the date code field and cannot distinguish 21st century dates from 20th century dates. If not corrected, there could be system failures or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions or engage in normal business activities. As a result, many companies' software and computer systems may need to be upgraded or replaced to comply with these "Year 2000" requirements. We use and depend on third-party equipment and software that may not be Year 2000 compliant. If Year 2000 issues prevent our users from accessing the Internet or our service, our business and operations will suffer. Any failure of our third-party equipment or software to operate properly could result in system and online security failures and require us to incur unanticipated expenses, resulting in serious harm to our business, operating results and financial condition. We have conducted a preliminary review of our internal computer systems to identify the systems that could be affected by the Year 2000 issue. Based on this preliminary review, we believe that our internal software systems are Year 2000 compliant. However, we continually evaluate our systems and intend to develop a contingency plan to address any Year 2000 issues we discover. We face risks related to the Internet industry The success of our business will depend on the continued growth of the Internet and the acceptance by consumers of the Internet as a medium for advertising, commerce and communications. Our success depends in part on widespread acceptance and use of the Internet as a medium for advertising, commerce and communications. This practice is at an early stage of development, and long-term market acceptance is uncertain. We cannot predict the extent to which users will be willing to shift their habits from traditional media to online media. To be successful, our users must accept and utilize electronic commerce to satisfy their product needs. Our future revenues and profits, if any, substantially depend upon the acceptance and use of the Internet and other online services as an effective medium of commerce by our target users. The Internet may not become a viable long-term commercial marketplace due to potentially inadequate development of the necessary network infrastructure or delayed development of enabling technologies and performance improvements. The commercial acceptance and use of the Internet may not continue to develop at historical rates. Our business, financial condition and results of operations would be seriously harmed if: 24 . use of the Internet and other online services does not continue to increase or increases more slowly than expected; . the infrastructure for the Internet and other online services does not effectively support future expansion of electronic commerce; . concerns over security and privacy inhibit the growth of the Internet; or . the Internet and other online services do not become a viable commercial marketplace. Our operating results could be impaired if we become subject to burdensome government regulation and legal uncertainties. We are not currently subject to direct regulation by any domestic or foreign governmental agency, other than regulations applicable to businesses generally. However, due to the increasing popularity and use of the Internet, it is possible that a number of laws and regulations may be adopted with respect to the Internet, relating to: . user privacy; . pricing; . content; . copyrights; . distribution; and . characteristics and quality of products and services. The adoption of any additional laws or regulations may decrease the expansion of the Internet. A decline in the growth of the Internet could decrease demand for our products and services and increase our cost of doing business. Moreover, the applicability of existing laws to the Internet is uncertain with regard to many issues, including property ownership, export of specialized technology, sales tax, libel and personal privacy. Our business, financial condition and results of operations could be seriously harmed by any new legislation or regulation. The application of laws and regulations from jurisdictions whose laws do not currently apply to our business, or the application of existing laws and regulations to the Internet and other online services could also harm our business. We plan to offer our Lifef/x product offerings over the Internet in multiple states and foreign countries. These jurisdictions may claim that we are required to qualify to do business as a foreign corporation in each state or foreign country. Our failure to qualify as a foreign corporation in a jurisdiction where we are required to do so could subject us to taxes and penalties. Other states and foreign countries may also attempt to regulate our business or prosecute us for violations of their laws. Further, we might unintentionally violate the laws of foreign jurisdictions and those laws may be modified and new laws may be enacted in the future. There are risks associated with the proposed spin off of PTM's non-Lifef/x assets and liabilities. The spin off of the Company's non-Lifef/x assets and liabilities is subject to a number of contingencies, including consents from a number of third parties. As a result, there can be no assurance that all or any portion of the spin off transaction will be completed. 25 Market for Registrant's Common Equity and Related Shareholder Matters The Company's common stock has been approved for trading on the OTC Electronic Bulletin Board under the symbol "FNSP." In connection with the change of the Company's corporate name to Lifef/x, Inc., the Company's symbol will be changed to "LEFX", effective December 16, 1999. The following table sets forth, on a per share basis, and for the periods indicated, the high and low sales prices of the common stock as reported on the OTC Electronic Bulletin Board. No dividends have been declared or paid on the common stock, nor does the Company intend to declare or pay any dividends on the common stock in the near future. All sales prices are set forth taking into effect all stock splits, exclusive of commissions or discounts of any nature.
Price Range ----------- High Low August 23, 1999 to December 14, 1999 (1) (1)
(1) The common stock was approved for trading on the OTC Electronic Bulletin Board on August 23, 1999 and has not commenced trading as of December 14, 1999. As of December 14, 1999 there were 15,983,750 shares the Company's common stock outstanding and approximately 224 shareholders of record. The Company has never declared or paid cash or stock dividends on its capital stock since its incorporation and anticipates that, for the foreseeable future, any earning will be retained for use in the Company's business. Recent Sales of Unregistered Securities On December 14, 1999, the Company issued 2,983,000 units at $3.00 per unit to 36 investors in the first closing of a private placement for an aggregate purchase price of $8,949,000 pursuant to Rule 506 of Regulation D (the "Private Placement"). Each unit consisted of one share of common stock and a warrant to purchase 0.01 share of common stock at an exercise price of $7.50 per share. The placement agent on this transaction received a fee of equal to 4% of the gross offering proceeds from investors (other than proceeds from Safeguard and any investors introduced by Safeguard) and warrants to purchase 100,000 shares of common stock at an exercise price of $7.50 per share. The Private Placement is for up to $18 million of units. The Company may continue to accept subscriptions for the units until the maximum offering is met. On December 14, 1999, the Company issued 39,167 units to attorneys for legal services rendered in connection with the Private Placement. Description of Securities Common Stock The authorized capital stock of the Company includes 100,000,000 shares of, $.001 par value per share, common stock. All shares have equal voting rights. Voting rights are not cumulative, and, therefore, the holders of more than 50% of the common stock could, if they chose to do so, elect all of the Directors. 26 Upon liquidation, dissolution or winding up of the Company, the assets of the Company, after the payment of liabilities will be distributed pro rata to the holders of the common stock. The holders of the common stock do not have preemptive rights to subscribe for any securities of the Company and have no right to require the Company to redeem or purchase their shares. Holders of common stock are entitled to share equally in dividends when, as and if declared by the Board of Directors of the Company, out of funds legally available therefor. The Company has not paid any cash dividends on the common stock, and it is unlikely that any such dividends will be declared in the foreseeable future. Warrants The Company issued 3,022,167 Units and warrants to the placement agent of the Private Placement to purchase 100,000 shares of common stock on December 14, 1999. Each warrant as part of the Units issued and the placement agent warrants entitled the holder to purchase, at a price of $7.50 per share, subject to adjustment, .01 share of common stock for a period of 18 months from the date of issuance. The warrants will expire, become void and be of no further force or effect at the end of the exercise period. The exercise price of the warrants is subject to adjustment in certain circumstances, including a stock split of, or stock dividend on, or a subdivision, combination, or recapitalization of the common stock. In the event of liquidation, dissolution or winding up of the Company, holders of the warrants, unless exercised, will not be entitled to participate in the assets of the Company. Holders of the warrants will have no voting, preemptive, liquidation or other rights of a stockholder, and no dividends will be declared on the warrants. Safeguard Warrants Pursuant to the Merger, warrants for 17,587,500 shares of common stock will be carried forward and/or issued to Safeguard for its existing PTM Warrants. The warrants entitle Safeguard to purchase 5,862,500 shares of common stock at an exercise price of $2.50 per share, 5,862,500 shares of common stock at an exercise price of $5.00 per share, and 5,862,500 shares of common stock at an exercise price of $6.00 per share. In addition, warrants for 10,218,417 shares of common stock at an exercise price of $0.01 per share will be issued to Safeguard in connection with (i) the Merger, and (ii) the conversion of the PTM debt owed to it. The warrants have a term of 10 years and are exercisable one year after the Merger, subject to certain early exercise events specified in the warrants. The exercise prices of the warrants are subject to adjustment in certain circumstances, including a stock split of, or stock dividend on, or a subdivision, combination, or recapitalization of the common stock. Registration Rights The Company has agreed to file a registration statement (the "Common Shares Registration Statement") under the Securities Act covering all of the common stock issued as part of the Units and the common stock underlying the warrants issued as part of the Units (collectively, the "Common Shares"). The Company will use its best efforts to cause the Common Shares Registration Statement to become effective within 150 days after the date of the Closing. The Company will pay all registration expenses incurred in connection with the registration of the securities. In addition, the Company will comply with all necessary state 27 securities laws so as to permit the sale by the investors of the securities. If the Common Shares Registration Statement has not been declared effective within 150 days after the date of the Closing, the Company will pay liquidated damages to the investors in the Private Placement equal to 1% of the purchase price for the Units for each full 30 day period until the Common Shares Registration Statement has been declared effective (and prorated for any portion of such 30 days prior to effectiveness). The 11,294,084 shares of common stock to be issued to the pre-Merger PTM stockholders pursuant to the Merger and the 100,000 shares of common stock underlying the Warrants issued to the placement agent in connection with the Private Placement will be included in the Common Shares Registration Statement. In addition, Safeguard has the right to have the Company prepare and file with the SEC, registration statements on unlimited occasions if the Company is eligible to file its registration statement on Form S-3, or, in the event the Company is not eligible to file its registration statement on Form S-3, on two occasions, so as to permit a public offering of any of the 27,790,917 shares of common stock issuable to Safeguard upon the exercise of warrants issued in connection with (i) the Merger (ii) conversion of certain debt of PTM and (iii) the carry forward of PTM Warrants. If at any time the Company files a registration statement to cover any of the 27,790,917 shares of common stock issuable upon exercise of the warrants held by Safeguard, the Company will afford the other pre-Merger PTM stockholders and the investors in the Private Placement the opportunity to include their shares of Common Shares, in such registration statement(s), subject to customary cut-backs in the case of underwritten offerings. Lock-Up/Leak Out With respect to the investors acquiring shares in the Company's Private Placement of up to $18 million units for a period of 18 months from the date of the Merger, no more than 10% of any holder's shares of Common Shares may be sold in any consecutive three month period. If less than 10% of a holder's Common Shares are sold for any three month period, the difference between 10% of such holder's Common Shares and the amount actually sold may be sold during any prospective three month periods. The same restrictions will also apply to all the other shares of common stock being covered by the Common Shares Registration Statement. Duane Jenson, Briar Creek Investment LLC and Leonard Burningham (the "FSI Shareholders"), holders of 1,614,683 shares of common stock, have agreed to lock up these shares of common stock (the "Group Shares") for a period of 18 months from the date of the Merger. From the date of the Merger to the effective date of the Common Shares Registration Statement, the FSI Shareholders as a group may only sell the Group Shares in blocks of 5000 or less per transaction and at a ---- price greater than or equal to $7.50 per share and only at the "ask" price (but not the "bid" price) for the common stock. The maximum amount the FSI Shareholders as a group may sell during this period is 15% of the Group Shares or 242,184 shares of common stock in any consecutive three month period. If less than 15% of the Group Shares are sold during any three month period, the difference between 15% of the Group Shares and the amount actually sold may be sold during any subsequent three month periods. After the effective date of the Common Shares Registration Statement, the same restrictions described above on the Common Shares acquired by the Private Placement investors will apply to the Group Shares. The Company may waive any of the above restrictions if such waiver is beneficial to the Company or will facilitate an orderly trading market for the common stock. 28 Item 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANTS Effective December 14, 1999, the Company dismissed Mantyla McReynolds, Salt Lake City, Utah, as its independent accountants, and engaged KPMG Peat Marwick LLP as the Company's new independent accountants. The dismissal of Mantyla and the retention of KPMG was approved by the Company's Board of Directors. Prior to the engagement of KPMG, neither the Company nor anyone on its behalf consulted with such firm regarding the application of accounting principles to a specified transaction, either completed or uncompleted, or type of audit opinion that might by rendered on the Company's financial statements. Mantyla audited the Company's financial statements for the years ended December 31, 1997 and 1998. Mantyla's report for such period did not contain an adverse opinion or a disclaimer of opinion, nor was the report qualified or modified as to uncertainty, audit scope or accounting principles except as to the Company's ability to continue as a going concern. During the period from January 1, 1999 to December 14, 1999 and the years ended December 31, 1997 and 1998, there were no disagreements with Mantyla on any matter of accounting principles or practices, financial statement disclosure, or auditing scope procedure, which disagreements, if not resolved to the satisfaction of Mantyla, would have caused such firm to make reference to the subject matter of the disagreements in connection with its reports on the Company's financial statements. In addition, there were no such events as described under Item 304 of Regulation S-B during the fiscal years ended December 31, 1997 and 1998 and the subsequent interim periods through December 14, 1999. Mantyla has furnished to the Company with a letter addressed to the SEC stating there were no disagreements between the Company, whether resolved or not resolved, on any matter of accounting principles or practices, financial statements disclosure or auditing scope or procedure. A copy of Mantyla's letter is attached as an exhibit to this report. Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATIO AND RESULTS a. Financial Statements of Business Acquired Audited Financial Statements for PTM as required.* * It is impractical as the present time to provide such documents. Such documents will be filed as soon as practicable. c. Exhibits: Exhibit Number Description ------ ----------- 2.1 Agreement and Plan of Merger dated as of December 14, 1999. 16.1 Letter of Mantyla McReynolds, a Professional Corporation 29 SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the undersigned has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. LIFEF/X, INC. By: /s/ Richard Guttendorf _______________________________ Richard Guttendorf, Chief Financial Officer Date: December 15, 1999 _______________________ 30 EX-2.1 2 AGREEMENT AND PLAN OF MERGER 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 TABLE OF CONTENTS Page ---- ARTICLE I THE MERGER.................................................. 1 ARTICLE II REPRESENTATIONS AND WARRANTIES.............................. 4 ARTICLE III COVENANTS................................................... 12 ARTICLE IV CERTAIN COVENANTS........................................... 13 ARTICLE V CONDITIONS.................................................. 15 ARTICLE VI INDEMNIFICATION............................................. 17 ARTICLE VII CLOSING DATE................................................ 18 ARTICLE VIII POST CLOSING MATTERS........................................ 19 ARTICLE IX MISCELLANEOUS............................................... 19 EXHIBIT A CERTIFICATE OF INCORPORATION EXHIBIT B BY-LAWS SCHEDULES i AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER, dated as of December 14, 1999 by and among Pacific Title/Mirage, Inc., a Delaware corporation ("PTM"), Fin Sports U.S.A., Inc., a Nevada corporation ("Parent") and PTM Acquisition Corp., a Delaware corporation ("Sub"). W I T N E S S E T H : WHEREAS, the respective Board of Directors of PTM, FSI and Sub (sometimes referred to collectively as the "Constituent Corporations" or individually as a "Constituent Corporation"), deem it advisable that Sub merge with and into PTM pursuant to this Agreement and a Certificate of Merger be executed by PTM ("Certificate of Merger"), whereby the holder of shares of capital stock of Sub outstanding at the Effective Time (as hereinafter defined) will have the right to receive shares of PTM common stock, $0.01 par value per share (the "PTM Shares"), and the holders of shares of capital stock of PTM outstanding at the Effective Time will have the right to receive shares of FSI common stock, $0.001 par value per share (the "FSI Shares"), in the manner and in such amount as is set forth in Article I hereof and upon the terms and conditions otherwise set forth in this Agreement (the "Merger"); and WHEREAS, to effectuate the foregoing, the parties desire to adopt a plan of reorganization in accordance with the provisions of Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"). NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, the parties do hereby agree, subject to the terms and conditions hereinafter set forth, as follows: ARTICLE I THE MERGER ---------- 1.1 Execution of Certificate of Merger and Certificate of Merger. Subject ------------------------------------------------------------ to the provisions of this Agreement, the Certificate of Merger with respect to the Merger shall be executed and acknowledged by PTM and thereafter delivered for filing to the Secretary of State of Delaware on the Closing Date (as hereinafter defined) of the Merger. The Merger shall become effective upon the filing of the Certificate of Merger with the Secretary of State of Delaware or such later time as may be set forth in the Certificate of Merger (the date and time when the Merger becomes effective shall be called the "Effective Time"). At the Effective Time, the separate existence of Sub shall cease and it shall be merged with and into PTM. PTM as it exists from and after the Effective Time, is sometimes hereinafter referred to as the Surviving Corporation. 1.2 Consummation of the Merger. As soon as practicable after the approval -------------------------- of the Merger by the shareholders of PTM and the satisfaction of the other conditions hereinafter set forth, FSI, Sub and PTM will cause the Merger to be consummated in accordance with applicable law. 1.3 Conversion of Shares. At the Effective Time, each outstanding share -------------------- of Sub Capital Stock (the "Sub Shares") (currently 1,000 shares) immediately prior to the Effective Time shall be canceled and shall be converted into PTM Shares (at the ratio of one Sub Share for each PTM Share) by virtue of the Merger and without any action on the part of the holder thereof. At the Effective Time, the PTM Shares and the PTM Series A Junior Convertible Preferred Stock of PTM (the "Series A Shares") outstanding immediately prior to the Effective Time shall be canceled and shall be converted into FSI Shares (at the ratio of 1.0937432 FSI Shares for each PTM Share and each Series A Share) by virtue of the Merger and without any action on the part of the holder thereof. Also at the Effective Time, the PTM Series B Senior Convertible Preferred Stock of PTM (the "Series B Shares") outstanding immediately prior to the Effective Time shall be canceled and shall be converted into FSI Shares and penny warrants for FSI Shares (at the ratio of 0.2856811467 FSI Share and .80806210937 penny warrant share for each Series B Share) by virtue of the Merger and without any action on the part of the holder thereof. As a result of the Merger, the holder of Sub Shares immediately prior to the Effective Time will hold 1,000 PTM Shares in the aggregate, and the holders of PTM capital stock immediately prior to the Effective Time will hold 11,294,084 FSI Shares in the aggregate. 1.4 Stock Split; Authorized Shares. Prior to the Effective Time, FSI ------------------------------ shall cause the number of its outstanding shares to be increased from 1,083,324 shares to 1,666,666 shares through a forward split at the ratio of 1.5384741 shares for each FSI Share then outstanding. Prior to the Effective Time, FSI shall cause its authorized shares to be increased from 50,000,000 shares to 100,000,000 shares. 1.5 Additional Financing. Prior to the Effective Time, FSI shall have -------------------- received irrevocable subscriptions for the purchase of up to $18,000,000 (6,000,000 Units) at a price of $3.00 per Unit, each Unit consisting of one share of Common Stock and a warrant for the right to purchase .01 share of Common Stock at an exercise price of $7.50 per share. Prior to the Effective Time, a minimum of $8,000,000 shall have been deposited into escrow pursuant to the terms of the Escrow Agreement, among FSI, MG Securities Group, Inc. and Bank One, as Escrow Agent. 1.6 Exchange of Certificates. After the Effective Time, each holder of a ------------------------ certificate theretofore evidencing outstanding PTM capital stock (other than shares held by dissenting shareholders and shares that are automatically canceled as hereinafter provided), upon surrender of the same to FSI's transfer agent (the "Transfer Agent") or such other agent or agents as shall be appointed by FSI, shall be entitled to receive in exchange therefor a certificate or certificates evidencing the number of full shares of FSI for which the PTM capital stock theretofore represented by the certificate or certificates so surrendered shall have been exchanged. Until so surrendered, each outstanding certificate which, prior to the Effective Time, represented PTM capital stock (other than shares previously held by dissenting shareholders) will be deemed for all corporate purposes to evidence ownership of the number of full FSI Shares for which the PTM capital stock represented thereby were exchanged; provided, however, that until such outstanding certificates formerly evidencing PTM capital stock are so surrendered, no dividend payable to holders of record of FSI Shares as of any date subsequent to the Effective Time shall be paid to the holder of such outstanding certificates in respect thereof, and all such amounts shall be held in trust by FSI pending the surrender of such certificates. After the Effective Time, there shall be no further registry of transfers on the records of PTM of PTM capital stock 2 outstanding prior to the Effective Time and, if a certificate evidencing such PTM capital stock is presented to FSI, it shall be canceled and exchanged for a certificate evidencing shares of FSI Shares as herein provided. After the Effective Time, the holder of the certificate theretofore evidencing outstanding Sub Shares, upon surrender of the same to PTM or such other agent or agents as shall be appointed by PTM, shall be entitled to receive in exchange therefor a certificate or certificates evidencing the number of full shares of PTM Shares for which the Sub Shares theretofore represented by the certificate or certificates so surrendered shall have been exchanged. Until so surrendered, each outstanding certificate which, prior to the Effective Time, represented Sub Shares will be deemed for all corporate purposes to evidence ownership of the number of full PTM Shares for which the Sub Shares represented thereby were exchanged; provided, however, that until such outstanding certificates formerly evidencing Sub Shares are so surrendered, no dividend payable to holders of record of PTM Shares as of any date subsequent to the Effective Time shall be paid to the holder of such outstanding certificates in respect thereof, and all such amounts shall be held in trust by PTM pending the surrender of such certificates. 1.7 No Fractional Shares. No fractional FSI Shares will be issued, but in -------------------- lieu thereof any fractional FSI Shares shall be rounded to the nearest whole share. 1.8 Change of Name. Simultaneously with the Merger, and at the Effective -------------- Time, in accordance with the terms of the Certificate of Merger, the Surviving Corporation's name shall be changed to Lifef/x Networks, Inc., and FSI shall file a Certificate of Amendment to its Articles of Incorporation changing its name to "Lifef/x, Inc." 1.9 Certificate of Incorporation: By-laws; Directors. The Certificate of ------------------------------------------------ Incorporation and By-laws of PTM shall be amended and restated effective as of the Effective Time in the form attached hereto as Exhibits A and B, respectively. At the Effective Time, the directors of FSI and PTM shall be as set forth in Section 8.1 and shall serve for a full year term or until their successors are duly elected and qualified. 1.10 Option Plan. Effective upon the Merger, FSI shall adopt a stock ----------- option plan and assume certain of PTM's outstanding stock option obligations and issue replacement options with appropriate adjustments, if any, as to numbers of shares and exercise prices affected thereby. 1.11 Co-Obligor. FSI hereby agrees that, effective upon the Merger, FSI ---------- shall become a co-obligor with PTM with respect to all indebtedness of PTM to Safeguard Scientifics (Delaware), Inc. and its affiliates (collectively, "Safeguard") arising on or prior to September 30, 1999 and outstanding as of the Effective Time (the "Safeguard Debt"). FSI hereby assumes all obligations of PTM with respect to such indebtedness and agrees to be jointly and severally liable therefor with PTM. FSI shall execute such further instruments, agreements and documents as Safeguard may request in order to effectuate the purposes of this Section. 1.12 Debt Conversion. Promptly following the Merger, the Safeguard Debt --------------- shall be converted into warrants for 3,997,500 FSI Shares, at an exercise price of $0.01 per share. Such warrants shall be issued to Safeguard upon surrender of the promissory notes evidencing the Safeguard Debt (or affidavits of lost notes, as appropriate). 3 1.13 Warrant Carry Forward. Effective upon the Merger, the warrants for --------------------- 11,725,000 PTM Shares held by Safeguard prior to the Merger shall be converted into warrants for FSI Shares on a share for share basis (1:1). One half of such warrants shall have an exercise price of $2.50 per share and the other half shall have an exercise price of $5.00 per share. In addition, at the Closing, FSI shall grant to Safeguard warrants to purchase 5,862,500 FSI Shares at an exercise price of $6.00 per share. 1.14 Warrant Terms. All of the warrants issued to Safeguard pursuant to ------------- Sections 1.12 and 1.13 shall have a term of ten years and shall become exerciseable one year after the Merger, subject to certain early exercise provisions set forth in the warrants. FSI shall at all times reserve a sufficient number of FSI Shares to accommodate the exercise of such warrants. At the closing, FSI shall grant to Safeguard registration rights for the shares underlying such warrants on the terms described in its Private Placement Memorandum, dated October 29, 1999, as amended and supplemented (the "PPM"). 1.15 Indemnification Agreement. At the Closing, FSI, PTM and Safeguard ------------------------- shall execute and deliver a form of indemnification agreement mutually satisfactory to the parties relating to Safeguard's indemnification of PTM and FSI with respect to certain liabilities. 1.16 Spin Off. The parties acknowledge and agree that as soon as all -------- relevant third party consents and approvals have been obtained, PTM shall transfer substantially all of the assets and liabilities of its Optical and Scanning and Recording Divisions to a newly formed entity ("Newco") to be owned by one or more of PTM's pre-Merger stockholders in exchange for an assumption of the related liabilities. The parties hereby acknowledge that such transfer may not occur until after the Effective Time. If and to the extent Newco is formed prior to the Effective Time, Newco, FSI and PTM shall execute and deliver a form of indemnification agreement mutually satisfactory to the parties relating to Newco's indemnification of PTM and FSI with respect to PTM's Optical and Scanning and Recording Divisions and its now defunct Digital Division. 1.17 Legal Opinion. At the Closing, counsel to FSI shall provide to PTM ------------- and its stockholders a legal opinion in form and substance satisfactory to PTM and containing among other things, an opinion that no approval of the FSI shareholders is required for the Merger or any related transactions (except as may be described in its Information Statement (the "Information Statement") filed on November 17, 1999 with the Securities and Exchange Commission ("Commission")). 1.18 Lock Up-Leak Out Agreement. At the Effective Time, FSI shall deliver -------------------------- to the other parties thereto a lock up-leak out agreement restricting the sale of FSI Shares. ARTICLE II REPRESENTATIONS AND WARRANTIES ------------------------------ 2.1 Representations and Warranties of FSI and Sub. FSI and Sub represent --------------------------------------------- and warrant to PTM, as follows: (a) Power and Authority. Each of FSI and Sub has the corporate power ------------------- and authority to enter into this Agreement and to carry out its obligations hereunder. The execution 4 and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by the Boards of Directors of FSI and Sub, and Sub's sole shareholder and no other corporate proceedings or approvals on the part of FSI, Sub and their respective shareholders are necessary to authorize this Agreement and the transactions contemplated hereby. (b) FSI Financial Statements. FSI has heretofore delivered to PTM ------------------------ its audited Balance Sheet and Income Statements for the fiscal year ended December 31, 1998 (the "1998 Statements") and its Balance Sheet as at September 30, 1999 (the "September Balance Sheet"). As of the respective dates of the 1998 Statements and the September Balance Sheet (collectively, the "Financial Statements"), the Financial Statements did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Sub has no assets or liabilities other than those arising under this Agreement. (c) No Material Adverse Effect. Except as set forth in Schedule -------------------------- 2.1(c) or in the Financial Statements since September 30, 1999, there has not been any material adverse change in the business, operations, properties, assets, condition, financial or otherwise, or prospects of FSI or Sub. (d) Due Organization; Power; Qualification: Subsidiaries and -------------------------------------------------------- Affiliates, Etc. - --------------- (i) Each of FSI and Sub is a corporation duly organized, validly existing, and in good standing under the laws of the states of their respective states of incorporation and has the corporate power to own its property and to carry on its business as now conducted. The nature of the business now conducted by FSI and Sub, the character of the property owned by it, or any other state of facts does not require FSI or Sub to be qualified to do business as a foreign corporation in any jurisdiction. Neither FSI nor Sub conducts any active trade or business. (ii) Except as set forth in Schedule 2.1(d), neither FSI nor Sub has any subsidiaries or affiliates (as that term is used in the regulations promulgated under the Securities Act of 1933), as amended (the "Securities Act"). (e) Capitalization. -------------- (i) The total authorized capital stock of FSI consists of 50,000,000 shares of common stock ($0.001 par value) as of the date hereof and shall consist of 100,000,000 shares of common stock ($.001 par value) as of the Closing Date. As of the date hereof, the aggregate of 1,083,324 FSI Shares and as of the date of the Closing and prior to the Effective Time 1,666,666 FSI Shares represent all of the issued and outstanding stock of FSI. The total authorized capital stock of Sub consists of 1,000 shares of common stock ($0.01 par value). The aggregate of 1000 Sub Shares represents all of the issued and outstanding stock of Sub. All of the outstanding FSI Shares and Sub Shares have been duly authorized and validly issued and are fully paid and non-assessable. All of the issued and outstanding Sub Shares are held by FSI. 5 (ii) Except as set forth on Schedule 2.1(e)(ii) or as contemplated in the PPM or in Article I hereof, there are no present and on the Closing Date there will be no outstanding subscriptions, options, warrants, contracts, calls, puts, agreements, demands or other commitments or rights of any type to purchase or acquire any securities of FSI or Sub, nor are there outstanding securities of FSI or Sub which are convertible into or exchangeable for any shares of capital stock of FSI or Sub, and each of FSI and Sub has no obligation of any kind to issue any additional securities. (f) Financial Information: No Material Adverse Change. ------------------------------------------------- (i) FSI has furnished to PTM the Financial Statements. The Financial Statements have been prepared in accordance with generally accepted accounting principles, and fairly present in all material respects, the financial condition of FSI as at the respective dates thereof, and the results of operation of FSI for the periods then ended. (ii) Since September 30, 1999, there has been no material adverse change in the business or financial condition or the operations of FSI except as set forth on Schedule 2.1(f). (iii) At September 30, 1999, there were no material liabilities, absolute or contingent of FSI that were not shown or reserved against on the balance sheets included in the Financial Statements, except obligations under the contracts shown on or as otherwise disclosed in Schedule 2.1(f). (iv) Since September 30, 1999, FSI has not sold or otherwise disposed of or encumbered any of the properties or assets reflected on the Financial Statements, or other assets owned or leased by it, except in the ordinary course of business, or as otherwise disclosed on Schedule 2.1(f). (g) Tax Matters. ----------- (i) Except as to taxes contested in good faith, each of FSI and Sub has filed or caused to be filed with the appropriate Federal, state, county, local and foreign governmental agencies or instrumentalities all tax returns and tax reports required to be filed, and all taxes, assessments, fees and other governmental charges have been fully paid when due (subject to any extensions filed). (ii) There is not pending nor, to the best knowledge of each of FSI and Sub, is there any threatened Federal, state or local tax audit of FSI or Sub. There is no agreement with any Federal, state or local taxing authority by FSI or Sub that may affect the subsequent tax liabilities of PTM. (iii) Without limiting the foregoing: (a) the Financial Statements include adequate provisions for all taxes, assessments, fees, penalties and governmental charges which have been or in the future may be assessed against FSI or Sub with respect to the period then ended and all periods prior thereto; and (b) neither FSI nor Sub is, on the date hereof, liable for taxes, assessments, fees or governmental charges. 6 (h) No Conflict or Default. Neither the execution and delivery of ---------------------- this Agreement, nor compliance with the terms and provisions hereof, including without limitation the consummation of the transactions contemplated hereby, will violate any statute, regulation or ordinance of any governmental authority, or conflict with or result in the breach of any term, condition or provision of the Articles of Incorporation, Certificate of Incorporation or By-laws of FSI or Sub, nor of any agreement, deed, contract, mortgage, indenture, writ, order, decree, legal obligation or instrument to which FSI or Sub is a party or by which either of them or any of their assets or properties are or may be bound; or constitute a default (or an event which, with the lapse of time or the giving of notice, or both, would constitute a default) thereunder, nor result in the creation or imposition or any lien, charge or encumbrance, or restriction of any nature whatsoever with respect to any properties or assets of FSI or Sub, nor give to others any interest or rights, including rights of termination, acceleration or cancellation in or with respect to any of the properties, assets, contracts or business of FSI or Sub. (i) Party to Agreements. Except as set forth on Schedule 2.1(i), ------------------- neither FSI nor Sub is a party to any contract or other arrangement except those made in the ordinary course of business or which are terminable on the giving of sixty (60) days' (or less) notice of FSI's or Sub's intent to terminate such contract. Except as set forth on Schedule 2.1(i), neither FSI nor Sub is in default in any material respect under any contract or agreement to which it is a party or by which it or any of its assets is or may be bound. (j) Litigation. There are no actions, suits, investigations, or ---------- proceedings pending, nor, to the knowledge of each of FSI or Sub, threatened against FSI or Sub, the performance of the terms and conditions hereof, or the consummation of the transactions contemplated hereby, in any court or by or before any governmental body or agency, including without limitation any claim, proceeding or litigation for the purpose of challenging, enjoining or preventing the execution, delivery or consummation of this Agreement. Neither FSI nor Sub is subject to any order, judgment, decree, stipulation or consent or any agreement with any governmental body or agency which affects its business or operations. (k) Securities Filings. The common stock of FSI is listed on the ------------------ NASD OTC Electronic Bulletin Board. FSI has heretofore provided to PTM true and correct copies of its annual report on Form 10-SB dated December 14, 1998 and its quarterly reports on Form 10Q-SB dated April 19, 1999, July 30, 1999, and November 12, 1999. All such reports are true, correct and accurate as of the dates of filing and do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Except as disclosed on Schedule 2.1(k), no material adverse change in the business, financial condition or operations of FSI or Sub has occurred since the date of such reports. Each of FSI and Sub will have on the Closing Date made all filings required to be made by FSI and Sub with the Commission and any state securities authorities. (l) Governmental Approval. Each of FSI and Sub has all permits, --------------------- licenses, orders and approvals of all Federal, state, local or foreign governmental or regulatory bodies required for FSI and Sub to conduct its business as presently conducted. All such permits, licenses, orders and approvals are in full force and effect and no suspension or cancellation of any of them is threatened, and none of such permits, licenses, orders or approvals will be 7 affected by the consummation of the transactions contemplated by this Agreement. No approval or authorization of or filing with any governmental authority on the part of FSI or Sub is required as a condition to the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby other than the filing of documents contemplated by this Agreement including without limitation the Certificate of Merger and the Information Statement. (m) Salaries. There is set forth on Schedule 2.1(m) annexed hereto -------- and made a part hereof, a true and complete list, as of the date of this Agreement, of all of the persons who are employed by FSI and Sub, together with their compensation (including bonuses) for the calendar year ended December 31, 1998, and the rate of compensation (including bonus arrangements) currently being paid to each such employee. (n) Accrued Compensation. FSI and Sub do not have any outstanding -------------------- liability for payment of wages, vacation pay (whether accrued or otherwise), salaries, bonuses, pensions or contributions under any labor or employment contract, whether oral or written, or by reason of any past practices with respect to such employees based upon or accruing with respect to services of present or former employees of FSI or Sub, except as disclosed in Schedule 2.1(n). (o) Employee Benefit Plans. FSI and Sub do not have any pension ---------------------- plan, profit sharing plan or employee's savings plan, and neither is otherwise subject to any applicable provisions of the Employee Retirement Income Security Act of 1974 ("ERISA") except as set forth on Schedule 2.1(o). (p) Material Contracts, etc. Schedule 2.1(p) contains an accurate ----------------------- list of all contracts, commitments, leases, instruments, agreements, licenses or permits, written or oral, to which FSI and/or Sub is a party or by which either or their respective properties are bound (including without limitation contracts with customers, joint venture or partnership agreements, contracts with any labor organizations, employment agreements, consulting agreements, loan agreements, indemnity or guaranty agreements, bonds, mortgages, options to purchase land, liens, pledges or other security agreements) that (i) may give rise to obligations or liabilities exceeding $10,000, (ii) generate revenues or income exceeding $10,000, or (iii) to which FSI or Sub and any affiliate of FSI or Sub is a party or any officer, director or shareholder of FSI or Sub is a party (collectively, the "Material Contracts") as of December 31, 1998 and as of September 30, 1999. (q) Title and Authority. To the actual knowledge of FSI and Sub, the ------------------- shareholders as listed in Schedule 2.1(q) are together the holders of record and sole beneficial owners of all of the outstanding shares of FSI Shares and Sub Shares. (r) Financial Information: Contingent Liabilities. --------------------------------------------- (i) At September 30, 1999, there were no material liabilities, absolute or contingent of FSI or Sub that were not shown or reserved against on the balance sheets included in the Financial Statements, except obligations under the contracts shown on Schedule 2.1(r). (ii) Since September 30, 1999, neither FSI nor Sub has sold or otherwise disposed of or encumbered any of the properties or assets reflected on the 8 Financial Statements, or otherwise owned or leased by it, except in the ordinary course or business, or as otherwise disclosed on Schedule 2.1(r). 2.2 Representations and Warranties of PTM: Except as the context ------------------------------------- otherwise requires, the following representations and warranties are made solely with respect to PTM's Lifef/x division. PTM represents and warrants to FSI and Sub as follows: (a) PTM has the corporate power and authority to enter into this Agreement and to carry out its obligations hereunder. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by the Board of Directors of PTM, and, except for the approval of PTM's shareholders, no other corporate proceedings on the part of PTM are necessary to authorize this Agreement and the transactions contemplated hereby. (b) PTM has heretofore delivered to Sub (i) minutes of Directors' and shareholders' meetings and written consents for the period January 1, 1998 through July 29, 1999, and (ii) its Pro Forma Financial Statements for September 30, 1999 giving effect to the Merger (the "PTM Financial Statements"). (c) Except as set forth on Schedule 2.2(c), or in the PTM Financial Statements since September 30, 1999 there has not been any material adverse change in the business, operations, properties, assets, condition, financial or otherwise of PTM. (d) Due Organization; Power; Qualification; Subsidiaries and -------------------------------------------------------- Affiliates: Etc. - --------------- (i) PTM is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware and has the corporate power to own its property and to carry on its business as now conducted. The nature of the business now conducted by PTM, the character of the property owned by it, or any other state of facts does not require PTM to be qualified to do business as a foreign corporation in any jurisdiction other than the State of California. (ii) Except as set forth in Schedule 2.2(d), PTM has no subsidiaries (as that term is used in the regulations promulgated under the Securities Act). (e) Capitalization. -------------- (i) The total authorized capital stock of PTM consists of 25,000,000 shares of common stock, $.01 par value per share, of which 320,100 shares are issued and outstanding as of the date hereof and 20,000,000 shares of Preferred Stock, $.01 par value, of which 8,000,000 shares of Series A Shares and 7,680,000 shares of Series B Shares are issued and outstanding. All the outstanding PTM capital stock has been duly authorized and validly issued, and are fully paid and non-assessable. (ii) There are no present and on the Closing Date there will be no outstanding options, warrants, convertible securities or rights which may require PTM to issue additional shares of its capital stock other than as listed on Schedule 2.2(e). 9 (f) Financial Information: No Material Adverse Change. ------------------------------------------------- (i) At September 30, 1999, there were no material liabilities, absolute or contingent of PTM that were not shown or reserved against on the balance sheets included in the PTM Financial Statements, except obligations under the contracts shown on or as otherwise disclosed in Schedule 2.2(f). (ii) Since September 30, 1999, PTM has not sold or otherwise disposed of or encumbered any of the properties or assets reflected on the PTM Financial Statements, or other assets owned or leased by it, except in the ordinary course of business or as contemplated by Section 1.16 or as otherwise disclosed on Schedule 2.2(f). (g) Tax Matters. ----------- (i) Except as to taxes contested in good faith, PTM has filed or caused to be filed with the appropriate Federal, state, county, local and foreign governmental agencies or instrumentalities all tax returns and tax reports required to be filed, and all taxes, assessments, fees and other governmental charges have been fully paid when due (subject to any extensions filed). (ii) There is not pending nor, to the best knowledge of PTM, is there any threatened Federal, state or local tax audit of PTM. There is no agreement with any Federal, state or local taxing authority that may affect the subsequent tax liabilities of PTM. (iii) Without limiting the foregoing: (a) the PTM Financial Statements include adequate provisions for all taxes, assessments, fees, penalties and governmental charges which have been or in the future may be assessed against PTM with respect to the period then ended and all periods prior thereto; and (b) PTM is not, on the date hereof, liable for taxes, assessments, fees or governmental charges. (h) No Conflict of Default. Except as set forth on Schedule 2.2(h), ---------------------- neither the execution and delivery of this Agreement, nor compliance with the terms and provisions hereof, including without limitation the consummation of the transactions contemplated hereby, will violate any statute, regulation or ordinance of any governmental authority, or conflict with or result in the breach of any term, condition or provision of the Certificate of Incorporation or By-laws of PTM, nor of any agreement, deed, contract, mortgage, indenture, writ, order, decree, legal obligation or instrument to which PTM is a party or by which it or any of its respective assets or properties are or may be bound; or constitute a default (or an event which, with the lapse of time or the giving of notice, or both, would constitute a default) thereunder, nor result in the creation of imposition of any lien, charge or encumbrance, or restriction of any nature whatsoever with respect to any properties or assets of PTM, nor give to others any interest of rights, including rights of termination, acceleration or cancellation in or with respect to any of the properties, assets, contracts or business of PTM. (i) Party to Agreements. Except as set forth on Schedule 2.2(i), PTM ------------------- is not a party to any contract or other arrangement except those made in the ordinary course of business or which are terminable on the giving of sixty (60) days' (or less) notice of PTM's intent to 10 terminate such contract. Except as set forth on Schedule 2.2(i), PTM is not in default in any material respect under any contract or agreement to which it is a party or by which it or any of its assets is or may be bound. (j) Litigation. Except as set forth on Schedule 2.2(j), there are no ---------- actions, suits, investigations, or proceedings pending, nor, to the knowledge of PTM, threatened, against PTM, the performance of the terms and conditions hereof, or the consummation of the transactions contemplated hereby, in any court or by or before any governmental body or agency, including without limitation any claim, proceeding or litigation for the purpose of challenging, enjoining or preventing the execution, delivery or consummation of this Agreement. PTM is not subject to any order, judgment, decree, stipulation or consent or any agreement with any governmental body or agency which affects its business or operations. (k) Governmental Approval. PTM has all permits, licenses, orders and --------------------- approvals of all Federal, state, local or foreign governmental or regulatory bodies required for PTM to conduct its business as presently conducted. All such permits, licenses, orders and approvals are in full force and effect and no suspension or cancellation of any of them is threatened, and none of such permits, licenses, orders of approvals will be affected by the consummation of the transactions contemplated by this Agreement. No approval or authorization of or filing with any governmental authority on the part of PTM is required as a condition to the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby other than the filing of documents contemplated by this Agreement including without limitation the Certificate of Merger and the Information Statement. (l) Salaries. There is set forth on Schedule 2.2(l) annexed hereto -------- and made a part hereof, a true and complete list, as of the date of this Agreement, of all the persons who are both currently employed by PTM and will be employed by the Surviving Corporation following the Merger, together with their compensation (including bonuses) for the calendar year ended December 31, 1998 and the rate of compensation (including bonus arrangements) currently being paid to each such employee. (m) Accrued Compensation. PTM does not have any outstanding -------------------- liability for payment of wages, vacation pay (whether accrued or otherwise), salaries, bonuses, pensions or contributions under any labor or employment contract, whether oral or written or by reason of any past practices with respect to such employees based upon or accruing with respect to services of present or former employees of PTM, except as disclosed in Schedule 2.2(m) or in the PTM Financial Statements. (n) Employee Benefit Plans. PTM does not have any pension plan, ---------------------- profit sharing plan or employees' savings plan, and PTM is not otherwise subject to any applicable provisions of ERISA except as set forth on Schedule 2.2(n). (o) Material Contracts, etc. Schedule 2.2(o) contains an accurate ----------------------- list of all contracts, commitments, leases, instruments, agreements, licenses or permits, written or oral, to which PTM is a party or by which it or its properties are bound (including without limitation contracts with customers, joint venture or partnership agreements, contracts with any labor organizations, employment agreements, consulting agreements, loan agreements, indemnity or 11 guaranty agreements, bonds, mortgages, options to purchase land, liens, pledges or other security agreements) (other than those being transferred by PTM in connection with the spin off contemplated by Section 1.16 hereof) that (i) may give rise to obligations or liabilities exceeding $10,000, (ii) generate revenues or income exceeding $10,000, or (iii) to which PTM and any affiliate of PTM is a party or any officer, director or shareholder of PTM is a party (collectively, the "Material Contracts"). (p) Title and Authority. To the actual knowledge of PTM, the ------------------- shareholders as listed in Schedule 2.2(p) are together the holders of record and sole beneficial owners of all of the outstanding shares of PTM capital stock. ARTICLE III COVENANTS --------- 3.1 PTM. PTM agrees that prior to the Closing Date: --- (a) Except as otherwise contemplated hereby or set forth on Schedule 3.1, no dividend shall be declared or paid by other distribution (whether in cash, stock, property or any combination thereof) or payment declared or made in respect to PTM capital stock, nor shall PTM purchase, acquire or redeem or split, combine or reclassify any shares of its capital stock unless prior to the record date for such dividend or the effective date of such split, combination or reclassification, it tenders to FSI its agreement to amend this Agreement so as to effect an appropriate adjustment in the number of shares deliverable upon the Effective Time. (b) Except for such option grants to existing or prospective employees and consultants as may be contemplated by the PTM Financial Statements or the PPM (including the capitalization charts set forth therein), no change shall be made in the number of shares of authorized or issued PTM capital stock; nor shall any option, warrant, call, right, commitment or agreement of any character be granted or made by PTM relating to its authorized or issued PTM capital stock; nor shall PTM issue, grant or sell any securities or obligations convertible into or exchangeable for shares of PTM capital stock. (c) PTM will not take, agree to take, or knowingly permit to be taken any action or do or knowingly permit to be done anything in the conduct of the business of PTM or otherwise, which would be contrary to or in breach of any of the terms or provisions of this Agreement, or which would cause any of PTM's representations and warranties contained herein to be or become untrue in any material respect at the Closing Date. (d) Except as set forth on Schedule 2.2(c) or as contemplated by the PPM or Article I hereof, PTM will not (i) incur any indebtedness for borrowed money; (ii) assume, guarantee, endorse, or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other individual, firm or corporation, or (iii) make any loans, advances or capital contributions to or investments in, any other individual, firm or corporation. (e) Except as contemplated in the PTM Financial Statements or the PPM, PTM will not make, alter or change any employment or other contract with any of its Lifef/x division management personnel or make, adapt, alter, revise, or amend any pension, bonus, 12 profit-sharing or other employee benefit plan, or grant any salary increase or bonus to any person in its Lifef/x division without prior written consent of FSI or Sub, except for normal year-end or anniversary salary adjustments for employees, excluding officers. 3.2 FSI and Sub. Each of FSI and Sub agree that prior to the Closing Date: ----------- (a) Except as set forth in Section 1.4 hereof, no dividend shall be declared or paid or other distribution (whether in cash, stock, property or any combination thereof) or payment declared or made in respect of FSI Shares or Sub Shares, nor shall FSI or Sub purchase, acquire or redeem or split, combine or reclassify any shares of its capital stock unless prior to the record date for such dividend or the effective date of such split, combination or reclassification, it tenders to PTM its agreement to amend this Agreement so as to effect an appropriate adjustment in the number of shares deliverable upon the Effective Time. (b) Except as contemplated by the PPM or set forth in Sections 1.4 and 1.5 hereof, no change shall be made in the number of shares of authorized or issued FSI Shares or Sub Shares; nor shall any option, warrant, call, right, commitment or agreement of any character be granted or made by FSI or Sub relating to its authorized or issued FSI Shares or Sub Shares; nor shall FSI or Sub issue, grant or sell any securities or obligations convertible into or exchangeable for shares of FSI Shares or Sub Shares. (c) Neither FSI nor Sub will take, agree to take, or knowingly permit to be taken any action, or do or knowingly permit to be done anything in the conduct of the business of FSI or Sub or otherwise, which would be contrary to or in breach of any of the terms or provisions of this Agreement, or which would cause any of FSI's or Sub's representations and warranties contained herein to be or become untrue in any material respect at the Closing Date including without limitation amending FSI's or Sub's charter documents and By-laws, except as otherwise provided hereby. (d) Except as contemplated by Article I, neither FSI nor Sub will (i) incur any indebtedness for borrowed money; (ii) assume, guarantee, endorse, or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other individual, firm or corporation; or (iii) make any loans, advances or capital contributions to or investments in, any other individual, firm or corporation. (e) Neither FSI nor Sub will not make, alter or change any employment or other contract with any of its management personnel or make, adopt, alter, revise, or amend any pension, bonus, profit-sharing or other employee benefit plan, or grant any salary increase or bonus to any person without the prior written consent of PTM, except for normal year end or anniversary salary adjustments for employees, excluding officers. ARTICLE IV CERTAIN COVENANTS ----------------- 4.1 Shareholders' Meeting. PTM will take all actions necessary in --------------------- accordance with applicable law and its Certificate of Incorporation and By-laws to convene a meeting or obtain the written consent of its stockholders as promptly as practicable to consider and vote upon the approval of the Merger. 13 4.2 Conduct of Business Pending the Merger. Prior to the effective date -------------------------------------- of the Merger, unless FSI, Sub and PTM shall otherwise agree in writing, each company shall not (i) operate its business otherwise than in the ordinary course, or (ii) authorize, recommend or propose any merger, consolidation, acquisition of assets, disposition of assets, material change in its capitalization or any comparable event, not in the ordinary course of business (in each case, other than the transactions contemplated hereby or in the PPM and transactions as to which written notice has been given to the other company prior to the date hereof). 4.3 Information Provided by FSI and Sub. The information to be provided ----------------------------------- by FSI and Sub for use in the Information Statement to be used in connection with the Merger, shall, at the time such information is provided and at the Effective Time, be true and correct in all material respects and shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein to make the statements made, in the light of the circumstances under which they were made, not misleading. 4.4 Information Provided by PTM. The information to be provided by PTM --------------------------- for use in the Information Statement to be used in connection with the Merger, shall, at the time such information is provided to FSI and at the Effective Time, be true and correct in all material respects and shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein to make the statements made, in the light of the circumstances under which they were made, not misleading. 4.5 Information Statement. In connection with the preparation of the --------------------- Information Statement and/or any other filings, PTM, FSI and Sub will cooperate with each other and will furnish the information relating to PTM, FSI and Sub, as the case may be, required by the Securities Act and/or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to be set forth in such Information Statement and/or any other filings. 4.6 Disclosure. Each party acknowledges that it has, and will have, ---------- possession of important confidential information ("Confidential Information") regarding the other parties. Each party hereto agrees that it shall not use any confidential information except in furtherance of the transactions contemplated hereby and shall not divulge, communicate, furnish or make accessible any Confidential Information to any person, firm, partnership, corporation or other entity. No party hereto shall make any public statement from the date of this Agreement forward, including without limitation any press release, with respect to this Agreement and the transactions contemplated hereby, without the prior written consent of the other parties (which consent may not be unreasonably withheld), except as may be required by law, in which case the parties shall consult with each other as to the nature and scope of the required disclosure and any protective measures which should be taken to preserve the confidentiality of the disclosed information. If any party becomes legally compelled to disclose information relating to this Agreement, such party shall provide the other parties with notice of such requirement to allow such party to seek a protective order or other remedy. If such protective order or other remedy is not obtained, or if compliance hereof is waived, each party agrees to disclose only that portion of information which is legally required to be disclosed and to permit the other parties at their expense to take all reasonable steps to preserve the confidentiality of the transactions hereunder. 14 4.7 Recommendation of Approval. The Board of Directors of FSI, Sub and -------------------------- PTM shall continue to recommend to their respective shareholders approval of this Agreement and the Merger except as the fiduciary obligations and other duties of each such Board of Directors may otherwise require. 4.8 Access. Prior to the closing, PTM shall afford to the officers, ------ attorneys, accountants, and other authorized representatives of FSI and Sub free and full access to the premises, books and records of PTM in order that FSI and Sub may make such investigation as it may desire of the affairs of PTM, provided such access is not unreasonably disruptive to PTM's business or the sale of its two divisions. Prior to the closing, FSI and Sub shall afford to the officers, attorneys, accountants, and other authorized representatives of PTM free and full access to the premises, books and records of FSI and Sub so that either of them may make such investigations as it may desire of the affairs of FSI and Sub, provided such access is not unreasonably disruptive to FSI and Sub. 4.9 No Solicitation. None of PTM, FSI and Sub will (nor will any of them --------------- permit any agent or affiliate to) solicit, initiate or encourage any Acquisition Proposal (as hereinafter defined) or furnish any information to, or cooperate with, any person, corporation, firm or other entity with respect to an Acquisition Proposal. As used herein "Acquisition Proposal" means a proposal for a merger or other business combination involving such entity or for the acquisition of a substantial equity interest in, or a substantial portion of the assets of such entity other than the Merger, the spin off of PTM's assets relating to PTM's optical and scanning and records divisions as contemplated by Article I hereof and any disposition of the residual assets and liabilities of PTM's now-defunct digital division. ARTICLE V CONDITIONS ---------- 5.1 Conditions to the Obligations of FSI and Sub. The obligations of FSI -------------------------------------------- and Sub to consummate the Merger contemplated by this Agreement are subject to the satisfaction, at or before the consummation of the Merger, of each of the following conditions: (a) No action shall have been taken, and no statute, rule, regulation or order shall have been promulgated, enacted, entered, enforced or deemed applicable to the Merger by any Federal, state or foreign government or governmental authority or by any court, domestic or foreign, including entry of a preliminary or permanent injunction, which would (i) make the Merger illegal, (ii) require the divestiture by FSI or Sub or any other subsidiary of FSI or Sub of the shares of any company or of a material portion of the business of FSI or Sub and their respective subsidiaries taken as a whole, (iii) impose material limits on the ability of FSI or Sub to effectively control the business of FSI or Sub and their respective subsidiaries, (iv) otherwise materially adversely affect FSI or Sub and their respective subsidiaries taken as a whole, or (v) if the Merger is consummated, subject any officer, director, or employee of FSI or Sub to criminal penalties or to civil liabilities not adequately covered by insurance or enforceable indemnification maintained by FSI or Sub; (b) No action or proceeding before any court or governmental authority, domestic or foreign, by any government or governmental authority or by any other person, 15 domestic or foreign, shall be threatened, instituted or pending which would reasonably be expected to result in any way of the consequences referred to in clauses (i) through (v) of paragraph (a) above; (c) PTM shall have complied in all material respects with its agreements and covenants herein, and all representations and warranties of PTM herein shall be true and correct in all material respects at the time of consummation of the Merger as if made at that time, except to the extent they expressly relate to an earlier date, and FSI and Sub shall each have received a certificate to that effect to the best of the knowledge of PTM, signed by the Chief Executive Officer of PTM; (d) The holders of no more than ten percent (10%) of the issued and outstanding PTM capital stock with respect to which the Merger is proposed shall have exercised their right to dissent as dissenting stockholders. 5.2 Conditions to the Obligations of PTM. The obligations of PTM to ------------------------------------ consummate the Merger are subject to the satisfaction, at or before the consummation of the Merger, of each of the following conditions: (a) The stockholders of PTM shall have duly approved the Merger in accordance with applicable law; (b) No action shall have been taken, and no statute, rule, regulation or order shall have been promulgated, enacted, entered, enforced or deemed applicable to the Merger by any Federal, state or foreign government or governmental authority or by any court, domestic or foreign, including the entry of a preliminary or permanent injunction, which would (i) make the Merger illegal, (ii) require the divestiture by PTM or any other subsidiary of PTM of the shares of any company or of a material portion of the business of PTM and its subsidiaries taken as a whole, (iii) impose material limits on the ability of PTM to effectively control the business of PTM and its subsidiaries, (iv) otherwise materially adversely affect PTM and its subsidiaries taken as a whole or (v) if the Merger is consummated, subject any officer, director or employee of PTM to criminal penalties or to civil liabilities not adequately covered by insurance or enforceable indemnification maintained by PTM; (c) No action or proceeding before any court or governmental authority, domestic or foreign, by any government or governmental authority or by any other person, domestic or foreign, shall be threatened, instituted or pending which would reasonably be expected to result in any of the consequences referred to in clauses (i) through (v) of paragraph (b) above; (d) FSI and Sub shall each have complied in all material respects with their respective agreements and covenants herein, and all representations and warranties of FSI and Sub herein shall be true and correct in all material respects at the time of consummation of the Merger as if made at that time, except to the extent they expressly relate to an earlier date, and PTM shall have received a certificate to that effect to the best of the knowledge of each of FSI and Sub, signed by the Presidents of each of FSI and Sub; 16 (e) All necessary third party and governmental consents and approvals required for the Merger shall have been obtained; and (f) FSI shall have changed its name to Lifef/x, Inc., shall have caused the number of its outstanding FSI Shares to be increased from 1,083,324 shares to 1,666,666 shares through a forward stock split and shall have caused the number of its authorized shares to be increased from 50,000,000 shares to 100,000,000 shares. 5.3 Conditions to Each Party's Obligations. The obligation of each party -------------------------------------- to consummate the Merger contemplated by this Agreement is subject to the satisfaction, at or before the consummation of the Merger, of each of the following conditions: (a) The Information Statement shall be filed under the Exchange Act and shall not be subject to a stop order or any threatened stop order; (b) FSI shall have received subscriptions for financing in form and substance satisfactory to FSI and PTM. ARTICLE VI INDEMNIFICATION --------------- 6.1 By FSI and Sub. FSI and Sub, jointly and severally, hereby agree, to -------------- indemnify and hold PTM, its officers, directors, employees and agents and each person, if any, who controls PTM within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act harmless from and against the following: (a) Any and all liabilities, losses, claims, costs, expenses, damages and judgments (including, without limitation, any legal or other expenses incurred in connection with investigating or defending any matter, including any action, that could give rise to such liabilities, losses, claims, costs, expenses, damages and judgments) (collectively, the "Losses") resulting from any breach of any representation or warranty, or non-performance of any covenant or agreement on the part of FSI or Sub contained in this Agreement or in any statement or certificate furnished or to be furnished by FSI or Sub pursuant hereto or in connection with the transactions contemplated hereby; and (b) Any and all Losses they suffer resulting from any untrue statement or alleged untrue statement of a material fact concerning FSI or Sub contained in the Information Statement and the PPM or resulting from any omission or alleged omission to state therein a material fact concerning FSI or Sub required to be stated therein or necessary to make the statements therein concerning FSI or Sub not misleading. 6.2 By PTM. PTM, hereby agrees to indemnify and hold FSI and Sub, their ------ respective officers, directors, employees and agents and each person, if any, who controls FSI or Sub within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act harmless from and against the following: (a) Any and all Losses resulting from any breach of any representation or warranty, or non-performance of any covenant or agreement on the part of PTM contained in this 17 Agreement or in any statement or certificate furnished or to be furnished by PTM pursuant hereto or in connection with the transactions contemplated hereby; and (b) Any and all Losses they suffer resulting from any untrue statement or alleged untrue statement of a material fact concerning PTM furnished in writing to FSI or Sub by PTM expressly for use in the Information Statement and the PPM or resulting from any omission or alleged omission to state in any such writing a material fact concerning PTM required to be stated therein or necessary to make the statements therein concerning PTM not misleading. 6.3 Defense. In case any action shall be commenced involving any person ------- in respect of which indemnity may be sought pursuant to Section 6.1 or 6.2 (the "Indemnified Party"), the Indemnified Party shall promptly notify the person against whom such indemnity may be sought (the "Indemnifying Party") in writing and the Indemnifying Party shall assume the defense of such action. Any Indemnified Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the Indemnified Party unless (i) the employment of such counsel shall have been specifically authorized in writing by the Indemnifying Party or (ii) the Indemnifying Party shall have failed to timely assume the defense of such action. No Indemnified Party shall, without the prior written consent of the Indemnifying Party, effect any settlement or compromise of, or consent to the entry of judgment with respect to, any pending or threatened action. 6.4 Exclusive Remedy. The remedies provided for in this Section 6 are the ---------------- exclusive remedies of the parties with respect to the breach of any representation, warranty, covenant or agreement set forth herein. ARTICLE VII CLOSING DATE ------------ 7.1 The closing for the consummation of the Merger contemplated by this Agreement shall unless another date or place is agreed to in writing by the parties hereto, take place at the offices of Robson Ferber Frost Chan & Essner, LLP, on the date which is no later than the fifth business day after the last to occur of the following dates: (a) The date the stockholders of PTM shall have given the approval referred to in, Section 4.1, hereof; or (b) The date on which all the other conditions set forth in Article V hereof shall have been satisfied, except to the extent any such conditions shall have been waived by FSI, Sub or PTM; or (c) The Termination Date pursuant to the PPM unless the Termination Date is extended; or (d) February 28, 2000. 18 ARTICLE VIII POST CLOSING MATTERS -------------------- 8.1 Directors and Officers. At the closing, FSI will cause all of its ---------------------- officers and directors to resign from office and to cause to be elected to the Board of Directors of FSI and the Surviving Corporation those persons designated by PTM, to wit: FSI directors: Michael Rosenblatt, Richard Guttendorf, Lucille Salhany, Ian Hunter and Robert Verratti; Surviving Corporation directors: Michael Rosenblatt, Richard Guttendorf and Lucille Salhany. 8.2 Registration Statement. FSI shall file a registration statement as ---------------------- soon as practicable after the Closing but in no event later than 150 days after the date hereof to ensure that the FSI Shares issued hereunder to the holders thereof (the "Holders"), are registered for resale under the Securities Act. FSI shall, until such time as such FSI Shares may be sold under Rule 144 under the Act without volume limitation: (a) prepare and file with the Commission such amendments to such registration statement and supplements to the prospectus contained therein as may be necessary to keep such registration statement effective for the Requisite Period as defined in the registration rights agreements to be executed by FSI in connection with the financing described in Section 1.5. (b) execute such further documents and instruments and take such further actions as may be necessary, proper or advisable in order to facilitate the public offering of such FSI Shares under the aforesaid registration statement. FSI shall pay the expenses for the registration statement(s) filed pursuant to this Section 8.2, except for underwriting discounts and commissions, which shall be borne by the Holders. 8.3 Downstream of Offering Proceeds. Within one business day following ------------------------------- the closing of the financing described in Section 1.5, FSI shall contribute to PTM the proceeds of such financing, less any deductions for transaction fees, including, without limitation, legal fees. 8.4 SHI Warrant. If and to the extent Savage Holdings, Inc. ("SHI") ----------- exercises its warrant granted by PTM, at an exercise price of $500,000, FSI shall issue to SHI 166,667 Units in full satisfaction of PTM's obligations thereunder. ARTICLE IX MISCELLANEOUS ------------- 9.1 Termination. With respect to each company, this Agreement may be ----------- terminated and the Merger may be abandoned (i) by the mutual consent of FSI and PTM at any time; (ii) by either PTM or FSI if the Merger has not been consummated prior to February 28, 2000. In the 19 event of such termination and abandonment, none of FSI, Sub nor PTM (or any of their directors or officers) shall have any liability or further obligation to any other party to this Agreement, except that nothing herein will relieve any party from liability for any willful breach of this Agreement. 9.2 Expenses. Whether or not the Merger is consummated, all out-of-pocket -------- costs and expenses incurred in connection with the Merger and this Agreement will be paid by the party incurring such expenses, except that PTM shall bear all auditing costs relating to the books and records of PTM, all legal costs and fees for preparing registration statements to be filed with the Federal and/or state securities agencies, proxy statements, proxy solicitation costs, proxy mailing costs, due diligence fees and costs, costs and fees of any registration statements and legal fees and costs in preparation of merger and related documents (including legal fees and costs to Robson, Ferber, Frost, Chan & Essner as counsel to PTM's consultants, not to exceed $35,000). 9.3 Brokers. No broker or finder is entitled to any brokerage or finder's ------- fee or other commission or fee from any company or based upon arrangements made by or on behalf of any company with respect to the transactions contemplated by this Agreement, except as disclosed on Schedule 9.3 annexed hereto. 9.4 Arbitration. Any controversy arising out of, connected to, or ----------- relating to any transactions herein contemplated, or this Agreement, or the breach thereof, including, but not limited to any claims of violations of Federal and/or state securities laws, banking statues, consumer protection statutes, Federal and/or state anti-racketeering (e.g. RICO) claims as well as any common law claims and any state law claims of fraud, negligence, negligent misrepresentations, and/or conversion and any disputes as to the arbitrability of any such claim shall be settled by arbitration in Los Angeles County, State of California; and in accordance with the commercial rules of the American Arbitration Association. Any judgment on the arbitrator's award may be entered in any court having jurisdiction thereof. In the event of such a dispute, FSI and Sub, on the one hand, and PTM, on the other hand, shall each select an arbitrator, both of whom shall select a third arbitrator which shall constitute the three person arbitration board. The decision of a majority of the board of arbitrators, who shall render their decision within thirty (30) days of appointment of the final arbitrator, shall be binding upon the parties. 9.5 Other Actions. Each of the parties hereto agrees to execute and ------------- deliver such other documents, certificates, agreements and other writings and to take such other actions as may be necessary or desirable to consummate the transactions contemplated by this Agreement. 9.6 Entire Agreement; Waiver and Amendment. This Agreement, the exhibits -------------------------------------- and schedules hereto and the PPM contain the entire agreement by and among FSI, Sub and PTM with respect to the Merger and the other transactions contemplated hereby. Any and all prior discussions, negotiations, commitments and understandings relating to the subject matter of this Agreement are superseded by this Agreement. This Agreement may not be modified, amended or terminated except by a written agreement specifically referring to this Agreement signed by all of the parties hereto. No waiver of any breach or default hereunder shall be considered valid unless in writing signed by the party giving such waiver, and no such waiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature. 20 9.7 Applicable Law. This Agreement shall be governed by and construed in -------------- accordance with the laws of the State of Delaware without regard to its principles of conflicts of laws. 9.8 Descriptive Headings. The descriptive headings are for convenience of -------------------- referenced only and shall not affect in any way the meaning or interpretation of this Agreement. 9.9 Notices. All notes or other communications hereunder shall be in ------- writing and shall be deemed to have been duly given if delivered personally or sent by registered or certified mail postage prepaid, addressed as follows: If to FSI or Sub, to: Fin Sports U.S.A., Inc. 5525 South 900 East, Suite 110 Salt Lake City, UT 84117 with a copy to: Leonard W. Burningham, Esq. Hermes Building, Suite 205 455 East Fifth South Salt Lake City, UT 84111-3323 If to PTM, to: Pacific Title/Mirage, Inc. 1149 North Gower Street Hollywood CA 90038 with a copy to: Loeb & Loeb LLP 1000 Wilshire Boulevard Suite 1800 Los Angeles, California 90017-2475 Attn: Michele E. Beuerlein, Esq. and in all cases with a copy to: Robson Ferber Frost Chan & Essner, LLP 530 Fifth Avenue New York, New York 10036 Attn: David I. Ferber, Esq. 9.10 Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be deemed to be an original, but all of which together shall constitute but one agreement. 21 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officers of the parties hereto as of the date first hereinabove written. FIN SPORTS U.S.A., INC. By: /s/ Wayne Bassham ----------------------------------------- Wayne Bassham , President --------------------- PTM ACQUISITION CORP. By: /s/ Wayne Bassham ----------------------------------------- Wayne Bassham , President --------------------- PACIFIC TITLE/MIRAGE, INC. By: /s/ Richard Guttendorf ----------------------------------------- Richard Guttendorf, CEO [AGREEMENT AND PLAN OF MERGER] 22 EXHIBITS AND SCHEDULES OMITTED EX-16.1 3 LETTER OF MANTYLA MCREYNOLDS [LETTERHEAD OF MANTYLA MCREYNOLDS] EXHIBIT 16.1 December 7, 1999 Securities and Exchange Commission 450 5th Street N.W. Washington, D.C. 20549 Ladies and Gentlemen: We have been advised by FIN SPORTS U.S.A., Inc. ("Company") that upon a merger between Pacific Title/Mirage, Inc., a Delaware Corporation, and/or PTM Acquisition Corp., a Delaware Corporation, and a wholly-owned subsidiary of the Company, that our appointment as principal auditors for such entity (ies) will be terminated. During the term of our appointment as principal auditors, there were no disagreements between the Company, whether resolved or not resolved, on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure. We have been principal auditors for FIN SPORTS U.S.A, Inc. for the years ended December 31, 1997 and 1998 and under the dates of January 29, 1999 and September 9, 1998, we reported on the financial statements of the Company. Very truly yours, /s/ Mantyla Mcreynolds MANTYLA MCREYNOLDS -----END PRIVACY-ENHANCED MESSAGE-----