<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 24, 1997
REGISTRATION STATEMENT NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GETTY IMAGES, INC.
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 7389 98-0177556
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
GETTY IMAGES, INC.
500 NORTH MICHIGAN AVE., SUITE 1700
CHICAGO, ILLINOIS 60611
(312) 644-7880
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
ANDREW DUNCOMB
TONY STONE IMAGES/AMERICA, INC.
500 NORTH MICHIGAN AVE., SUITE 1700
CHICAGO, ILLINOIS 60611
(312)644-7880
(Address, including zip code, and telephone number, including area code, of
agent for service)
--------------------------
COPIES TO:
CHRISTOPHER D. DILLON, ESQ. THOMAS S. HODGE, ESQ.
SHEARMAN & STERLING HELLER EHRMAN WHITE & MCAULIFFE
555 CALIFORNIA STREET 6100 COLUMBIA CENTER
SAN FRANCISCO, 701 FIFTH AVENUE
CALIFORNIA 94104 SEATTLE, WASHINGTON 98104
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after this Registration Statement becomes effective and
the conditions to consummation of the Merger and Scheme of Arrangement described
herein have been satisfied or waived.
--------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
--------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED(1) BE REGISTERED(2) PER SHARE OFFERING PRICE FEE(3)
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per share........ 27,025,389 Not applicable Not applicable $89,988
</TABLE>
(1) This Registration Statement relates to securities of the Registrant issuable
to (i) the holders of outstanding ordinary shares of Getty Communications
plc, a public limited company organized under the laws of England and Wales,
in connection with the Scheme of Arrangement, as described herein, and (ii)
the holders of all of the outstanding shares of common stock, par value
$0.01 per share, of PhotoDisc, Inc., a Washington corporation, in connection
with the Merger, as described herein.
(2) Represents the maximum number of shares issuable pursuant to the Scheme of
Arrangement and the Merger in accordance with the Merger Agreement, on the
basis of the assumptions described in "Unaudited Condensed Pro Forma
Consolidated Financial Information" in the Prospectus included in this
Registration Statement.
(3) Pursuant to Rule 457(f), (i) the registration fee with respect to shares to
be issued in connection with the Scheme of Arrangement was computed on the
basis of the average of the high and low sales price of Getty Communications
ADSs on the Nasdaq National Market on October, 1997, and (ii) the
registration fee with respect to shares to be issued in connection with the
Merger was computed on the basis of the book value of the securities to be
received by the Registrant.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
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<PAGE>
PART I
GETTY IMAGES, INC.
CROSS-REFERENCE SHEET PURSUANT TO
ITEM 501(B) OF REGULATION S-K
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FORM S-4 ITEM AND CAPTION LOCATION IN PROSPECTUS
- ------------------------------------------------------------------------ --------------------------------------------------
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A. Information About the Transaction
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus.................. Cover Page of Registration Statement; Cross-
Reference Sheet; Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus...................................... Available Information; Incorporation of Certain
Documents by Reference; Enforceability of
Certain Civil Liabilities under U.S. Federal
Securities Laws; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information........................... Prospectus Summary; Risk Factors
4. Terms of the Transaction.......................... Prospectus Summary; The Transactions; The Scheme
of Arrangement; The Merger Agreement;
Description of Getty Images Capital Stock;
Comparison of Rights of Shareholders of Getty
Communications and Stockholders of Getty Images;
Comparison of Rights of Shareholders of
PhotoDisc and Stockholders of Getty Images
5. Pro Forma Financial Information................... Prospectus Summary; Unaudited Condensed Pro Forma
Consolidated Financial Information
6. Material Contacts with the Company Being
Acquired........................................ The Transactions--Background of The Transactions
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to Be Underwriters... Not applicable
8. Interests of Named Experts and Counsel............ Not applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities..................................... Not applicable
B. Information About the Registrant
10. Information with Respect to S-3 Registrants....... Prospectus Summary; Risk Factors; The
Transactions; The Scheme of Arrangement; Getty
Images; Unaudited Condensed Pro Forma
Consolidated Financial Information; Description
of Getty Images Capital Stock; Index to
Consolidated Financial Statements
</TABLE>
<PAGE>
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FORM S-4 ITEM AND CAPTION LOCATION IN PROSPECTUS
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<C> <C> <S> <C>
11. Incorporation of Certain Information by
Reference....................................... Not applicable
12. Information with Respect to S-2 or S-3
Registrants..................................... Not Applicable
13. Incorporation of Certain Information by
Reference....................................... Not Applicable
14. Information with Respect to Registrants other than
S-2 or S-3 Registrants.......................... Not Applicable
C. Information About the Company Being Acquired
15. Information with Respect to S-3 Companies......... Not Applicable
16. Information with Respect to S-2 or S-3
Companies....................................... Not Applicable
17. Information with Respect to Companies other than
S-2 or S-3 Companies............................ Incorporation of Certain Documents by Reference;
Prospectus Summary; Getty Communications;
PhotoDisc; Unaudited Condensed Pro Forma
Consolidated Financial Information; Index to
Consolidated Financial Statements
D. Voting and Management Information
18. Information if Proxies, Consents or Authorizations
Are to Be Solicited............................. Not Applicable
19. Information if Proxies, Consents or Authorizations
Are Not to Be Solicited or in an Exchange
Offer........................................... Outside Front Cover Page of Prospectus; Available
Information; Incorporation of Certain Documents
by Reference; Prospectus Summary; The
Transactions; The Scheme of Arrangement; The
Merger Agreement; The Getty Shareholder
Meetings; The Special Meeting of PhotoDisc
Shareholders; Getty Images
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 21, 1997
PROSPECTUS
GETTY IMAGES, INC.
SHARES OF COMMON STOCK,
PAR VALUE $0.01 PER SHARE,
TO BE ISSUED IN CONNECTION WITH (I) THE PROPOSED SCHEME OF ARRANGEMENT BETWEEN
GETTY IMAGES, INC. AND GETTY COMMUNICATIONS PLC AND (II) THE PROPOSED MERGER OF
PRINT
MERGER, INC., A WHOLLY OWNED SUBSIDIARY OF GETTY IMAGES, INC., WITH AND INTO
PHOTODISC, INC.
------------------------
This Prospectus of Getty Images, Inc., a Delaware corporation ("Getty
Images"), relates to the shares of common stock, par value $0.01 per share
("Getty Images Common Stock"), of Getty Images to be issued (i) to the holders
of Class A ordinary shares, nominal value one pence per share ("Getty Class A
Ordinary Shares"), of Getty Communications plc, a public limited company
organized under the laws of England and Wales ("Getty Communications"), and the
holders of Class B ordinary shares, nominal value one pence per share ("Getty
Class B Ordinary Shares", and, together with the Getty Class A Ordinary Shares,
the "Getty Ordinary Shares"), of Getty Communications and (ii) to the holders of
shares of common stock, par value $0.01 per share ("PhotoDisc Common Stock"), of
PhotoDisc, Inc., a Washington corporation ("PhotoDisc"), in each case as
provided for in the Merger Agreement dated as of September 15, 1997 (the "Merger
Agreement"), by and among Getty Images, Getty Communications, PhotoDisc and
Print Merger, Inc., a Washington corporation and a wholly owned subsidiary of
Getty Images ("Merger Sub"). A copy of the Merger Agreement is attached as Annex
A to this Prospectus.
Pursuant to the Merger Agreement, upon the terms and subject to the
conditions thereof, (i) pursuant to a scheme of arrangement (the "Scheme of
Arrangement") in accordance with the Companies Act of 1985 of Great Britain (the
"Companies Act"), the holders of Getty Class A Ordinary Shares and Getty Class B
Ordinary Shares will be issued one share of Getty Images Common Stock for every
two Getty Ordinary Shares held of record by such holders, and Getty
Communications will become a wholly owned subsidiary of Getty Images and (ii)
Merger Sub will be merged with and into PhotoDisc (the "Merger" and, together
with the Scheme of Arrangement, the "Transactions"), with PhotoDisc as the
surviving corporation in the Merger becoming a wholly owned subsidiary of Getty
Images and each then outstanding share of PhotoDisc Common Stock will be
converted into the right to receive the amount of cash and the number of shares
of Getty Images Common Stock specified in the Merger Agreement. Appropriate
arrangements will be made with The Bank of New York, as depositary (the
"Depositary") for American Depositary Shares of Getty Communications ("Getty
Communications ADSs"), to permit holders of Getty Communications ADSs to vote on
and participate in the Scheme of Arrangement on the same basis as holders of
Getty Class A Ordinary Shares. Each Getty Communications ADS represents two
Getty Class A Ordinary Shares. Upon consummation of the Transactions, the
holders of Getty Ordinary Shares (the "Getty Shareholders") and the holders of
shares of PhotoDisc Common Stock (the "PhotoDisc Common Shareholders") will
become holders of shares of Getty Images Common Stock ("Getty Images Shares"). A
copy of the Shareholder Circular that is being mailed to Getty Shareholders in
connection with the Scheme of Arrangement has been filed as an exhibit to the
registration statement of which this Prospectus forms a part.
Assuming that the average closing price of Getty Communications ADSs on the
National Association of Securities Dealers Automated Quotation System/National
Market System (the "Nasdaq National Market") during the ten trading days prior
to the closing of the Merger (the "Closing") is $16.68 (which was the average
closing price during the ten trading days prior to October 21, 1997) and certain
other assumptions described in "Unaudited Condensed Pro Forma Financial
Information", (i) each share of PhotoDisc Common Stock outstanding immediately
prior to the effective time of the Merger (the "Effective Time") would be
converted into the right to receive 0.7279 shares of Getty Images Common Stock
and $2.73 in cash pursuant to the Merger Agreement, and (ii) upon closing of the
Transactions, Getty Shareholders and PhotoDisc Common Shareholders would own
approximately 71% and 29%, respectively, of the then outstanding shares of Getty
Images Common Stock (68% and 32%, respectively, on a fully diluted basis).
(CONTINUED ON NEXT PAGE)
SEE "RISK FACTORS" ON PAGE 16 OF THIS PROSPECTUS FOR A DISCUSSION OF CERTAIN
FACTORS THAT GETTY SHAREHOLDERS AND PHOTODISC SHAREHOLDERS SHOULD CONSIDER WITH
RESPECT TO THE TRANSACTIONS AND THE SHARES OF GETTY IMAGES COMMON STOCK TO BE
ISSUED IN THE TRANSACTIONS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
The date of this Prospectus is , 1997.
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
The Scheme of Arrangement requires the sanction of the High Court of Justice
of England and Wales (the "English High Court") and certain approvals of the
holders of Getty Ordinary Shares. The English High Court has convened a meeting
of the holders of Getty Class A Ordinary Shares (the "Getty Class A
Shareholders") to be held on , , at p.m., London time at
(such meeting and any adjournments or postponements thereof being
referred to as the "Getty Court Meeting"). At the Getty Court Meeting, the Getty
Class A Shareholders of record as of the date of the Getty Court Meeting will be
asked to consider and vote upon the approval of the Scheme of Arrangement. Each
Getty Class A Ordinary Share will entitle the holder thereof to one vote on each
matter that may properly come before the Getty Court Meeting. The Scheme of
Arrangement requires the affirmative vote of a majority in number of the holders
of the Getty Class A Ordinary Shares present (in person or by proxy) at the
Getty Court Meeting, with such majority representing 75% or more of the votes
attaching to the Getty Class A Ordinary Shares voted at the Getty Court Meeting.
As a result of its controlling ownership interest in Getty Communications, Getty
Investments L.L.C. ("Getty Investments") will not be entitled to vote at the
Getty Court Meeting. As a result of certain rights attached to the shareholdings
of Carlton Communications B.V. ("Carlton") in Getty Communications, Carlton is
expected to agree with the English High Court to abstain from voting at the
Getty Court Meeting.
The Board of Directors of Getty Communications (the "Getty Communications
Board") has also convened an Extraordinary General Meeting of the Getty
Shareholders to be held immediately after the Getty Court Meeting at the same
place (such meeting and any adjournments or postponements thereof being referred
to as the "Getty EGM", and together with the Getty Court Meeting, the "Getty
Shareholder Meetings"). At the Getty EGM, the Getty Shareholders of record as of
the date of the Getty EGM will be asked to consider and vote upon the approval
of the Scheme of Arrangement and certain related matters. Each Getty Class A
Ordinary Share will entitle the holder thereof to one vote, and each Getty Class
B Ordinary Share will entitle the holder thereof to ten votes, on each matter
that may properly come before the Getty EGM. The Scheme of Arrangement requires
the affirmative vote of holders of Getty Class A Ordinary Shares and Getty Class
B Ordinary Shares present (in person or by proxy) at the Getty EGM representing
75% or more of the votes attaching to the Getty Ordinary Shares voted at the
Getty EGM. Both Getty Investments and Carlton are expected to agree with the
English High Court to abstain from voting at the Getty EGM, but have stated that
they support the Scheme of Arrangement and will agree to be bound by its terms.
The Merger Agreement also requires the affirmative vote of the holders of
two-thirds of the issued shares of PhotoDisc Common Stock and Series A preferred
stock, par value $0.01 per share (the "Series A Preferred Stock"), of PhotoDisc,
voting together as a single class. The Board of Directors of PhotoDisc (the
"PhotoDisc Board") has called a Special Meeting of the holders of shares of
PhotoDisc Common Stock and Series A Preferred Stock (the "PhotoDisc
Shareholders") to be held on December , 1997 at a.m., Seattle time at
(such meeting and any adjournments or postponements thereof being
hereinafter referred to as the "PhotoDisc Special Meeting"). At the PhotoDisc
Special Meeting, the PhotoDisc Shareholders of record as of the close of
business on November , 1997 will be asked to consider and vote upon the
approval and adoption of the Merger Agreement (the "Merger Proposal"). Each
share of PhotoDisc Common Stock and Series A Preferred Stock will entitle the
holder thereof to one vote on each matter that may properly come before the
Special Meeting. Eight holders of approximately 82% of the currently outstanding
shares of PhotoDisc Common Stock and Series A Preferred Stock (approximately 74%
assuming the exercise of currently exercisable options and warrants to purchase
shares of PhotoDisc Common Stock held by persons other than such holders) have
agreed with Getty Images that they will vote in favor of the Merger Proposal. As
a result, adoption of the Merger Proposal by the PhotoDisc Shareholders is
assured.
Getty Shareholders and PhotoDisc Shareholders are urged to read and
carefully consider the information contained in this Prospectus. This Prospectus
is first being mailed or delivered to Getty Shareholders and PhotoDisc
Shareholders on or about December , 1997.
<PAGE>
AVAILABLE INFORMATION
Getty Communications is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), applicable to
"foreign private issuers", and in accordance therewith files reports and other
information with the Securities and Exchange Commission (the "Commission"). The
reports and other information filed by Getty Communications with the Commission
can be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Regional Offices of the Commission located at 7 World Trade Center, Room
1300, 13th Floor, New York, New York 10048, and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material can also be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, such material may be inspected and copied at the offices of
the National Association of Securities Dealers, Inc., 1935 K Street, N.W.,
Washington, D.C. 20006. Getty Communications ADSs are quoted on the Nasdaq
National Market. Application will be made to quote the Getty Images Common Stock
on the Nasdaq National Market.
Getty Images has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), of which this Prospectus is a part. This Prospectus does
not contain all of the information set forth in the Registration Statement,
certain parts of which have been omitted in accordance with the rules and
regulations of the Commission. Statements contained in this Prospectus
concerning the provisions of any contract or other document are necessarily
summaries of such documents, and, where such a document has been filed with the
Commission as an exhibit to the Registration Statement, each statement contained
herein concerning such document is qualified in its entirety by reference to the
copy of the applicable document filed with the Commission.
As a result of registering the securities offered hereby, Getty Images will
become subject to the information and reporting requirements of the Exchange
Act, and in accordance therewith will file reports and other information with
the Commission. Reports and other information that will be filed by Getty Images
will be available for inspection and copying as set forth above with respect to
reports and other information related to Getty Communications. Such reports and
other information will also be available at a website maintained by the
Commission that contains reports, proxy and information statements and other
information that registrants file electronically with the Commission. The
address of such site is: http:\\www.sec.gov.
------------------------
All information concerning Getty Images contained in this Prospectus has
been furnished by Getty Images; all information concerning PhotoDisc prior to
the consummation of the Merger contained in this Prospectus has been furnished
by PhotoDisc; and all information concerning Getty Communications prior to the
consummation of the Scheme of Arrangement contained or incorporated by reference
in this Prospectus has been furnished by Getty Communications. Neither Getty
Images nor Getty Communications has independent knowledge of the matters set
forth herein regarding PhotoDisc or its subsidiaries, and neither Getty Images
nor PhotoDisc has independent knowledge of the matters set forth or incorporated
by reference herein regarding Getty Communications or its subsidiaries. Neither
Getty Images nor Getty Communications assumes any responsibility for the
accuracy of information regarding PhotoDisc and its subsidiaries, and neither
Getty Images nor PhotoDisc assumes any responsibility for the accuracy of
information regarding Getty Communications and its subsidiaries.
No person is authorized to give any information or to make any
representation with respect to the matters described in this Prospectus other
than those contained herein or in the documents incorporated by reference herein
and, if given or made, such information or representation must not be relied
upon as having been authorized by Getty Images, Getty Communications, PhotoDisc
or any other person. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities in any jurisdiction in which, or
to any person to whom, it is not lawful to make any such offer or solicitation.
Neither the delivery of this Prospectus nor any distribution of the securities
registered hereunder shall, under any circumstances, create any implication that
there has been no change in the assets, properties or affairs of Getty Images,
Getty Communications or PhotoDisc since the date hereof or that the information
contained or incorporated by reference herein is correct as of any time
subsequent to the date hereof or the date of the document that includes the
information incorporated by reference.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by Getty
Communications (File No. 0-28586) are incorporated by reference in this
Prospectus:
1. Getty Communications' Annual Report on Form 20-F for the fiscal year
ended December 31, 1996; and
2. Getty Communications' Report on Form 6-K Unaudited Interim
Consolidated Financial Statement.
All documents and reports filed with the Commission by Getty Communications
pursuant to Section 13(a), 13(e), 14 or 15(d) of the Exchange Act and, to the
extent designated therein, any reports on Form 6-K furnished to the Commission
by Getty Communications after the date of this Prospectus and prior to the date
of the Getty Court Meeting, the Getty EGM and the PhotoDisc Special Meeting
shall be deemed to be incorporated by reference in this Prospectus and to be a
part hereof from the date any such document is filed with or furnished to the
Commission.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed to constitute a part of
this Prospectus, except as so modified or superseded. All information appearing
in this Prospectus is qualified in its entirety by the information and financial
statements (including notes thereto) appearing in the documents incorporated by
reference herein, except to the extent set forth in the immediately preceding
statement.
This Prospectus incorporates documents by reference that are not presented
herein or delivered herewith. Such documents (other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference in
such documents or herein) are available, without charge, to any person,
including any beneficial owner, to whom this Prospectus is delivered, upon
written or oral request to Getty Communications, 101 Bayham Street, London NW1
0AG England (telephone number 011-44-171-544-3456), attention: Nick Evans-Lombe.
In order to ensure delivery of the documents prior to the Getty Court Meeting,
the Getty EGM and the PhotoDisc Special Meeting, requests must be received by
December , 1997.
------------------------
PRESENTATION OF INFORMATION
As used herein, the term "Getty Images" means Getty Images, Inc., the term
"Getty Communications" means Getty Communications plc and the term "PhotoDisc"
means PhotoDisc, Inc., in all cases including, unless the context requires
otherwise, their respective subsidiaries and subsidiaries as of completion of
the Transactions.
In this Prospectus, references to "pounds", "sterling", "L", "pence" or "p"
are to the lawful currency of the United Kingdom and references to "U.S.
dollars" or "$" are to the lawful currency of the United States. Historically,
Getty Communications has published its consolidated financial statements in
pounds sterling. Because Getty Images will publish its consolidated financial
information in U.S. dollars after completion of the Transactions, certain
historical consolidated financial information of Getty Communications included
in this Prospectus has been translated into U.S. dollars as described in "Getty
Communications--Getty Communications' Management's Discussion and Analysis of
Financial Condition and Results of Operations of Getty
Communications--Overview". See "Exchange Rates" for historical information
regarding the noon buying rate in the City of New York for cable transfers in
pounds sterling as certified for customs purposes by the Federal Reserve Bank of
New York (the "Noon Buying Rate"). On October 23, 1997, the Noon Buying Rate was
$1.6347 per L1.00.
"Getty Communications" and "PhotoDisc" are trademarks of Getty
Communications and PhotoDisc, respectively. This Prospectus also includes
product names and other trade names and trademarks of Getty Communications and
PhotoDisc and of other companies.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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AVAILABLE INFORMATION...................................................................................... (i)
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ (ii)
PRESENTATION OF INFORMATION................................................................................ (ii)
PROSPECTUS SUMMARY......................................................................................... 1
General................................................................................................ 1
The Visual Content Industry............................................................................ 1
Getty Communications................................................................................... 1
PhotoDisc.............................................................................................. 2
Getty Images........................................................................................... 2
The Transactions....................................................................................... 3
The Merger Agreement and Related Agreements............................................................ 7
The Getty Shareholder Meetings......................................................................... 9
The Special Meeting of PhotoDisc Shareholders.......................................................... 9
Market Price and Dividend Data......................................................................... 10
Summary Consolidated Financial and Operating Data of Getty Communications.............................. 11
Summary Consolidated Financial and Operating Data of PhotoDisc......................................... 13
Summary Unaudited Condensed Pro Forma Consolidated Financial Information............................... 14
Comparative Unaudited Per Share Data................................................................... 15
RISK FACTORS............................................................................................... 16
THE TRANSACTIONS........................................................................................... 21
The Merger Agreement................................................................................... 21
Merger Consideration................................................................................... 21
PhotoDisc Options, Warrants and Series A Preferred Stock............................................... 22
Background of the Transactions......................................................................... 23
Getty Communications' Reasons for the Transactions; Recommendation of the Board of Directors of Getty
Communications........................................................................................ 26
Opinion of BT Alex. Brown International, Financial Advisor to Getty Communications..................... 28
PhotoDisc's Reasons for the Merger; Recommendation of the Board of Directors of PhotoDisc.............. 33
Opinion of BancAmerica Robertson Stephens, Financial Advisor to PhotoDisc.............................. 35
Financing for the Merger............................................................................... 38
Interests of Certain Persons in the Merger............................................................. 38
Regulatory Approvals................................................................................... 40
Accounting Treatment................................................................................... 41
Transaction Costs...................................................................................... 41
Certain Income Tax Considerations...................................................................... 42
No Dissenters' Rights for Getty Shareholders........................................................... 46
Rights of Dissenting PhotoDisc Shareholders............................................................ 46
THE SCHEME OF ARRANGEMENT.................................................................................. 49
Getty Communications Share Option Scheme............................................................... 50
THE MERGER AGREEMENT....................................................................................... 51
The Effective Time..................................................................................... 51
Merger Consideration...................................................................................
Conversion of PhotoDisc Shares; Procedures for Exchange; Fractional Shares............................. 51
Representations and Warranties......................................................................... 52
Conditions to the Transactions......................................................................... 53
Conduct of Business Prior to the Closing............................................................... 55
</TABLE>
(i)
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<TABLE>
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Indemnification........................................................................................ 56
Termination............................................................................................ 57
Amendment and Waiver................................................................................... 58
Governing Law.......................................................................................... 58
RELATED AGREEMENTS......................................................................................... 59
The Stockholders' Transaction Agreement................................................................ 59
The Escrow Agreement................................................................................... 61
The Stockholders' Agreement............................................................................ 62
The Registration Rights Agreements..................................................................... 63
The Employment Agreements.............................................................................. 64
THE GETTY SHAREHOLDER MEETINGS............................................................................. 65
The Getty Court Meeting................................................................................ 65
The Getty EGM.......................................................................................... 65
The Getty Voting Agreements............................................................................ 65
THE SPECIAL MEETING OF PHOTODISC SHAREHOLDERS.............................................................. 66
Record Date............................................................................................ 66
Voting at the PhotoDisc Special Meeting................................................................ 66
THE VISUAL CONTENT INDUSTRY................................................................................ 68
GETTY IMAGES............................................................................................... 71
Overview............................................................................................... 71
Strategy............................................................................................... 72
Competition............................................................................................ 73
Board of Directors of Getty Images Following the Merger................................................ 73
Management of Getty Images Following the Merger........................................................ 74
Expected Stock Ownership of Directors, Executive Officers
and Five Percent Stockholders Following the Merger................................................... 75
Getty Images Stock Option Plan......................................................................... 76
Dividend Policy of Getty Images Following the Merger................................................... 77
Certain Related Party Transactions..................................................................... 77
GETTY COMMUNICATIONS....................................................................................... 80
Overview............................................................................................... 80
Visual Content Collections............................................................................. 80
Marketing.............................................................................................. 82
Sales and Distribution................................................................................. 83
Intellectual Property.................................................................................. 84
Employees.............................................................................................. 84
Property............................................................................................... 84
Legal Proceedings...................................................................................... 84
Recent Developments.................................................................................... 84
Selected Consolidated Financial Data of Getty Communications........................................... 85
Getty Communications' Management's Discussion and Analysis of Financial Condition
and Results of Operations of Getty Communications.................................................... 87
Management of Getty Communications..................................................................... 96
Ownership of Getty Communications Ordinary Shares...................................................... 99
PHOTODISC.................................................................................................. 100
Overview............................................................................................... 100
PhotoDisc Image Collection............................................................................. 100
Marketing.............................................................................................. 101
Sales and Distribution................................................................................. 102
Intellectual Property.................................................................................. 103
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Technology............................................................................................. 103
Employees.............................................................................................. 104
Property............................................................................................... 104
Legal Proceedings...................................................................................... 104
Selected Consolidated Financial Data of PhotoDisc...................................................... 104
PhotoDisc's Management's Discussion and Analysis of Financial Condition
and Results of Operations of PhotoDisc............................................................... 106
Management of PhotoDisc................................................................................ 110
Ownership of PhotoDisc Capital Stock................................................................... 112
Certain Related Party Transactions..................................................................... 113
DESCRIPTION OF GETTY IMAGES CAPITAL STOCK.................................................................. 115
Getty Images Common Stock.............................................................................. 115
Getty Images Preferred Stock........................................................................... 115
Delaware Anti-Takeover Statute......................................................................... 115
Limitations on Directors' Liabilities and Indemnification.............................................. 116
Status of Getty Images Shares under the Federal Securities Laws; Affiliates............................ 116
Transfer Agent and Registrar........................................................................... 116
COMPARISON OF RIGHTS OF SHAREHOLDERS OF GETTY COMMUNICATIONS AND STOCKHOLDERS OF GETTY IMAGES.............. 118
COMPARISON OF RIGHTS OF SHAREHOLDERS OF PHOTODISC AND STOCKHOLDERS OF GETTY IMAGES......................... 129
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION........................................... 134
EXCHANGE RATES............................................................................................. 144
VALIDITY OF SECURITIES..................................................................................... 144
EXPERTS.................................................................................................... 144
LIST OF DEFINED TERMS...................................................................................... 145
INDEX TO CONSOLIDATED FINANCIAL INFORMATION................................................................ F-1
Annex A-- Merger Agreement, dated as of September 15, 1997, among Getty Images, Getty Communications,
PhotoDisc and Print Merger, Inc.
Annex B-- Stockholders' Transaction Agreement, dated as of September 15, 1997, among Getty Images, certain
shareholders of PhotoDisc and Mark Torrance, as representative of certain shareholders of
PhotoDisc
Annex C-- Opinion of BT Alex. Brown International, Financial Advisor to Getty Communications
Annex D-- Opinion of BancAmerica Robertson Stephens, Financial Advisor to PhotoDisc
Annex E-- Chapter 23B.13 of the Washington Business Corporation Act
</TABLE>
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PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN A COMPLETE STATEMENT OF ALL
MATERIAL INFORMATION RELATING TO THE TRANSACTIONS OR THE MERGER AGREEMENT AND IS
QUALIFIED IN ALL RESPECTS BY REFERENCE TO THE MORE DETAILED INFORMATION AND
FINANCIAL STATEMENTS AND NOTES THERETO CONTAINED ELSEWHERE IN THIS PROSPECTUS OR
INCORPORATED BY REFERENCE HEREIN. GETTY SHAREHOLDERS AND PHOTODISC SHAREHOLDERS
ARE URGED TO READ AND CONSIDER CAREFULLY ALL OF THE INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS.
THE STATEMENTS IN THIS PROSPECTUS THAT ARE NOT HISTORICAL ARE
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
GENERAL
This Prospectus relates to the shares of Getty Images Common Stock to be
issued pursuant to the Merger Agreement to the Getty Shareholders and PhotoDisc
Common Shareholders. The Merger Agreement provides for two core transactions:
(i) the Scheme of Arrangement between Getty Images and Getty Communications,
pursuant to which the Getty Shareholders will be issued one share of Getty
Images Common Stock for every two Getty Ordinary Shares held of record by such
holders, and Getty Communications will become a wholly owned subsidiary of Getty
Images; and (ii) the merger of Merger Sub with and into PhotoDisc, pursuant to
which the PhotoDisc Common Shareholders will receive an amount of cash and a
number of shares of Getty Images Common Stock for each share of PhotoDisc Common
Stock held. See "The Transactions", "The Scheme of Arrangement" and "The Merger
Agreement". A copy of the Merger Agreement is attached as Annex A to this
Prospectus.
THE VISUAL CONTENT INDUSTRY
The visual content industry supplies images to a varied and growing customer
base, ranging from individual consumers to major multinational corporations.
Images are used to communicate messages in a wide variety of applications,
including print, electronic and broadcast advertising, direct mail and marketing
brochures, educational and training publications, books, magazines, newspapers,
corporate communications and annual reports, motion pictures, broadcasting,
CD-ROM products, sites on the World Wide Web (the "Web"), other on-line uses,
sales and in-house presentations and various consumer uses.
Getty Images believes that the visual content industry has grown
substantially in recent years. Getty Images attributes this growth to several
factors, including greater appreciation of the value of images for conveying,
symbolizing and reinforcing marketing and editorial messages, technological
innovations that have made it easier and cheaper to select, use, edit and
distribute images and a proliferation in communications channels, particularly
via the Internet and in the broadcasting industry. See "The Visual Content
Industry".
GETTY COMMUNICATIONS
Getty Communications is one of the leading international providers of visual
content to a diverse range of professional users of images, including
advertising and design agencies, magazines, newspapers, broadcasters, production
companies and traditional and new media publishers. Getty Communications markets
rights to images and footage through its international network of wholly owned
offices in London, Chicago, New York, Los Angeles, Toronto, Munich, Hamburg,
Paris, Amsterdam, Brussels, Copenhagen, Stockholm, Vienna and Hong Kong and
dedicated agents in 15 countries. Getty Communications' visual content
collections are: (i) Tony Stone Images, one of the world's leading providers of
contemporary stock photography; (ii) Hulton Getty, one of the two largest
privately owned collections of archival photography in the world; (iii) Gamma
Liaison, a leading North American news and reportage agency; and (iv) Energy
Film Library, one of the world's leading stock footage companies.
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Getty Communications seeks to differentiate itself through its commitment to
the highest level of quality in the creation, selection and production of
relevant images capable of multiple sales, its focus on customer service, the
quality and breadth of its content, its strong brand names, its worldwide
distribution network and its continued investment in value-added systems and
technologies.
The principal executive offices of Getty Communications are located at 101
Bayham Street, London NW1 0AG England. Its telephone number at that address is
(44171) 544-3456. See "Getty Communications".
PHOTODISC
PhotoDisc is the leader in the development and marketing of digital stock
photography products and electronic delivery of images. PhotoDisc's products are
offered on a royalty-free basis, a licensing model pioneered by PhotoDisc, which
allows customers to pay a one-time fee to use an image on a non-exclusive basis
for almost any purpose. As of September 30, 1997, PhotoDisc offered more than
120 different CD-ROM products, each of which included a collection of between
100 and 336 thematically related digital images. In addition, each image in its
50,000 photographic image library (the "PhotoDisc Image Collection") is
available for immediate licensing and downloading for a fixed price from the
PhotoDisc Web site. PhotoDisc markets its products to professional users, such
as graphic designers and advertising agencies; corporate users, such as
managerial and sales professionals within an organization; and small office/home
office ("SOHO") users, such as owners and employees of small businesses.
PhotoDisc has coupled the benefits of advanced technologies with its
royalty-free licensing model to make stock photography more widely usable by
professional users, while at the same time making stock photography more
accessible to users in emerging markets, such as corporate users and SOHO users,
and, potentially, consumers.
The principal executive offices of PhotoDisc are located at 2013 Fourth
Avenue, 4th Floor, Seattle, Washington 98121. Its telephone number at that
address is (206) 441-9355. See "PhotoDisc".
GETTY IMAGES
Getty Images, the company that will result from the merger of Getty
Communications and PhotoDisc, will be one of the leading visual content
providers worldwide. Getty Communications will contribute its broad spectrum of
high-quality, branded content and extensive international distribution network
of wholly owned sales offices and dedicated agents. PhotoDisc will contribute
its expertise and brand in the digitization and electronic delivery of images
and its experience with royalty-free licensing models and on-line commerce.
Getty Images believes that, following completion of the Merger, it will be
positioned to satisfy the visual content needs of existing, emerging and new
market segments in the visual content industry.
The principal strengths of Getty Images will be (i) the breadth and depth of
its branded high-quality content across all content categories, (ii) its ability
to offer its customers a comprehensive range of options to meet their creative
needs, from full-service to self-service access, from rights-protected licensing
to royalty-free licensing, and from physical delivery of transparencies to
electronic delivery of digital images, (iii) its extensive international
distribution network and electronic distribution capabilities and (iv) its
experience in the application of technology in the visual content industry.
Getty Images believes that these strengths will combine to allow it to take
advantage of both increasing demand for visual content and the opportunities
arising in the rapidly changing visual content industry.
Getty Images is a Delaware corporation that has been formed to effect the
Transactions. Getty Images has not had any prior operations. The principal
executive offices of Getty Images are located at 500 North Michigan Ave., Suite
1700, Chicago, Illinois, 60611. Its telephone number at that address is (312)
644-7880. See "Getty Images".
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THE TRANSACTIONS
THE SCHEME OF ARRANGEMENT
The Merger Agreement provides that Getty Communications and Getty Images
will enter into the Scheme of Arrangement pursuant to which, at the Effective
Time, subject to the requisite approvals of the Getty Shareholders, the sanction
of the English High Court and the satisfaction or waiver (where permissible) of
certain other conditions, each issued and outstanding Getty Ordinary Share will
be cancelled, the Getty Shareholders will be issued one share of Getty Images
Common Stock for every two Getty Ordinary Shares held of record by such holders,
and Getty Communications will become a wholly owned subsidiary of Getty Images.
Appropriate arrangements will be made with the Depositary for Getty
Communications ADSs to permit holders of Getty Communications ADSs to vote on
and participate in the Scheme of Arrangement on the same basis as holders of
Getty Class A Ordinary Shares. Each Getty Communications ADS represents two
Getty Class A Ordinary Shares. See "The Scheme of Arrangement".
THE MERGER
The Merger Agreement provides that, subject to the satisfaction or waiver
(where permissible) of certain conditions, at the Effective Time, Merger Sub
will be merged with and into PhotoDisc, the separate corporate existence of
Merger Sub will cease, and PhotoDisc, as the surviving corporation of the
Merger, will become a wholly owned subsidiary of Getty Images. However, if
necessary to ensure that the Merger can be effected as a tax-free reorganization
for U.S. federal income tax purposes, Getty Images can elect either (i) to have
PhotoDisc merge with and into Merger Sub, with Merger Sub as the surviving
corporation in the Merger or (ii) to reduce, to the minimum extent necessary to
enable the Merger to qualify as a tax-free reorganization, the cash component of
the Merger Consideration (as defined below) and to substitute for such cash
shares of Getty Images Common Stock as specified in the Merger Agreement. Upon
consummation of the Merger, each share of PhotoDisc Common Stock issued and
outstanding immediately prior to the Effective Time will be converted into the
right to receive the Merger Consideration. See "The Transactions".
MERGER CONSIDERATION
At the Effective Time, each share of PhotoDisc Common Stock issued and
outstanding immediately prior to the Effective Time, other than any shares owned
by PhotoDisc, Getty Images, Getty Communications or any of their respective
subsidiaries, will be cancelled and converted into the right to receive the
Stock Consideration (as defined below) and the Cash Consideration (as defined
below, and together with the Stock Consideration, the "Merger Consideration").
As described in detail in "The Transactions--Merger Consideration", the
Merger Consideration per share of PhotoDisc Common Stock will be a function of,
among other things, the average closing price of Getty Communications ADSs on
the Nasdaq National Market during the ten trading days prior to Closing (the
"Average Trading Price of Getty Communications ADSs at Closing"), the fully
diluted number of shares of PhotoDisc Common Stock outstanding at Closing and
the aggregate amount of expenses incurred by PhotoDisc in connection with the
Transactions. Assuming that the Average Trading Price of Getty Communications
ADSs at Closing is $16.68 (which was the average closing price during the ten
trading days prior to October 21, 1997), and certain other assumptions described
in "Unaudited Condensed Pro Forma Consolidated Financial Information", the
Merger Consideration per share of PhotoDisc Common Stock will consist of 0.7279
shares of Getty Images Common Stock and $2.73 in cash (for an aggregate of
approximately 7.87 million shares of Getty Images Common Stock (exclusive of
shares of Getty Images Common Stock to be reserved for issuance in respect of
outstanding options to purchase shares of PhotoDisc Common Stock) and
approximately $29.5 million in cash). See "The Transactions-- Merger
Consideration".
GETTY COMMUNICATIONS OPTIONS
Getty Communications has one share option scheme (the "Getty Communications
Option Scheme"). As of September 30, 1997, options
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were outstanding over 4,662,908 Getty Class A Ordinary Shares at prices between
$5.00 and $10.97 per share. Optionholders under the Getty Communications Option
Scheme will have the right to exercise their options for a period of one month
after the date that they are notified that the English High Court has sanctioned
the Scheme of Arrangement (irrespective of whether such options have vested at
that time). See "The Scheme of Arrangement--Getty Communications Share Option
Scheme".
PHOTODISC OPTIONS
As of September 30, 1997, options (the "PhotoDisc Options") were outstanding
under the PhotoDisc, Inc. 1994 Combined Incentive and Non-qualified Stock Option
Plan (the "PhotoDisc Stock Option Plan") to purchase up to 2,085,400 shares of
PhotoDisc Common Stock, of which options to purchase 1,455,650 shares were
currently exercisable by 24 holders. Pursuant to the Merger Agreement, all
outstanding PhotoDisc Options will be assumed by Getty Images and will be
exercisable upon the same terms and conditions as under the PhotoDisc Stock
Option Plan, except that (i) such options will be exercisable for that number of
shares of Getty Images Common Stock determined by multiplying the number of
shares of PhotoDisc Common Stock subject to such option by the PhotoDisc
Exchange Ratio (as defined in "The Transactions--Merger Consideration") and (ii)
the option price per share of Getty Images Common Stock shall equal the option
price per share of PhotoDisc Common Stock in effect prior to the Merger divided
by the PhotoDisc Exchange Ratio.
As soon as practicable after the Effective Time, Getty Images will extend an
offer to certain current holders of PhotoDisc Options to purchase from such
holders options representing up to 20% of the shares subject to such options
(which would represent options to purchase an aggregate of shares of
Getty Images Common Stock for an aggregate consideration of approximately $
million. See "The Transactions--PhotoDisc Options, Warrants and Series A
Preferred Stock".
GETTY IMAGES OPTIONS
In connection with the Transactions, Getty Images will issue to certain
employees at Closing options to purchase up to 400,000 shares of Getty Images
Common Stock. See "Related Agreements--The Employment Agreements".
RECOMMENDATION OF THE BOARD OF DIRECTORS OF GETTY COMMUNICATIONS
On September 10, 1997, the Getty Communications Board unanimously approved
the Merger Agreement, the Transactions and the other transactions contemplated
by the Merger Agreement as being in the best interests of Getty Communications
and its shareholders and resolved to recommend that the Getty Shareholders vote
in favor of approval of the Scheme of Arrangement and the related transactions.
GETTY COMMUNICATIONS' REASONS FOR THE MERGER
The Getty Communications Board believes that the Transactions are in the
best interests of its shareholders. The Getty Communications Board considered a
number of factors and benefits to Getty Communications and its shareholders in
connection with its evaluation of the Transactions, including the rapid change
and attractive growth rates in the visual content industry, the complementary
nature of the markets serviced by and the client bases of Getty Communications
and PhotoDisc, the technological expertise of the two companies and the strong
customer-led philosophies of Getty Communications and PhotoDisc. The Getty
Communications Board also considered the complementary nature of Getty
Communications' and PhotoDisc's businesses, management, strategic objectives and
prospects, the economies of scale resulting from the Merger, the strong
financial condition of Getty Communications and PhotoDisc, the opinion of BT
Alex. Brown International ("BT Alex. Brown"), a division of Bankers Trust
International PLC, that the Merger Consideration is fair from a financial point
of view to Getty Communications, the terms and conditions of the Merger
Agreement and the other risks described under "Risk Factors". See "The
Transactions--Getty Communications' Reasons for the Transactions; Recommendation
of the Board of Directors of Getty Communications".
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OPINION OF BT ALEX. BROWN, FINANCIAL ADVISOR TO GETTY COMMUNICATIONS
BT Alex. Brown has been retained by Getty Communications to act as its
financial advisor in connection with the Merger and has delivered an opinion to
the Getty Communications Board dated September 15, 1997 to the effect that as of
such date and subject to the assumptions made, matters considered and
limitations set forth in such opinion, the Merger Consideration payable by Getty
Communications was fair, from a financial point of view to Getty Communications.
The full text of the written opinion of BT Alex. Brown dated September 15, 1997
(the "BT Alex. Brown Opinion"), which sets forth, among other things,
assumptions made, matters considered and limitations on the review undertaken,
is attached to this Prospectus as Annex C. Getty Shareholders are urged to read
the BT Alex. Brown Opinion in its entirety. The BT Alex. Brown Opinion is
directed to the Getty Communications Board, addresses only the fairness of the
Merger Consideration payable by Getty Communications from a financial point of
view and does not constitute a recommendation to any Getty Shareholder as to how
such shareholder should vote at the Getty Shareholder Meetings. See "The
Transactions--Opinion of BT Alex. Brown International, Financial Advisor to
Getty Communications".
RECOMMENDATION OF THE BOARD OF DIRECTORS OF PHOTODISC
On September 13, 1997, the PhotoDisc Board unanimously approved the Merger
Agreement, the Merger and the other transactions contemplated by the Merger
Agreement as being in the best interests of PhotoDisc and its shareholders and
resolved to recommend that PhotoDisc's shareholders vote in favor of approval of
the Merger Agreement.
PHOTODISC'S REASONS FOR THE MERGER
The PhotoDisc Board believes that the Merger is in the best interest of its
shareholders. In reaching its decision, the PhotoDisc Board considered a number
of factors and benefits to PhotoDisc and its shareholders, including the
liquidity offered to the PhotoDisc Shareholders by the Merger, general business
and competitive conditions in PhotoDisc's industry, the economies of scale
resulting from the Merger and the Scheme of Arrangement, the complementary
nature of the markets serviced by and the client bases of Getty Communications
and PhotoDisc, the significant depth of the visual content collection of Getty
Communications, the international distribution network of Getty Communications
and the opinion of BancAmerica Robertson Stephens, successor in interest to
Robertson, Stephens & Company LLC ("BARS"), that the Merger Consideration was
fair to the PhotoDisc Shareholders. The PhotoDisc Board also considered the
timing and risks associated with the integration by Getty Images of PhotoDisc,
the requirement that the Scheme of Arrangement be approved by the Getty
Shareholders, the possibility that the Merger might not be consummated,
fluctuations in the market value of Getty Communications ADSs and the other
risks described under "Risk Factors". See "The Transactions--PhotoDisc's Reasons
for the Transactions; Recommendations of the Board of Directors of PhotoDisc".
OPINION OF BANCAMERICA ROBERTSON STEPHENS, FINANCIAL ADVISOR TO PHOTODISC
BARS was retained by PhotoDisc to act as its financial advisor in connection
with the Merger and has delivered an opinion to the PhotoDisc Board dated
September 13, 1997 to the effect that as of such date and based upon and subject
to certain matters stated therein, the cash payment to the holders of Series A
Preferred Stock plus the number of shares of Getty Images Common Stock to be
issued, or reserved for issuance, in the Merger, equalling 12,400,000 less the
quotient obtained by dividing one-half of the transaction-related expenses
incurred by PhotoDisc and the amount of the cash payment payable to the holders
of Series A Preferred Stock, by the average of the closing prices for Getty
Communications ADSs on the Nasdaq National Market for the ten trading days prior
to Closing (the "Net Purchase Price") was fair from a financial point of view to
the PhotoDisc Shareholders. The full text of the written opinion of BARS dated
September 13, 1997, which sets forth the analyses and assumptions made, matters
considered and limitations on the review undertaken, is attached to this
Prospectus as Annex D and should be read carefully and in its entirety. BARS's
opinion is directed only as to
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the fairness, from a financial point of view, to the shareholders of PhotoDisc
of the Net Purchase Price, does not address any other aspect of the Merger or
related transactions and does not constitute a recommendation to any PhotoDisc
Shareholder as to how such PhotoDisc Shareholder should vote at the PhotoDisc
Special Meeting. See "The Transactions--Opinion of BancAmerica Robertson
Stephens, Financial Advisor to PhotoDisc".
REGULATORY APPROVALS
The Merger is subject to the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), and the rules and regulations thereunder,
which provide that certain transactions may not be consummated until required
information and material have been furnished to the Antitrust Division of the
Department of Justice (the "Justice Department") and the Federal Trade
Commission (the "FTC") and certain waiting periods have expired or been
terminated. Getty Communications and PhotoDisc filed the required information
and material with the Justice Department and the FTC on September 30, 1997. See
"The Transactions--Regulatory Approvals".
ACCOUNTING TREATMENT
Getty Images will account for the Merger using the purchase method of
accounting in accordance with U.S. generally accepted accounting principles
("U.S. GAAP"). The excess of the cost of acquisition over the fair value of the
assets and liabilities of PhotoDisc acquired will be recorded as goodwill and
amortized over a period not to exceed 40 years.
As a consequence of the Scheme of Arrangement, each issued and outstanding
Getty Ordinary Share will be cancelled. The shares of Getty Images Common Stock
issued to replace the cancelled stock will be recorded at par value. See "The
Transactions--Accounting Treatment".
TRANSACTION COSTS AND CHARGES
Each of Getty Communications and PhotoDisc will incur certain costs in
connection with the Transactions, whether or not the Transactions are completed.
In addition, if the Transactions are completed, Getty Images will record in the
quarter in which the Transactions are completed (which is expected to be the
first quarter of 1998) certain one-time charges in connection with integrating
certain portions of the operations, sales and marketing and finance and
administration organizations of the two companies. As a result of goodwill to be
recorded in connection with the Transactions, Getty Images will also incur
significant amortization charges in future periods. See "The
Transactions--Transaction Costs".
CERTAIN INCOME TAX CONSIDERATIONS
The Scheme of Arrangement is intended to be a tax-free reorganization so
that for U.S. federal income tax purposes no gain or loss will be recognized by
the holders of Getty Ordinary Shares on the exchange of such shares for shares
of Getty Images Common Stock pursuant to the Scheme of Arrangement, except in
the case of persons owning, directly, indirectly or pursuant to the operation of
certain constructive ownership rules, ten percent or more of the voting power of
Getty Communications. Furthermore, U.K. tax clearance will have been obtained so
that the Scheme of Arrangement will not result in a taxable disposal of Getty
Ordinary Shares by Getty Shareholders who are also U.K. residents.
The Merger is intended to be a tax-free reorganization so that no gain or
loss will be recognized by the holders of shares of PhotoDisc Common Stock on
the exchange of such shares for the Merger Consideration pursuant to the Merger,
except to the extent of the cash component of the Merger Consideration received
pursuant to the Merger. See "The Transactions-- Certain Income Tax
Considerations".
DISSENTERS' RIGHTS
Holders of Getty Ordinary Shares will not have any appraisal, dissenter or
other similar rights in connection with the Transactions, although they will
have the right to raise objections at the Getty Court Meeting. See "The
Transactions--No Dissenters' Rights for Getty Shareholders".
PhotoDisc Shareholders will be entitled to dissenters' rights under
Washington law in connection with the Merger. See "The Transactions--Rights of
Dissenting PhotoDisc Shareholders".
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THE MERGER AGREEMENT AND RELATED AGREEMENTS
EFFECTIVE TIME OF THE MERGER
The Effective Time will be the time the Merger becomes effective. As soon as
practicable following the Closing, the parties to the Merger Agreement will file
Articles of Merger (the "Articles of Merger") with the Washington Secretary of
State in such form as is required by, and executed in accordance with, the
relevant provisions of the Washington Business Corporation Act (the "WBCA") and
will make all other filings or recordings required under the WBCA. The Merger
will become effective at such time as the Articles of Merger are duly filed with
the Washington Secretary of State or at such later time as may be agreed in
writing by each of the parties. See "The Merger Agreement--The Effective Time".
CONDITIONS TO THE TRANSACTIONS
The obligations of Getty Images, Getty Communications, PhotoDisc and Merger
Sub to effect the Transactions, are subject to the satisfaction or waiver of
various conditions, including the following:
- the approval by the Getty Shareholders of the Merger Agreement and all the
transactions contemplated thereby;
- the approval by the PhotoDisc Shareholders of the Merger Agreement and all
the transactions contemplated thereby;
- the English High Court having approved the Scheme of Arrangement;
- the waiting period applicable to the Merger under the HSR Act having
expired or having been terminated;
- no temporary restraining order or injunction prohibiting the Merger or the
Scheme of Arrangement having been entered;
- the Board of Directors of Getty Images (the "Getty Images Board") as of
the Effective Time having been reconstituted in accordance with the Merger
Agreement;
- the Effective Time of the Merger and the effective time of the Scheme of
Arrangement occurring simultaneously;
- each of the parties to the Merger Agreement having performed or complied
in all material respects with its obligations under the Merger Agreement;
- no event having occurred which has a Material Adverse Effect (as defined
in the Merger Agreement) on the parties; and
- the parties having received opinions from their respective counsel in
respect of certain federal income tax consequences of the Merger.
See "The Merger Agreement--Conditions to the Transactions".
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Closing:
- by Getty Communications if: a Material Adverse Effect on PhotoDisc has
occurred; any material representation or warranty of PhotoDisc or the
Principal Shareholders (as defined below) was not true and correct when
made; PhotoDisc or the Principal Shareholders have not complied with any
material covenant; or PhotoDisc, any of its subsidiaries or a Principal
Shareholder makes a general assignment for the benefit of creditors, or
institutes any bankruptcy, insolvency or reorganization proceeding;
- by PhotoDisc if: a Material Adverse Effect on Getty Communications has
occurred; any material representation or warranty of Getty Communications,
Getty Images or Merger Sub was not true and correct when made; Getty
Communications, Getty Images or Merger Sub has not complied with any
material covenant; or Getty Communications makes a general assignment for
the benefit of creditors, or institutes any bankruptcy, insolvency or
reorganization proceeding;
- by either Getty Communications or PhotoDisc if the Closing has not
occurred by March 31, 1998;
- by either Getty Communications or PhotoDisc in the event that any
governmental authority issues an order prohibiting the transactions
contemplated by the Merger Agreement;
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- by Getty Communications if the Getty Shareholders do not approve the
Merger Agreement and the transactions contemplated thereby;
- by PhotoDisc if the PhotoDisc Shareholders do not approve the Merger
Agreement and the transactions contemplated thereby;
- by PhotoDisc if Getty Communications has not received all required
approvals of the Getty Shareholders on or prior to the earlier of (i)
January 31, 1998, or (ii) the date 31 days after the Registration
Statement is declared effective by the Commission;
- by PhotoDisc if, after the date of the Merger Agreement, a change of
control of Getty Communications occurs; or
- by the mutual written consent of Getty Communications and PhotoDisc.
See "The Merger Agreement-- Termination".
THE STOCKHOLDERS' TRANSACTION AGREEMENT
In connection with the execution of the Merger Agreement, Getty Images,
PhotoDisc, certain shareholders of PhotoDisc (the "Principal Shareholders") and
Mr. Mark Torrance, as designated representative of the Principal Shareholders,
executed and delivered the Stockholders' Transaction Agreement dated as of
September 15, 1997 (the "Stockholders' Transaction Agreement"), a copy of which
is attached as Annex B to this Prospectus. Pursuant to the Stockholders'
Transaction Agreement, each Principal Shareholder, among other things, made
certain representations and warranties to Getty Images with respect to the
shares of PhotoDisc Common Stock or Series A Preferred Stock owned by such
Principal Shareholder and agreed to indemnify Getty Images and Getty
Communications for certain breaches of representations and warranties and
covenants of PhotoDisc and such Principal Shareholder, subject to certain
limitations. See "Related Agreements--The Stockholders' Transaction Agreement".
THE ESCROW AGREEMENT
One of the conditions to the consummation of the Transactions is that Getty
Images, the Principal Shareholders and an escrow agent execute and deliver on or
prior to Closing an Escrow Agreement (the "Escrow Agreement") substantially in
the form attached as an exhibit to the Merger Agreement. Pursuant to the Merger
Agreement and the Escrow Agreement, at Closing Getty Images will deposit into an
escrow fund certificates representing 12.5 percent of the number of shares of
Getty Images Common Stock (the "Escrow Shares") to be issued to each Principal
Shareholder at Closing to secure the indemnification obligations of the
Principal Shareholders contained in the Stockholders' Transaction Agreement and
the Merger Agreement. See "Related Agreements--The Escrow Agreement".
THE STOCKHOLDERS' AGREEMENT
One of the conditions to the consummation of the Transactions is that
certain persons who will become significant stockholders of Getty Images execute
and deliver a Stockholders' Agreement (the "Stockholders' Agreement") containing
certain restrictions on their right to dispose of shares of Getty Images Common
Stock that such persons will receive in the Transactions. See "Related
Agreements--The Stockholders' Agreement".
THE REGISTRATION RIGHTS AGREEMENTS
One of the conditions to the consummation of the Transactions is that Getty
Images enter into two Registration Rights Agreements (the "Registration Rights
Agreements"), one with PDI, L.L.C. ("PDI") and Mr. Mark Torrance (Mr. Torrance,
together with PDI, the "PDI Shareholders") and a second with Getty Investments.
Pursuant to the Registration Rights Agreements, the PDI Shareholders and Getty
Investments will have certain rights to require Getty Images to register with
the Commission all or a portion of the shares of Getty Images Common Stock that
such entities will receive in the Transactions. See "Related Agreements--The
Registration Rights Agreements".
THE EMPLOYMENT AGREEMENTS
One of the conditions to the consummation of the Transactions is that Getty
Images enter into employment agreements (the "Employment Agreements") with each
of Mr. Mark Getty, Mr. Mark Torrance and Mr. Jonathan Klein on terms defined in
the Merger Agreement. Getty Images and PhotoDisc have also agreed to offer
employment agreements to certain other employees in connection with the
Transactions. See "Related Agreements--The Employment Agreements".
8
<PAGE>
THE GETTY SHAREHOLDER MEETINGS
DATE, TIME AND PLACE
The Getty Court Meeting will be held at , London, on
, at p.m., London time, to consider and, if thought fit,
approve the Scheme of Arrangement.
The Getty EGM will be held at the same place immediately after the Getty
Court Meeting to consider and, if thought fit, to approve a special resolution
concerning various matters relating to the Transactions.
RECORD DATE
Holders of Getty Ordinary Shares of record on the date of the Getty Court
Meeting and the Getty EGM will be entitled to notice of and to vote at the Getty
Court Meeting and the Getty EGM.
REQUIRED VOTE
At the Getty Court Meeting, the Scheme of Arrangement will require the
approval of a majority in number of the holders of the Getty Class A Ordinary
Shares (other than Getty Investments and Carlton) present (in person or by
proxy), with such majority representing 75% or more of the votes attaching to
the Getty Class A Ordinary Shares voted at the Getty Court Meeting.
At the Getty EGM, the Scheme of Arrangement will require the approval of the
Getty Shareholders present (in person or by proxy) representing 75% or more of
the votes attaching to the Getty Ordinary Shares voted at the Getty EGM. Both
Getty Investments and Carlton are expected to agree with the English High Court
to abstain from voting at the Getty EGM, but have stated that they support the
Scheme of Arrangement and will be bound by its terms. See "The Getty Shareholder
Meetings--The Getty Voting Agreements".
THE SPECIAL MEETING OF PHOTODISC SHAREHOLDERS
DATE, TIME AND PLACE
The PhotoDisc Special Meeting will be held at , Seattle,
Washington, on December , 1997, at a.m., Seattle time, to consider and
vote on the Merger Proposal and such other matters as may properly come before
the PhotoDisc Special Meeting.
RECORD DATE
Only holders of shares of PhotoDisc Common Stock and holders of shares of
Series A Preferred Stock of record at the close of business on November , 1997
(the "PhotoDisc Record Date") will be entitled to notice of and to vote at the
PhotoDisc Special Meeting. On the PhotoDisc Record Date, there were shares
of PhotoDisc Common Stock outstanding held by holders of record and
shares of Series A Preferred Stock outstanding held by holders of record.
See "The Special Meeting of PhotoDisc Shareholders".
REQUIRED VOTE
The Merger Proposal requires the affirmative vote of the holders of
two-thirds of the outstanding shares of PhotoDisc Common Stock and Series A
Preferred Stock, voting together as a single class. Eight holders of
approximately 82% of the currently outstanding shares of PhotoDisc Common Stock
and Series A Preferred Stock (approximately 74% assuming the exercise of
currently exercisable options and warrants to purchase shares of PhotoDisc
Common Stock held by (person other than such holders) have agreed with Getty
Images that they will vote in favor of the Merger Proposal. See "The Special
Meeting of PhotoDisc Shareholders-- Voting at the PhotoDisc Special Meeting". AS
A RESULT, ADOPTION OF THE MERGER PROPOSAL BY THE PHOTODISC SHAREHOLDERS IS
ASSURED.
9
<PAGE>
MARKET PRICE AND DIVIDEND DATA
GETTY COMMUNICATIONS ADSS
Getty Communications ADSs have been quoted on the Nasdaq National Market
under the symbol "GETTY" since July 2, 1996. The following table sets forth, for
the periods indicated, the high and low sales prices per Getty Communications
ADS, as quoted on the Nasdaq National Market. Each Getty Communications ADS
represents two Getty Class A Ordinary Shares. There is no established public
trading market for Getty Class B Ordinary Shares.
<TABLE>
<CAPTION>
1996 HIGH LOW
- ----------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Third Quarter (1) (July 2, 1996 until September 30, 1996)...................................... $ 14.25 $ 10.00
Fourth Quarter................................................................................. 16.75 13.50
1997
- -----------------------------------------------------------------------------------------------
First Quarter.................................................................................. 18.00 14.00
Second Quarter................................................................................. 15.25 11.50
Third Quarter.................................................................................. 19.50 10.75
Fourth Quarter (until October 23, 1997)........................................................ 18.25 15.375
</TABLE>
- ------------------------------
(1) On July 2, 1996, Getty Communications effected its initial public offering
of Getty Communications ADSs.
On September 15, 1997, the last full trading day preceding the public
announcement of the execution of the Merger Agreement, the last reported sale
price per Getty Communications ADS was $14.125. On October 23, 1997, the last
full trading day prior to the date of this Prospectus, the last reported sale
price per Getty Communications ADS was $15.875.
HOLDERS OF SHARES OF PHOTODISC COMMON STOCK, SERIES A PREFERRED STOCK, GETTY
ORDINARY SHARES OR GETTY COMMUNICATIONS ADSS ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR GETTY COMMUNICATIONS ADSS.
PHOTODISC SHARES
There is no established public trading market for shares of PhotoDisc Common
Stock or Series A Preferred Stock. As of the PhotoDisc Record Date, PhotoDisc
had shareholders of record.
DIVIDENDS
Getty Communications has never declared or paid any dividends on the Getty
Ordinary Shares. PhotoDisc was an S corporation for U.S. federal and state
income tax purposes through 1994. Effective December 31, 1994, PhotoDisc's S
corporation status was terminated. In connection with the change of status from
an S corporation to a C corporation for U.S. federal and state income tax
purposes, PhotoDisc paid cash dividends to its shareholders in 1995 in the
amount of $389,236.
Getty Images currently intends to retain its earnings for future growth and,
therefore, does not anticipate paying cash dividends in the foreseeable future.
"See Getty Images--Dividend Policy of Getty Images Following the Merger".
10
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA OF GETTY COMMUNICATIONS
The following summary consolidated financial data of Getty Communications
should be read in conjunction with "Getty Communications--Selected Consolidated
Financial Data of Getty Communications", "Getty Communications--Getty
Communications' Management's Discussion and Analysis of Financial Condition and
Results of Operations of Getty Communications" and the consolidated financial
statements of Getty Communications and the notes thereto included elsewhere in
this Prospectus. See "Index to Consolidated Financial Statements".
The summary financial data has been translated from pounds sterling, the
previously adopted reporting currency of Getty Communications, into U.S.
dollars, which will be the reporting currency of Getty Images. The basis of the
translations is described in "Getty Communications--Getty Communications'
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Getty Communications--Overview".
<TABLE>
<CAPTION>
GETTY COMMUNICATIONS
TONY STONE IMAGES ---------------------------------
(PREDECESSOR COMPANY)(1) SIX
------------------------------- MONTHS
YEAR ENDED DECEMBER ENDED
YEAR ENDED DECEMBER 31, 31, JUNE 30,
------------------------------- ---------------------- ---------
1992 1993 1994 1995(2) 1996 1996
--------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ $ $ $ $ $
(IN THOUSANDS, EXCEPT PER SHARE AND PER ADS DATA)
STATEMENT OF OPERATIONS DATA:
Sales.................................................. 23,729 27,559 42,052 63,021 85,014 40,115
Gross profit........................................... 15,084 17,355 25,762 38,307 52,858 24,615
Operating income....................................... 2,049 2,180 3,221 4,667 7,967 3,689
Net interest (expense)/income.......................... (195) (160) (218) (1,468 ) (1,951) (1,360)
Net income............................................. 1,516 1,169 1,694 1,271 2,728 924
----------- --------- ---------
----------- --------- ---------
Income per share(3).................................... 0.05 0.10 0.04
----------- --------- ---------
----------- --------- ---------
Shares used in computing per share amounts
(thousands)(3)....................................... 23,390 27,832 23,390
----------- --------- ---------
----------- --------- ---------
Income per ADS(4)...................................... 0.11 0.20 0.08
----------- --------- ---------
----------- --------- ---------
OPERATING DATA:
EBITDA(5).............................................. 3,638 4,058 6,622 10,652 15,608 7,209
--------- --------- --------- ----------- --------- ---------
--------- --------- --------- ----------- --------- ---------
Net cash provided by/(used in):
Operating activities................................. 3,386 2,264 5,202 6,957 13,502 5,450
Investing activities................................. (2,217) (2,183) (5,296) (24,582 ) (25,953) (19,919)
Financing activities................................. (690) 229 (314) 18,920 64,290 13,945
Net increase/(decrease) in cash and cash equivalents... 479 310 (408) 1,295 51,839 (524)
--------- --------- --------- ----------- --------- ---------
--------- --------- --------- ----------- --------- ---------
<CAPTION>
1997
---------
<S> <C>
$
STATEMENT OF OPERATIONS DATA:
Sales.................................................. 48,718
Gross profit........................................... 30,378
Operating income....................................... 4,043
Net interest (expense)/income.......................... 781
Net income............................................. 2,442
---------
---------
Income per share(3).................................... 0.06
---------
---------
Shares used in computing per share amounts
(thousands)(3)....................................... 38,469
---------
---------
Income per ADS(4)...................................... 0.13
---------
---------
OPERATING DATA:
EBITDA(5).............................................. 9,015
---------
---------
Net cash provided by/(used in):
Operating activities................................. 7,300
Investing activities................................. (13,654)
Financing activities................................. (2,109)
Net increase/(decrease) in cash and cash equivalents... (8,463)
---------
---------
</TABLE>
<TABLE>
<CAPTION>
GETTY COMMUNICATIONS
----------------------------------------
AT DECEMBER 31, 1996 AT JUNE 30, 1997
--------------------- -----------------
<S> <C> <C>
$ $
BALANCE SHEET DATA: (IN THOUSANDS)
Cash and cash equivalents.................................................. 58,939 48,697
Total assets............................................................... 163,504 167,014
Long-term debt............................................................. 17,910 15,603
Shareholders' equity....................................................... 113,523 115,757
</TABLE>
11
<PAGE>
- ------------------------------
(1) The summary financial and operating data as of and for the year ended
December 31, 1992 have been derived from the U.K. GAAP audited consolidated
financial statements of Tony Stone Associates Limited, the predecessor of
Getty Communications ("Tony Stone Images"), which have been prepared in
accordance with accounting principles generally accepted in the United
Kingdom ("U.K. GAAP") and have been adjusted in accordance with U.S. GAAP.
The summary financial and operating data as of and for the years ended
December 31, 1993 and 1994 and as of March 13, 1995 and for the period
January 1, 1995 through March 13, 1995 have been derived from the U.S. GAAP
audited consolidated financial statements of Tony Stone Images.
(2) Reflects the combination of the audited results of Tony Stone Images for the
period from January 1 through March 13, 1995 with the audited results of
Getty Communications for the period from March 14 through December 31, 1995.
See "Getty Communications--Selected Consolidated Financial Data of Getty
Communications--Overview".
(3) Income per share has not been computed for periods which relate to Tony
Stone Images as compared to Getty Communications. See Note 1 to the
consolidated financial statements of Getty Communications included elsewhere
in this Prospectus. Amounts for the year ended December 31, 1995 have been
computed assuming the same number of shares outstanding as determined for
Getty Communications for the period March 14, 1995 through December 31,
1995.
(4) Income per ADS is calculated by adjusting net income per share data for the
ratio of two Getty Class A Ordinary Shares per ADS.
(5) "EBITDA" is defined as earnings before interest, taxes, exchange
gains/(losses), depreciation and amortization. Thus, EBITDA with respect to
Getty Communications comprises sales less cost of sales and selling, general
and administrative expenses. Getty Communications believes that EBITDA
provides investors and analysts with a measure of operating income
unaffected by the financing and accounting effects of acquisitions and
assists in explaining trends in the operating performance of Getty
Communications. This was illustrated in 1995, when Getty Communications' net
income fell as a result of the financing and accounting effects of the
acquisition of Tony Stone Images with a consequent increase in net interest
expense and amortization of intangibles, while EBITDA rose by approximately
61 percent over 1994. EBITDA should not be considered as an alternative to
operating income as an indicator of Getty Communications' operating
performance or to cash flows as a measure of Getty Communications'
liquidity.
12
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA OF PHOTODISC
The following summary consolidated financial data of PhotoDisc should be
read in conjunction with "PhotoDisc--Selected Consolidated Financial Data of
PhotoDisc", "PhotoDisc--PhotoDisc's Management's Discussion and Analysis of
Financial Condition and Results of Operations of PhotoDisc" and the consolidated
financial statements of PhotoDisc and the notes thereto included elsewhere in
this Prospectus. See "Index to Consolidated Financial Information".
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- ---------
1992 1993 1994 1995 1996 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ $ $ $ $ $
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF INCOME DATA:
Sales.......................................................... 387 1,480 4,709 12,512 28,231 12,102
Gross profit................................................... 281 1,051 3,319 9,470 22,129 9,615
Operating (loss)/income........................................ (218) (58) 506 2,332 4,216 1,962
Interest (expense)/income...................................... (10) (21) (11) (28) 94 (24)
Net (loss)/income.............................................. (167) (32) 585 1,475 2,712 1,219
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Net income/(loss) per share.................................... (0.02) 0.00 0.06 0.13 0.22 0.11
Shares used in computation of net income/(loss) per share...... 6,964 9,050 9,550 11,083 12,051 11,272
OPERATING DATA:
EBITDA (1)..................................................... (161) 35 673 2,668 5,386 2,424
Net cash provided by/(used in):
Operating activities......................................... 215 (62) 298 939 4,743 1,408
Investing activities......................................... (340) (104) (283) (1,000) (3,865) (1,259)
Financing activities......................................... 186 105 85 200 5,198 6,763
Net increase/(decrease) in cash and cash equivalents........... 61 (61) 100 139 6,076 6,912
<CAPTION>
1997
---------
<S> <C>
$
STATEMENT OF INCOME DATA:
Sales.......................................................... 19,811
Gross profit................................................... 15,937
Operating (loss)/income........................................ 1,814
Interest (expense)/income...................................... 116
Net (loss)/income.............................................. 1,208
---------
---------
Net income/(loss) per share.................................... 0.09
Shares used in computation of net income/(loss) per share...... 13,124
OPERATING DATA:
EBITDA (1)..................................................... 2,917
Net cash provided by/(used in):
Operating activities......................................... 2,161
Investing activities......................................... (2,957)
Financing activities......................................... --
Net increase/(decrease) in cash and cash equivalents........... (796)
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996 AT JUNE 30, 1997
--------------------- -----------------
<S> <C> <C>
$ $
BALANCE SHEET DATA:
Cash and cash equivalents.................................................. 6,315 5,519
Total assets............................................................... 14,705 18,716
Long-term debt, net of current maturities.................................. -- --
Total shareholders' equity................................................. 10,437 11,665
</TABLE>
- ------------------------------
(1) As used herein, "EBITDA" is defined as earnings before interest, taxes,
exchange gains/(losses), depreciation and amortization. PhotoDisc believes
that EBITDA provides investors and analysts with a measure of operating
income unaffected by the financing and accounting effects of acquisitions
and assists in explaining trends in the operating performance of PhotoDisc.
EBITDA should not be considered as an alternative to operating income as an
indicator of PhotoDisc's operating performance or to cash flows as a measure
of PhotoDisc's liquidity.
13
<PAGE>
SUMMARY UNAUDITED CONDENSED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following summary unaudited condensed pro forma consolidated financial
information have been derived from the more detailed Unaudited Condensed Pro
Forma Consolidated Financial Information included elsewhere in this Prospectus.
See "Unaudited Condensed Pro Forma Consolidated Financial Information".
The following summary pro forma consolidated income statement data give pro
forma effect to the Transactions as if they had occurred on January 1, 1996. The
following summary pro forma consolidated balance sheet data give pro forma
effect to the Transactions as if they had occurred on June 30, 1997.
The following data are qualified in their entirety by, and should be read in
conjunction with, the historical consolidated financial statements and notes
thereto of each of Getty Communications and PhotoDisc, which are elsewhere
contained in this Prospectus. See "Index to Consolidated Financial Information".
The following pro forma consolidated financial information is provided for
illustrative purposes only and does not purport to represent what the actual
results of operations or financial position of Getty Images would have been had
the Transactions occurred on the respective dates assumed, nor is it necessarily
indicative of Getty Images' future operating results or consolidated financial
position.
The following pro forma consolidated financial information is based upon the
following assumptions and estimates: (i) the Average Trading Price of Getty
Communications ADSs at Closing will be $16.68 (which was the average closing
price of Getty Communications ADSs on the Nasdaq National Market during the ten
trading days prior to October 21, 1997); (ii) the closing trading price of Getty
Communications ADSs on the Nasdaq National Market on the date immediately
preceding the Closing will be $15.625 (which was the closing trading price on
October 20, 1997); (iii) the aggregate transaction expenses to be shared between
PhotoDisc and the holders of shares of PhotoDisc Common Stock in accordance with
the Merger Agreement will be $3,120,000; (iv) the aggregate transaction expenses
incurred by Getty Images will be $6,000,000; (v) no additional options will be
granted by either Getty Communications or PhotoDisc prior to Closing; (vi) no
outstanding options to purchase shares of PhotoDisc Common Stock or Getty
Ordinary Shares will be exercised prior to Closing; (vii) the Merger and the
Scheme of Arrangement qualify as tax-free reorganizations; and (viii) none of
the holders of shares of PhotoDisc Common Stock or Series A Preferred Stock
exercise dissenters' rights in connection with the Merger.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
------------------- -----------------
<S> <C> <C>
$ $
(IN THOUSANDS, EXCEPT LOSS PER SHARE)
PRO FORMA CONSOLIDATED INCOME STATEMENT DATA:
Sales....................................................................... 113,245 68,529
Gross profit................................................................ 75,711 46,914
Operating income before amortization and depreciation....................... 20,821 11,798
Operating income (1)........................................................ 2,911 1,221
Net (loss) (1).............................................................. (5,783 ) (1,961 )
EBITDA (2).................................................................. 20,821 11,798
Loss per share (1)--primary................................................. (0.21 ) (0.07 )
--fully diluted............................................. (0.20 ) (0.07 )
<CAPTION>
AT JUNE 30, 1997
-----------------
$
<S> <C> <C>
PRO FORMA CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................................... 53,878
Total assets................................................................ 370,822
Long-term debt, net of current maturities................................... 49,531
Shareholders' equity........................................................ 269,996
</TABLE>
- ------------------------------
(1) The acquisition of PhotoDisc will generate a significant amount of goodwill
that will be amortized in future periods. The resulting amortization charges
that would have occurred if the combination had taken place on January 1,
1996 is $4.6 million for the six-month period ended June 30, 1997 and $9.3
million for the year ended December 31, 1996. See Note 2(a) to "Unaudited
Condensed Pro Forma Consolidated Financial Information".
(2) As used herein, "EBITDA" is defined as earnings before interest, taxes,
exchange gains /(losses), depreciation and amortization. EBITDA should not
be considered as an alternative to operating income as an indicator of Getty
Images' operating performance or to cash flows as a measure of Getty Images'
liquidity.
14
<PAGE>
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth certain historical per share data for Getty
Communications and PhotoDisc and certain unaudited pro forma and equivalent pro
forma per share data reflecting the completion of the Merger based upon the
historical financial statements of Getty Communications and PhotoDisc. The
following data is derived from, and should be read in conjunction with, the
historical consolidated financial statements of Getty Communications and
PhotoDisc and "Unaudited Condensed Pro Forma Consolidated Financial
Information", in each case including the notes thereto, which are included
elsewhere in this Prospectus. The pro forma information presented below is
presented for information purposes only, and is not necessarily indicative of
the operating results or financial position that would have been obtained had
the Merger been effective during such periods or the operating results or
financial position that may occur or be obtained in the future.
<TABLE>
<CAPTION>
SIX MONTHS ENDED AND AT JUNE 30, 1997
--------------------------------------------------------------
GETTY PHOTODISC PRO
COMMUNICATIONS PHOTODISC GETTY IMAGES FORMA
HISTORICAL (1) HISTORICAL PRO FORMA EQUIVALENT
----------------- ----------- --------------- -------------
<S> <C> <C> <C> <C>
$ $ $ $
Net income/(loss) per share--fully diluted................ 0.06 0.09 (0.07) 0.10
Dividends per share....................................... -- -- -- --
Book value per share...................................... 3.07 0.88 9.92 0.97
<CAPTION>
YEAR ENDED AND AT DECEMBER 31, 1996
--------------------------------------------------------------
GETTY PHOTODISC PRO
COMMUNICATIONS PHOTODISC GETTY IMAGES FORMA
HISTORICAL (1) HISTORICAL PRO FORMA EQUIVALENT
----------------- ----------- --------------- -------------
$ $ $ $
<S> <C> <C> <C> <C>
Net income/(loss) per share............................... 0.10 0.23 (0.20) 0.25
Dividends per share....................................... -- -- -- --
Book value per share...................................... 3.04 0.86 N/A 0.95
</TABLE>
- ------------------------------
(1) Translated into U.S. dollars on the basis specified in "Getty
Communications--Getty Communications' Management's Discussion and Analysis
of Financial Condition and Results of Operations of Getty
Communications--Overview".
15
<PAGE>
RISK FACTORS
GETTY SHAREHOLDERS AND PHOTODISC SHAREHOLDERS ARE BEING ASKED TO APPROVE THE
MERGER AGREEMENT. PURSUANT TO THE TRANSACTIONS, THE HOLDERS OF GETTY ORDINARY
SHARES AND SHARES OF PHOTODISC COMMON STOCK WILL BECOME HOLDERS OF SHARES OF
GETTY IMAGES COMMON STOCK. IN DECIDING WHETHER TO APPROVE THE TRANSACTIONS,
GETTY SHAREHOLDERS AND PHOTODISC SHAREHOLDERS SHOULD CONSIDER CAREFULLY THE
FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS.
DEVELOPMENTAL NATURE OF THE VISUAL CONTENT INDUSTRY
The future growth and profitability of Getty Images will depend in large
measure upon growth in demand for visual content. A visual content industry with
identifiable categories and growth characteristics is a relatively recent
development. The visual content industry is fragmented across all categories and
is experiencing significant structural and technological changes, including
substantial consolidation. To the extent that the visual content industry, or
any sector of that industry in which Getty Communications or PhotoDisc operates,
or in which Getty Images will operate, does not develop as anticipated by Getty
Images, the value of Getty Images, Getty Communications and PhotoDisc or their
results of operations or financial condition could be materially adversely
affected. See "The Visual Content Industry".
RAPID TECHNOLOGICAL CHANGE
The visual content industry is undergoing significant change, primarily due
to technological developments, including methods of storing, retrieving and
delivering visual content. The success of Getty Images will depend, in part, on
its ability to adapt to new technological developments, to license technologies
useful to its business, to develop new services and technology that address the
increasingly sophisticated and varied needs of its customers and prospective
customers, and to respond to technological advances and emerging industry
standards and practices on a cost-effective and timely basis. In response to
technological changes, Getty Images will be required to invest in new
technologies or to modify its existing systems to keep pace with new
developments, such as advances in producing digital images and in delivering
digital images on-line. Getty Images will rely on third parties for a
substantial portion of the hardware, software and software tools that it will
use in its businesses, including, in particular, the hardware, software and
software tools that enable customers and potential customers to access, search
and license images through its Web sites. If suppliers fail to upgrade or
support such systems, the business, financial condition or results of operations
of Getty Images could be adversely affected. There can be no assurance that
Getty Images will successfully use new software and other technologies
effectively or adapt its third-party technology and systems to customer
requirements or emerging industry standards. See "The Visual Content Industry".
SIGNIFICANT COMPETITION
The visual content industry is characterized by strong competition. Getty
Images will compete with a number of large and small visual content providers,
including The Image Bank, Inc. ("The Image Bank"), a wholly owned subsidiary of
Eastman Kodak Company, Visual Communications Group ("Visual Communications"), a
wholly owned subsidiary of United News and Media Group plc, and Corbis
Corporation ("Corbis"), a company controlled by Bill Gates, the Chairman of
Microsoft Corporation. Some of the competitors of Getty Images, including The
Image Bank and Visual Communications, may have access to greater financial,
marketing and other resources than Getty Images. Getty Images will also compete
locally with a number of general and specialized content companies, many of
which are well-established in their local markets. Royalty-free stock
photography agencies have also emerged as an alternative to rights-protected
stock photography businesses for applications where rights-protection and other
services are not customer requirements. In addition, Getty Images will compete
indirectly with commissioned work in contemporary stock photography and footage.
New entrants into the visual content industry could increase
16
<PAGE>
if technological advances make archiving, searching and digital delivery systems
more affordable. Accordingly, the number of competitors could increase, which
could result in lower average sales prices. There can be no assurance that Getty
Images will be able to compete successfully against current or future
competitors or that competitive pressures faced by Getty Images will not have a
material adverse effect on the business, financial condition or results of
operations of Getty Images. See "Getty Images-- Competition".
POTENTIAL DIFFICULTIES IN INTEGRATING OPERATIONS AND IN MANAGING GROWTH AND
EXPANSION
The Merger involves the integration of two companies that have previously
operated independently. The process of coordinating and integrating the two
organizations could cause the interruption of, or a loss of momentum in, the
activities of either or both of the companies' businesses, which could have a
material adverse effect on their combined operations, at least in the near term.
The transition necessary to effect the coordination and integration to a
combined company will require substantial attention from management. Such
transition could be made more difficult as the result of the need to integrate
recent acquisitions by Getty Communications and possible future acquisitions.
See "Getty Communications--Recent Developments". The diversion of management
attention and any difficulties encountered in the integration of recently
acquired businesses could have a material adverse effect on the revenues and
operating results of Getty Images. Goodwill amortization charges and one-time
transaction costs incurred with the Transactions will also adversely affect the
reported operating results of Getty Images. See "The Transactions-- Transaction
Costs". As a result of goodwill to be recorded in connection with the
Transactions, Getty Images will incur significant amortization charges in future
periods, which charges may result in reported net income in future periods being
negative.
In addition, each of Getty Communications and PhotoDisc have grown rapidly
in recent years. The ability of Getty Images to compete effectively and to
manage future growth, if any, will require Getty Images to monitor and upgrade
as appropriate its financial and management controls, to reorient management of
recently acquired businesses to the operating philosophy of Getty Images, to
develop and expand management information systems and to recruit and train
personnel. If Getty Images is unable to manage such recent growth and any future
growth and expansion successfully, its financial condition and results of
operations could be adversely affected.
POTENTIAL ACQUISITIONS
Getty Images will aim to provide high quality, relevant imagery across all
categories of the visual content market to the broadest range of customers in
existing, emerging and new markets, in ways that most appropriately suit their
needs. As part of its strategy to achieve this aim, Getty Images intends to
pursue the acquisition of complementary visual content and other product lines,
assets or technologies that will complement or expand its business. Getty Images
believes that there has recently been an increase in the level of demand for
visual content and a trend toward consolidation in the visual content industry,
both of which have led to increases in the valuations of visual content
businesses and collections. Such increases in valuations are likely to have an
adverse impact on Getty Images' ability to make acquisitions and on its ability
to realize appropriate returns on such acquisitions. Acquisitions also involve a
number of other risks that could adversely affect the business, financial
condition or results of operations of Getty Images, including the diversion of
management's attention, the assimilation of the operations and personnel of the
acquired companies and the potential loss of key employees. No assurance can be
given that Getty Images will be able to identify any suitable acquisition
candidates or to make any acquisitions or that any acquisition by Getty Images
will not adversely affect the business, financial condition and results of
operations of Getty Images or that such acquisitions will enhance the business
of Getty Images.
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INFLUENCE OF PRINCIPAL STOCKHOLDERS
Upon completion of the Transactions, two groups of stockholders will own
substantial percentages of the outstanding shares of Getty Images Common Stock
and as a result will be in a position to exert significant influence in the
election of the directors of Getty Images and other corporate actions that
require shareholder approval. Upon completion of the Transactions (and assuming
that the Average Trading Price of Getty Communications ADSs at Closing is $16.68
and the other assumptions described in "Unaudited Condensed Pro Forma
Consolidated Financial Information"), Getty Investments, Mr. Mark Getty, Mr.
Jonathan Klein, Crediton Limited (owned by a trust established by Mr. Klein) and
the October 1993 Trust (a trust established by Mr. Getty) (collectively, the
"Getty Group") will own approximately percent of the outstanding Getty Images
Shares and PDI, Mr. Mark Torrance, Ms. Wade Torrance and certain of their family
members (collectively, the "Torrance Group") will own approximately percent
of the outstanding Getty Images Shares. See "Getty Images--Expected Stock
Ownership of Directors, Executive Officers and Five Percent Stockholders of
Getty Images Following the Merger". In addition to such ownership of Getty
Images Shares, certain members of each of the Getty Group and the Torrance Group
will have management roles with Getty Images that will increase their influence
over the company and certain members of each group will have other rights and
relationships with the company. See "The Transactions--Interests of Certain
Persons in the Merger", "Getty Images--Certain Related Party Transactions" and
"PhotoDisc--Certain Related Party Transactions".
DEPENDENCE UPON KEY PERSONNEL
Getty Images believes that the performance of Getty Communications and
PhotoDisc has depended to a significant extent, and that the future performance
of Getty Images will depend to a significant extent, upon the services of its
senior management and other key personnel, including, in particular, Mr. Mark
Getty, Chairman of Getty Communications and Co-Chairman of Getty Images, Mr.
Mark Torrance, Chairman and Chief Executive Officer of PhotoDisc and Co-Chairman
of Getty Images, and Mr. Jonathan Klein, Chief Executive Officer of Getty
Communications and Getty Images. The loss of the services of any of Messrs.
Getty, Torrance or Klein could materially adversely affect the future prospects
of Getty Images. The Merger Agreement provides that as a condition to the
closing of the Merger each of Messrs. Getty, Torrance and Klein enter into an
Employment Agreement with Getty Images for a minimum initial term of two years
commencing January 1, 1998. See "Related Agreements--The Employment Agreements".
The future success of Getty Images will also depend upon its ability to
identify, attract, hire, train, retain and motivate highly skilled technical,
managerial, editorial, merchandising, marketing and customer service personnel.
Competition for such personnel is intense, and there can be no assurance that
Getty Images will be able to successfully attract, hire, assimilate or retain
sufficiently qualified personnel. The failure to retain and attract the
necessary technical, managerial, editorial, merchandising, marketing and
customer service personnel could have a material adverse effect on the business,
financial condition or results of operations of Getty Images. See "Getty
Images--Management of Getty Images Following the Merger".
INCREASED LEVELS OF INDEBTEDNESS
Prior to the consummation of the Merger, neither Getty Communications nor
PhotoDisc had any significant levels of indebtedness. To finance the cash
consideration to be paid in the Merger, Getty Images intends to borrow
approximately $43 million from commercial banks. Getty Images is negotiating
terms and conditions for an acquisition loan. See "The Transactions--Financing
for the Merger". Assuming completion of the Merger and taking into account the
financing arranged for it, Getty Images' pro forma consolidated long-term and
short-term debt would have been approximately $50 and $11 million, respectively,
at June 30, 1997. See "Unaudited Condensed Pro Forma Combined Financial
Information". Such borrowings will require Getty Images to make substantial
principal and interest payments during the next several years, which may limit
the payment of cash dividends (although Getty Images has no present
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intention to pay cash dividends in the foreseeable future) and will also require
Getty Images to maintain certain financial ratios, which may have the effect of
restricting the ability of Getty Images to incur additional indebtedness and
limiting other activities of Getty Images. There can be no assurance that the
need to utilize free cash flow to service these obligations may not limit the
ability of Getty Images to take advantage of other business opportunities which
may arise in the future. Such borrowings will bear interest at floating rates,
causing Getty Images to be significantly more sensitive to prevailing interest
rates than was historically the case for Getty Communications or PhotoDisc.
RISKS RELATED TO ELECTRONIC IMAGE DELIVERY SYSTEMS
Future growth in sales and profitability of Getty Images will depend in part
upon the increased acceptance and use of the Internet and other on-line services
as an effective medium of commerce. Rapid growth in the use of and interest in
the Internet, the Web and on-line services is a recent phenomenon, and there can
be no assurance that acceptance and use will continue to develop or that a
sufficiently broad base of users and prospective users of digital images will
adopt, and continue to use, the Internet, the Web and other on-line services as
a medium of commerce. In addition, the Internet, the Web and other on-line
services may not be accepted as a viable commercial marketplace for a number of
reasons, including potentially inadequate development of the necessary network
infrastructure or delayed development of enabling technologies and performance
improvements.
A significant barrier to on-line commerce and communications is the secure
transmission of confidential information over public networks. Getty Images
intends to rely on encryption and authentication technology licensed from third
parties to provide the security and authentication necessary to effect secure
transmission of confidential information, such as customer credit card numbers.
There can be no assurance that advances in computer capabilities or other events
or developments will not result in a compromise or breach of the algorithms used
by Getty Images to protect customer transaction data. If any such compromise or
breach of security were to occur, it could have a material adverse effect on the
reputation and business of Getty Images. A party that is able to circumvent
Getty Images' security measures could misappropriate proprietary information,
including digital images, or cause interruptions in Getty Images' on-line
operations. Concerns over the security of the Internet and other on-line
transactions and the privacy of users may also inhibit the growth of the
Internet and other on-line services generally, and the Web in particular,
especially as a means of conducting commercial transactions.
The success of the on-line operations of Getty Images will also depend in
part upon the efficient and uninterrupted operation of its computer and
communications hardware systems. Such systems and operations are vulnerable to
damage or interruption from fire, flood, power loss, telecommunications failure,
break-ins, earthquake and similar events. While Getty Communications and
PhotoDisc have implemented disaster recovery plans, neither presently has fully
redundant systems and each could suffer significant delays in implementing a
backup system if a major interruption were to occur. In addition, despite the
implementation of network security measures by Getty Communications and
PhotoDisc, their systems and servers are, and the systems and servers of Getty
Images will be, vulnerable to computer viruses, physical or electronic break-ins
and similar disruptions, which could lead to interruptions, delays, loss of
customer data or the inability to accept and fulfill on-line customer orders.
IMPACT OF CHANGES IN FOREIGN EXCHANGE RATES
Historically, Getty Communications has published its consolidated financial
statements in pounds sterling and has conducted a substantial portion of its
business in currencies other than its reporting currency, including a
substantial portion in U.S. dollars. As a result, Getty Communications has been
exposed to changes in the value of currencies against the pound sterling. Upon
completion of the Transactions, Getty Images will publish its consolidated
financial statements in U.S. dollars and will conduct a portion of its business
in currencies other than U.S. dollars, particularly the pound sterling, German
mark and French franc. As a result, Getty Images will be exposed to changes in
the value of
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currencies against the U.S. dollar. Getty Images believes that the proportion of
its revenues that will be earned in currencies other than its reporting currency
will be less after completion of the Transactions than is currently the case for
Getty Communications. Fluctuations in the values of currencies against the U.S.
dollar could affect the translation of the results of non-U.S. based operations
into U.S. dollars for inclusion in the consolidated financial statements of
Getty Images. See "Getty Communications--Getty Communications' Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Getty Communications--Overview".
POSSIBLE VOLATILITY OF STOCK PRICE; FUTURE SALES OF SUBSTANTIAL NUMBERS OF GETTY
IMAGES SHARES COULD HAVE AN ADVERSE EFFECT ON THE MARKET PRICE OF GETTY IMAGES
SHARES
Since the initial public offering of Getty Communications ADSs in June 1996,
the Getty Communications ADSs have been thinly traded, and there has been
significant volatility in the market for Getty Communications ADSs. Following
the Merger, similar volatility may occur in the market for Getty Images Common
Stock.
Sales, or the possibility of sales, of substantial numbers of shares of
Getty Images Common Stock in the public market after the consummation of the
Transactions could adversely affect prevailing market prices of shares of Getty
Images Common Stock. Pursuant to the Merger, the holders of shares of PhotoDisc
Common Stock, for which there has not been a public trading market, will receive
shares of Getty Images Common Stock that will be freely tradeable, subject to
certain restrictions. See "Description of Getty Images Capital Stock--Status of
Getty Images Shares under the Federal Securities Laws; Affiliates". Of the
approximately 27,025,000 shares of Getty Images Common Stock that are expected
to be outstanding upon completion of the Transactions (on the basis of the
assumptions described in "Unaudited Condensed Pro Forma Consolidated Financial
Information"), approximately million shares will be held by the former public
shareholders of Getty Communications, approximately million shares will be
held by other former shareholders of Getty Communications and approximately
million shares will be held by former shareholders of PhotoDisc. In addition,
certain stockholders of Getty Images will have the right pursuant to various
registration rights agreements to request Getty Images to register certain
shares of Getty Images Common Stock for resale under the Securities Act and
certain outstanding options to purchase Getty Ordinary Shares will become
immediately exercisable for shares of Getty Images Common Stock. See "Related
Agreements--The Registration Rights Agreements", "Getty Images-- Certain Related
Party Transactions" and "The Scheme of Arrangement". No predictions can be made
as to the effect, if any, that market sales of Getty Images Shares could have on
the market price of Getty Images Shares prevailing from time to time. Certain
significant stockholders of Getty Images have agreed to enter into a
Stockholders' Agreement on or prior to the Closing which will impose certain
restrictions on their ability to dispose of shares of Getty Images Common Stock.
See "Related Agreements--The Stockholders' Agreement".
ANTI-TAKEOVER CONSIDERATIONS
Following the completion of the Transactions, the Getty Images Board will
have the authority, without stockholder approval, to issue up to shares of
preferred stock and to fix the rights, preferences, privileges and restrictions
of such shares without any further vote or action by the stockholders of Getty
Images. This authority, together with certain provisions of the Amended and
Restated Certificate of Incorporation of Getty Images (the "Getty Images
Certificate of Incorporation") may have the effect of making it more difficult
for a third party to acquire, or discouraging a third party from attempting to
acquire, control of Getty Images, even if stockholders of Getty Images may
consider such change in control to be in their best interests. In addition, the
concentration of beneficial ownership of Getty Images Shares by the Getty Group
and the Torrance Group and certain provisions of Delaware law may have the
effect of delaying, deterring or preventing a hostile takeover of Getty Images.
See "Description of Getty Images Capital Stock".
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THE TRANSACTIONS
THE FOLLOWING SUMMARIZES CERTAIN ASPECTS OF THE TRANSACTIONS. THE SUMMARY
DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE ANNEXES HERETO, INCLUDING THE MERGER AGREEMENT, WHICH IS ATTACHED TO THIS
PROSPECTUS AS ANNEX A AND IS INCORPORATED BY REFERENCE HEREIN. GETTY
SHAREHOLDERS AND PHOTODISC SHAREHOLDERS ARE URGED TO READ SUCH ANNEX IN ITS
ENTIRETY.
A COPY OF THE SHAREHOLDER CIRCULAR THAT IS BEING MAILED TO THE GETTY
SHAREHOLDERS IN CONNECTION WITH THE SCHEME OF ARRANGEMENT (THE "GETTY
SHAREHOLDER CIRCULAR") HAS BEEN FILED AS AN EXHIBIT TO THE REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS IS A PART. GETTY SHAREHOLDERS ARE URGED TO
READ THE GETTY SHAREHOLDER CIRCULAR IN ITS ENTIRETY.
THE MERGER AGREEMENT
The Merger Agreement provides for two core transactions: (i) the merger of
Merger Sub with and into PhotoDisc, pursuant to which the PhotoDisc Common
Shareholders will receive the amount of cash and number of shares of Getty
Images Common Stock specified below for each share of PhotoDisc Common Stock
held; and (ii) the Scheme of Arrangement between Getty Images and Getty
Communications, pursuant to which the Getty Shareholders will be issued one
share of Getty Images Common Stock for every two Getty Ordinary Shares held of
record by such holders, and Getty Communications will become a wholly owned
subsidiary of Getty Images.
THE MERGER
The Merger Agreement provides that, subject to the terms and conditions of
the Merger Agreement and in accordance with the WBCA, at the Effective Time,
Merger Sub will be merged with and into PhotoDisc. PhotoDisc will continue as
the surviving corporation of the Merger (the "Surviving Corporation"), and will
continue its corporate existence under Washington law and as a direct wholly
owned subsidiary of Getty Images. The PhotoDisc Articles of Incorporation, as in
effect immediately prior to the Effective Time, will be the articles of
incorporation of the Surviving Corporation, and the by-laws of Merger Sub, as in
effect immediately prior to the Effective Time, will be the by-laws of the
Surviving Corporation. Upon consummation of the Merger, each share of PhotoDisc
Common Stock issued and outstanding immediately prior to the Effective Time will
be converted into the right to receive the Merger Consideration.
If necessary to ensure that the Merger can be effected as a tax-free
reorganization for U.S. federal income tax purposes, Getty Images can elect
either (i) to have PhotoDisc merge with and into Merger Sub, with Merger Sub as
the surviving corporation in the Merger, or (ii) to reduce, to the minimum
extent necessary to enable the Merger to qualify as a tax-free reorganization,
the cash component of the Merger Consideration and to substitute for such cash
shares of Getty Images Common Stock as specified in the Merger Agreement.
THE SCHEME OF ARRANGEMENT
The Merger Agreement provides that Getty Communications and Getty Images
will enter into the Scheme of Arrangement pursuant to which, at the Effective
Time, subject to the requisite approvals of the Getty Shareholders, the sanction
of the English High Court and the satisfaction or waiver (where permissible) of
certain other conditions, each issued Getty Ordinary Share will be cancelled,
the Getty Shareholders will be issued one share of Getty Images Common Stock for
every two Getty Ordinary Shares held of record by such holders, and Getty
Communications will become a wholly owned subsidiary of Getty Images. See "The
Scheme of Arrangement".
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MERGER CONSIDERATION
At the Effective Time, each share of PhotoDisc Common Stock issued and
outstanding immediately prior to the Effective Time, other than any shares owned
by PhotoDisc, Getty Images, Getty Communications or any of their respective
subsidiaries, will be cancelled and converted into the right to receive the
Stock Consideration and the Cash Consideration.
The Stock Consideration per share of PhotoDisc Common Stock will be the
number of shares of Getty Images Common Stock equal to the number obtained by
applying the following formula: (i) 12.4 million; (ii) subtracting from 12.4
million the result obtained by dividing (A) the amount of the cash payment
payable to the holders of shares of Series A Preferred Stock immediately prior
to the Effective Time pursuant to the PhotoDisc Articles of Incorporation by (B)
the Average Trading Price of Getty Communications ADSs at Closing; (iii)
subtracting from the result obtained in (ii) above the result obtained by
dividing (A) 50% of the transaction expenses as determined in accordance with
the Merger Agreement, by (B) the Average Trading Price of Getty Communications
ADSs at Closing; (iv) dividing the result obtained in (iii) above by the fully
diluted number of shares of PhotoDisc Common Stock outstanding immediately prior
to the Effective Time (such result being the "PhotoDisc Exchange Ratio"); and
(v) multiplying the result obtained in (iv) above by 0.8.
If the Average Trading Price of Getty Communications ADSs at Closing is
greater than or equal to $12.00, the Cash Consideration per share of PhotoDisc
Common Stock will be the amount in cash, without interest, equal to the Average
Trading Price of Getty Communications ADSs at Closing less 10 percent,
multiplied by the PhotoDisc Exchange Ratio and multiplied by 0.2. If the Average
Trading Price of Getty Communications ADSs at Closing is less than $12.00, the
Cash Consideration per share of PhotoDisc Common Stock will be the amount in
cash, without interest, equal to the Average Trading Price of Getty
Communications ADSs at Closing, multiplied by the PhotoDisc Exchange Ratio and
multiplied by 0.2.
Assuming that the Average Trading Price of Getty Communications ADSs at
Closing is $16.68 (which was the average closing price during the ten trading
days prior to October 21, 1997) and certain other assumptions as described in
"Unaudited Condensed Pro Forma Consolidated Financial Information", (i) the
Merger Consideration per share of PhotoDisc Common Stock will consist of 0.7279
shares of Getty Images Common Stock and $2.73 in cash (for an aggregate of
approximately 7.87 million shares of Getty Images Common Stock (exclusive of
shares of Getty Images Common Stock to be reserved for issuance in respect of
outstanding options to purchase shares of PhotoDisc Common Stock) and
approximately $29.5 million in cash) and (ii) upon closing of the Merger and the
Scheme of Arrangement, Getty Shareholders and PhotoDisc Common Shareholders
would own approximately 71% and 29%, respectively, of the then outstanding
shares of Getty Images Common Stock.
PHOTODISC OPTIONS, WARRANTS AND SERIES A PREFERRED STOCK
As of September 30, 1997, options were outstanding under the PhotoDisc Stock
Option Plan to purchase up to 2,620,300 shares of PhotoDisc Common Stock, of
which options to purchase 1,549,226 shares of PhotoDisc Common Stock are
currently exercisable.
Pursuant to the Merger Agreement, all outstanding PhotoDisc Options, whether
or not exercisable or vested, will remain outstanding after the Effective Time
and will be assumed by Getty Images. Each PhotoDisc Option will be exercisable
upon the same terms and conditions as under the PhotoDisc Stock Option Plan and
the applicable option agreement issued thereunder, except that (i) each such
PhotoDisc Option will be exercisable for that whole number of shares of Getty
Images Common Stock (rounded down to the nearest whole share) determined by
multiplying the number of shares of PhotoDisc Common Stock subject to such
PhotoDisc Option immediately prior to the Effective Time by the PhotoDisc
Exchange Ratio and (ii) the option price per share of Getty Images Common Stock
will be an amount equal to the option price per share of PhotoDisc Common Stock
subject to such PhotoDisc Option in
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effect immediately prior to the Effective Time divided by the PhotoDisc Exchange
Ratio (the option price per share, as so determined, being rounded up to the
nearest full cent).
As soon as practicable after the Effective Time, Getty Images will extend an
offer to each holder of PhotoDisc Options who, immediately prior to the
Effective Time held PhotoDisc Options to purchase more than 500 shares of
PhotoDisc Common Stock, to purchase from such holder a number of such options
representing 20% of the number of shares of Getty Images Common Stock subject to
such options for an amount in cash, without interest, per share of Getty Images
Common Stock equal to the difference between the Cash Value of Getty
Communications ADSs at Closing (as defined below) and the exercise price per
share of Getty Images Common Stock determined in accordance with the Merger
Agreement (which would represent options to purchase an aggregate of
shares of Getty Images Common Stock for an aggregate consideration of
approximately $ million. If requested by Getty Images prior to the
Effective Time and in lieu of the offer by Getty Images described in the
previous sentence, PhotoDisc will, prior to the Effective Time, extend the
comparable offer, adjusted to appropriately reflect the PhotoDisc Exchange
Ratio, to holders of PhotoDisc Options immediately prior to the Effective Time
to purchase PhotoDisc Options conditional on Closing and as of the Effective
Time. The Cash Value of Getty Communications ADSs means (i) if the Average
Trading Price of Getty Communications ADSs at Closing is greater than or equal
to $12.00, the Average Trading Price of Getty Communications ADSs at Closing
multiplied by 0.9 or (ii) if the Average Trading Price of Getty Communications
ADSs at Closing is less than $12.00, the Average Trading Price of Getty
Communications ADSs at Closing.
Holders of PhotoDisc Options or options to purchase shares of Getty Images
Common Stock to whom such offer is extended may accept such offer and receive
immediate payment with respect to either then vested options or with respect to
then unvested options, with such holder's remaining options continuing to vest
over the vesting period on a pro rata basis. Pursuant to a letter agreement,
dated September 15, 1997, ten option holders holding options to purchase
2,140,600 shares of PhotoDisc Common Stock agreed to accept such offer.
As of September 30, 1997, warrants (the "PhotoDisc Common Stock Warrants")
to purchase 668,472 shares of PhotoDisc Common Stock were outstanding. Such
PhotoDisc Common Stock Warrants were held by the following persons: (i) PDI,
L.L.C. with respect to 592,472 shares of PhotoDisc Common Stock of which 91,592
were exercisable at an exercise price of $0.1575 per share and 500,880 were
exercisable at an exercise price of $0.1250 per share; and (ii) Mr. Mark
Callaghan with respect to 76,000 shares of PhotoDisc Common Stock at an exercise
price of $0.1575 per share. Pursuant to the Merger Agreement, PhotoDisc agreed
to demand that the holders of the PhotoDisc Common Stock Warrants exercise such
warrants in accordance with the terms of the warrants, with such exercise to
occur immediately prior to and conditional upon the Closing.
As of September 30, 1997, there were 1,701,879 shares of Series A Preferred
Stock outstanding, which were held by 13 holders of record. Pursuant to the
terms of the PhotoDisc Articles of Incorporation, shares of Series A Preferred
Stock are convertible on a one-for-one basis into shares of PhotoDisc Common
Stock at the option of the holder. As a result of the Merger, the holders of
shares of Series A Preferred Stock will also be entitled to receive a cash
payment from PhotoDisc in an amount that depends upon the value of the Merger at
Closing. Getty Images has assumed the obligation to make this cash payment.
Assuming that the Average Trading Price of Getty Communications ADSs at Closing
is $16.68 (which was the average closing price during the ten trading days prior
to October 21, 1997) and certain other assumptions described in "Unaudited
Condensed Pro Forma Consolidated Financial Information", the aggregate amount of
the cash payment due and payable at Closing to holders of shares of Series A
Preferred Stock would be approximately $1.5 million.
BACKGROUND OF THE TRANSACTIONS
During the second half of 1996 and 1997, directors of Getty Communications
from time to time considered the strategy of Getty Communications with respect
to entering the royalty-free business. These
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considerations included plans for developing Getty Communications' own
royalty-free business and preliminary discussions with representatives of
royalty-free companies about various potential transactions.
During the week of July 14, 1997, Mark Getty and Mark Torrance discussed the
possibility of a business combination between Getty Communications and
PhotoDisc. These discussions centered on whether the corporate and management
philosophies of Getty Communications and PhotoDisc were compatible.
At the conclusion of such discussions, Mr. Getty and Mr. Torrance agreed
that they would consult with their management colleagues to consider whether
there was a basis upon which to explore a business combination. No agreements or
understandings were reached as a result of these discussions and no confidential
information was exchanged.
During the week of July 21, 1997, discussions were held by Mr. Nick
Evans-Lombe of Getty Communications and representatives of BT Alex. Brown,
financial advisor to Getty Communications, on certain issues that would arise in
relation to a potential merger between Getty Communications and PhotoDisc
including the structure by which a business combination could be effected, the
equity share capital of the combined entity, comparative valuations of Getty
Communications and PhotoDisc, and the relative contribution that would be made
to the combined entity by each of Getty Communications and PhotoDisc.
On Friday, July 25, 1997, a meeting was held in Seattle attended by Mr.
Getty, Mr. Klein and Mr. Evans-Lombe of Getty Communications, Mr. Torrance, Mr.
Chamberlain, Mr. Heston, Ms. Redman and Mr. Child, each an officer or director
of PhotoDisc, and representatives of legal counsel to each of Getty
Communications and PhotoDisc. These preliminary discussions related to the
possible benefits of a business combination, possible structures for a business
combination and the relative valuation of Getty Communications and PhotoDisc in
any such business combination.
No agreements or understandings were reached as a result of these
discussions, but it was agreed that BT Alex. Brown and BARS, financial advisor
to PhotoDisc, should continue exploratory discussions relating to the terms of a
possible transaction.
On Tuesday, July 29, 1997, discussions took place in San Francisco between
Mr. Getty and Mr. Klein of Getty Communications and Mr. Torrance, Mr.
Chamberlain, Mr. Heston and Ms. Redman of PhotoDisc, together with
representatives of BARS and legal counsel to Getty Communications. The matters
discussed included the possible structure of any business combination, the name
of the merged entity, and the management and operating structure of the merged
entity including management positions and reporting lines. BT Alex. Brown, on
behalf of Getty Communications, and BARS, on behalf of PhotoDisc, were
instructed to discuss the financial aspects of the proposed business
combination, including the relative values of Getty Communications and PhotoDisc
and the terms on which any business combination might be consummated.
On July 30, 1997, a board meeting of Getty Communications was held at which
a presentation by management was made as to the possibility of a transaction
with PhotoDisc. It was noted that the discussions with PhotoDisc were at an
exploratory stage and that to date no confidential information had been
exchanged. The Board authorized Mr. Getty and Mr. Klein to pursue the
possibility of a transaction with PhotoDisc.
On Friday, August 1, 1997, further discussions took place in San Francisco.
These discussions were attended by Mr. Getty and Mr. Klein of Getty
Communications, Mr. Torrance, Mr. Chamberlain, Mr. Heston and Ms. Redman of
PhotoDisc, and representatives of BT Alex. Brown, BARS and legal counsel to
Getty Communications. The parties discussed numerous issues regarding a
combination of Getty Communications and PhotoDisc, including the relative
contributions of each to a combined business and different exchange ratios of
shares in relation to both Getty Communications and PhotoDisc. As a result of
these discussions, management of each of Getty Communications and PhotoDisc came
to believe that a business combination between Getty Communications and
PhotoDisc might be possible and would
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be desirable. Accordingly, following these discussions, the management of each
of Getty Communications and PhotoDisc commenced work with its respective
advisers to carry out the necessary due diligence and other work to determine
whether a business combination could be achieved.
In the week of August 4, 1997, representatives of Getty Communications
visited PhotoDisc's premises and representatives of PhotoDisc, accompanied by
representatives from BARS, visited Getty Communications' London premises. In
that week, discussions continued, particularly in relation to the management and
operating structure of the combined entity and arrangements between shareholders
of the merged company. On August 5, 1997, Getty Communications and PhotoDisc
executed a Confidentiality Agreement that provided that neither of them would
publicly disclose confidential information obtained from the other.
During discussions in London on Friday, August 8, 1997, management of each
of Getty Communications and PhotoDisc confirmed that they still believed that a
business combination between Getty Communications and PhotoDisc was possible and
desirable and that detailed due diligence should commence as well as discussions
with a view to reaching agreement on the terms of a possible transaction.
On August 20, 1997, Getty Communications and PhotoDisc executed a Standstill
Agreement providing that neither of them would engage in discussions with any
other person regarding possible business combinations or, in the case of Getty
Communications, the commencement of a royalty-free business, for a period
expiring on September 12, 1997.
From August 11 until early September 1997, senior management of Getty
Communications and PhotoDisc, assisted by their legal, financial and accounting
advisers, exchanged due diligence materials and conducted due diligence
investigations. In late August, counsel to Getty Communications delivered
initial drafts of the Merger Agreement and related agreements to PhotoDisc. On
several occasions throughout these discussions, management of PhotoDisc
conferred with certain members of the PhotoDisc Board concerning the terms of
the proposed Merger and the status of various issues.
On August 20, 1997, the Board of Getty Communications had a special meeting
to consider a potential business combination between Getty Communications and
PhotoDisc. At that meeting, Mr. Getty and Mr. Klein made a presentation to the
Board concerning various aspects of the proposed transaction. In particular,
they described to the Board (i) various operating and financial characteristics
of PhotoDisc and Getty Communications and PhotoDisc combined, (ii) the structure
of a proposed transaction between Getty Communications and PhotoDisc in which
the shareholders of each company would receive an interest in the merged entity
in the form of ordinary shares of common stock, (iii) issues to be resolved
prior to the parties reaching a definitive agreement (including due diligence,
relative valuation, transaction structure, negotiation and execution of
definitive transaction documentation, development of combined business operating
and financial plans and agreement of management and operating structure), and
(iv) a potential timetable for the negotiation, public announcement and
completion of the transaction. Following these presentations, the Getty
Communications Board authorized management and its advisers to continue
discussions with PhotoDisc and its advisers.
On September 5, 1997, Messrs. Getty, Klein and Torrance, together with legal
and financial advisors, met in London, England to discuss various issues
regarding the proposed business combination including, among other things, the
appropriate exchange ratio and the amount of cash to be paid to the PhotoDisc
stockholders in the Merger. On the basis of their discussions, Messrs. Getty and
Klein, on behalf of Getty Communications, and Mr. Torrance, on behalf of
PhotoDisc, instructed their respective legal and financial advisors to attempt
to negotiate and finalize the Merger Agreement and related agreements.
During the week of September 7, 1997, counsel to Getty Communications and
PhotoDisc exchanged several drafts of the Merger Agreement and related
agreements, and the representatives of the parties met in San Francisco numerous
times to resolve outstanding issues under the agreements.
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On September 10, 1997, the Getty Communications Board held a special meeting
to consider approval of the Merger. At the meeting, Mr. Getty and Mr. Klein,
representatives of BT Alex. Brown and of legal counsel to Getty Communications
made further presentations and reviewed the terms of the Merger Agreement, the
business and prospects of Getty Communications, the potential Scheme of
Arrangement with Getty Images and the potential combination of Getty
Communications with PhotoDisc. In particular, BT Alex. Brown and Clifford Chance
discussed with the Getty Communications Board the status of the negotiations for
the Merger Agreement. In addition, the Getty Communications Board considered a
number of factors, both positive and negative, to Getty Communications and its
shareholders in connection with the evaluation of the Transactions. These
factors are described in more detail in "The Transactions--Getty Communications'
Reasons for the Transactions; Recommendation of the Board of Directors of Getty
Communications". BT Alex. Brown also advised the Getty Communications Board as
to the fairness of the Merger Consideration from a financial point of view to
Getty Communications. See "--Opinion of BT Alex. Brown, Financial Advisor to
Getty Communications".
Following discussions, the Getty Communications Board unanimously approved
the Transactions, subject to the satisfactory resolution by management of a
limited number of outstanding issues, and determined that the terms and
conditions of the Merger Agreement were fair to and in the best interests of the
shareholders of Getty Communications. Accordingly, the Getty Communications
Board unanimously approved the form of the Merger Agreement and unanimously
recommended that the shareholders vote for approval of the Transaction at the
Getty Shareholder Meetings.
On September 13, 1997, the PhotoDisc Board held a special meeting to
consider approval of the Merger. At the meeting, Mr. Torrance, Ms. Redman and
Mr. Chamberlain, representatives of BARS and of legal counsel to PhotoDisc made
presentations concerning the structure and terms of the proposed Merger and the
Merger Agreement, the results of due diligence conducted with respect to the
business of Getty Communications, recent results of operations of PhotoDisc and
a variety of other matters related to the potential combination of PhotoDisc and
Getty Communications. The PhotoDisc Board considered a number of factors, both
positive and negative, to PhotoDisc and its shareholders in connection with
evaluation of the proposed Merger. These factors are described in more detail in
"The Transactions-- PhotoDisc's Reasons for the Merger; Recommendation of the
Board of Directors of PhotoDisc". BARS also delivered its opinion, dated
September 13, 1997, that the Net Purchase Price was fair from a financial point
of view to the shareholders of PhotoDisc. See "--Opinion of BancAmerica
Robertson Stephens, Financial Advisor to PhotoDisc".
On September 15, 1997, PhotoDisc and Getty Communications finalized and
executed the Merger Agreement and related agreements.
On September 16, 1997, PhotoDisc and Getty Communications publicly announced
the terms of the Transactions.
On November , 1997, Getty Communications and PhotoDisc commenced the
mailing of this Prospectus to the shareholders of Getty Communications and
PhotoDisc.
GETTY COMMUNICATIONS' REASONS FOR THE TRANSACTIONS; RECOMMENDATION OF THE BOARD
OF DIRECTORS OF GETTY COMMUNICATIONS
At a special meeting of the Getty Communications Board held on September 10,
1995, the Getty Communications Board received presentations concerning, and
reviewed the terms of the Merger Agreement with members of Getty Communications'
management and its legal counsel and financial advisors and also received
presentations from Getty Communications' management and representatives of BT
Alex. Brown concerning the potential combination of Getty Communications with
PhotoDisc. At the meeting, the Getty Communications Board determined that the
Transactions, upon the terms and conditions set forth in the Merger Agreement,
are fair to, and in the best interests of, the shareholders of Getty
Communications. Accordingly, the Getty Communications Board has unanimously
adopted the
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Merger Agreement and resolved to proceed with the Transactions and unanimously
recommends that the Getty Shareholders vote for approval of the Scheme of
Arrangement and the related transactions at the Getty Shareholder Meetings. See
"--Background of the Transactions" and "--Interests of Certain Persons in the
Merger".
In reaching its determination, the Getty Communications Board consulted with
Getty Communications' management, as well as its legal counsel and financial
advisors, and considered a number of factors and benefits to Getty
Communications and its shareholders in connection with its evaluation of the
transactions, including the factors described below:
(i) The Getty Communications Board considered the complementary nature
of Getty Communications' and PhotoDisc's respective businesses, products,
assets, managements, strategic objective and prospects, which would enable
Getty Images to benefit from the economies of scale and other operational
benefits.
(ii) The Getty Communications Board considered the strong financial
condition, strong results of operations and favorable cash flows of each of
Getty Communications and PhotoDisc, both on a historical and on a
prospective basis.
(iii) The Getty Communications Board considered the presentation of BT
Alex. Brown delivered to the Getty Communications' Board at its meeting on
September 10, 1997, including BT Alex. Brown's oral opinion to the effect
that, as of September 10, 1997, the Merger Consideration to be paid by Getty
Communications pursuant to the Merger Agreement is fair, from a financial
point of view, to Getty Communications. See "--Opinion of BT Alex. Brown
International, Financial Advisor to Getty Communications".
(iv) The Getty Communications Board considered the terms and conditions
of the Merger Agreement, including the form of the consideration, the
parties' representations, warranties, covenants and agreements, and the
conditions to their respective obligations set forth in the Merger
Agreement. See "The Merger Agreement".
(v) The Getty Communications Board considered the recent growth rates in
the visual content market, and in particular in the royalty-free segment, in
Web-based transactions and in the existing businesses of Getty
Communications, which provides potential opportunities for high revenue
growth rates of the combined companies.
(vi) The Getty Communications Board considered the complementary nature
of the market serviced by and the client bases of Getty Communications and
PhotoDisc. PhotoDisc's leadership in the royalty-free section of stock
photography market would complement Tony Stone Images' market leadership in
rights-protected licensing. The client bases of the combined companies would
give Getty Images a customer base which would cover the broad range of
traditional customers, from the rights-protected licensing market, and new
customers, from multimedia, corporate communications and small businesses,
attracted by the simplicity of the royalty-free services developed by
PhotoDisc.
(vii) The Getty Communications Board's belief that Getty Images would be
able to apply the technological capabilities of Getty Communications and
PhotoDisc to offer increased access to their combined wealth of high quality
content, to enhance the quality and quantity of images available to
customers and to deliver such images in a faster and more flexible,
efficient manner.
(viii) The Getty Communications Board considered that Getty Communications
and PhotoDisc have strong customer-led philosophies, with a focus on
providing superior levels of product and service to their clients.
(ix) The Getty Communications Board considered the probable favorable
market reaction to the elimination of the dual class capital structure of
Getty Communications in favor of the single class capital structure of Getty
Images.
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The Getty Communications Board also identified and considered a variety of
potentially negative factors in its deliberations concerning the Transactions,
including, but not limited to: (i) the timing and risks associated with the
integration of PhotoDisc with Getty Communications and the other business that
Getty Communications has recently acquired and whether the potential benefits
sought in the Transactions and such other acquisitions might not be fully
realized; (ii) the requirement that the Merger be approved by the Getty
Shareholders; (iii) the risk associated with the fact that there would be a new
significant minority shareholder of Getty Images; (iv) the possibility of
management disruptions associated with the Merger and the risk that, despite the
efforts of Getty Communications and PhotoDisc, PhotoDisc may not attract and
retain key management, marketing and technical personnel after the consummation
of the Merger; (v) the charges to be incurred in connection with the
Transactions, including the costs of integrating the business and transaction
expenses arising from the Transactions; and (vi) the other risks described under
"Risk Factors" herein. The Getty Communications Board believed that these
potentially negative factors were outweighed by the potential benefits of the
Transactions.
The foregoing discussion of the information and factors considered and given
weight by the Getty Communications Board is not intended to be exhaustive. In
view of the wide variety of factors considered in connection with its evaluation
of the terms of the Merger Agreement, the Getty Communications Board did not
find it practicable to, and did not, quantify or otherwise attempt to assign
relative weights to the specific factors considered in reaching their
determinations. In addition, individual members of the Getty Communications
Board may have given different weight to different factors. See "--Interests of
Certain Persons in the Merger".
THE GETTY COMMUNICATIONS BOARD BELIEVES THAT THE TRANSACTIONS ARE IN THE
BEST INTERESTS OF GETTY COMMUNICATIONS AND ITS SHAREHOLDERS. THE GETTY
COMMUNICATIONS BOARD UNANIMOUSLY RECOMMENDS THAT GETTY SHAREHOLDERS VOTE FOR
APPROVAL OF THE SCHEME OF ARRANGEMENT AND THE RELATED TRANSACTIONS.
OPINION OF BT ALEX. BROWN INTERNATIONAL, FINANCIAL ADVISOR TO GETTY
COMMUNICATIONS
Getty Communications utilized the services of BT Alex. Brown to act as Getty
Communications' financial advisor in connection with the Merger, including
rendering its opinion to the Getty Communications Board as to the fairness, from
a financial point of view to Getty Communications, of the Merger Consideration
being paid by Getty Communications.
On September 10, 1997, representatives of BT Alex. Brown rendered BT Alex.
Brown's oral opinion, subsequently confirmed in writing as of the same date,
that, as of such date, and subject to the assumptions made, matters considered
and limitations set forth in such opinion and summarized below, the Merger
Consideration payable by Getty Communications was fair, from a financial point
of view, to Getty Communications. No limitations were imposed by the Getty
Communications Board upon BT Alex. Brown with respect to the investigations made
or procedures followed by it in rendering its opinion.
THE FULL TEXT OF BT ALEX. BROWN'S WRITTEN OPINION DATED SEPTEMBER 15, 1997
(THE "BT ALEX. BROWN OPINION") WHICH SETS FORTH, AMONG OTHER THINGS, ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED
TO THIS PROSPECTUS AS APPENDIX C AND IS INCORPORATED HEREIN BY REFERENCE. GETTY
SHAREHOLDERS ARE URGED TO READ THE BT ALEX. BROWN OPINION IN ITS ENTIRETY. THE
BT ALEX. BROWN OPINION IS DIRECTED TO THE GETTY COMMUNICATIONS BOARD, ADDRESSES
ONLY THE FAIRNESS OF THE MERGER CONSIDERATION PAYABLE BY GETTY COMMUNICATIONS
FROM A FINANCIAL POINT OF VIEW AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
GETTY SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE GETTY
SHAREHOLDER MEETINGS. THE BT ALEX. BROWN OPINION WAS RENDERED TO THE GETTY
COMMUNICATIONS BOARD FOR ITS CONSIDERATION IN DETERMINING WHETHER TO APPROVE THE
MERGER AGREEMENT. THE DISCUSSION OF THE BT ALEX. BROWN OPINION IN THIS
PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE BT
ALEX. BROWN OPINION.
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In connection with the BT Alex. Brown Opinion, BT Alex. Brown made certain
material assumptions which are set forth in the following paragraphs. BT Alex.
Brown reviewed certain publicly available financial information and other
information concerning Getty Communications and PhotoDisc and certain other
internal information furnished by Getty Communications and PhotoDisc. BT Alex.
Brown also held discussions with the members of the senior managements of Getty
Communications and PhotoDisc regarding the businesses and prospects of their
respective companies and the combined company. In addition, BT Alex. Brown (i)
reviewed the reported prices and trading activity for the Getty Communications
ADSs, (ii) compared certain financial and stock market information for Getty
Communications with similar information for certain other companies whose
securities are publicly traded, (iii) reviewed the financial terms of certain
recent business combinations which were deemed comparable in whole or in part,
(iv) reviewed the terms of the Merger Agreement and certain related documents,
and (v) performed such other studies and analyses and considered such other
factors as it deemed appropriate.
In conducting its review and arriving at its opinion, BT Alex. Brown assumed
and relied upon, without independent verification, the accuracy, completeness
and fairness of the information furnished to or otherwise reviewed by or
discussed with it for purposes of rendering its opinion. With respect to the
financial projections of Getty Communications and PhotoDisc and other
information relating to the prospects of Getty Communications and PhotoDisc
provided to BT Alex. Brown by each company, BT Alex. Brown assumed that such
projections and other information were reasonably prepared and reflected the
best currently available judgments and estimates of the respective managements
of Getty Communications and PhotoDisc as to the likely future financial
performances of their respective companies. The financial projections of Getty
Communications and PhotoDisc that were provided to BT Alex. Brown were utilized
and relied upon by BT Alex. Brown in the Contribution Analysis, Discounted Cash
Flow Analysis, IPO Analysis and Pro Forma Combined Cash Flow and Earnings
Analysis summarized below. BT Alex. Brown did not make and it was not provided
with an independent evaluation or appraisal of the assets of Getty
Communications and PhotoDisc, nor has BT Alex. Brown been furnished with any
such evaluations or appraisals. The BT Alex. Brown Opinion is based on market,
economic and other conditions as they existed and could be evaluated as of the
date of the opinion letter. BT Alex. Brown noted that the Merger Consideration
payable by Getty Communications was $165.8 million as of the date of the
analyses performed for the BT Alex. Brown Opinion.
The following is a summary of the analyses performed and factors considered
by BT Alex. Brown in connection with the rendering of the BT Alex. Brown
Opinion.
HISTORICAL FINANCIAL POSITION
In rendering its opinion, BT Alex. Brown reviewed and analyzed the
historical and current financial condition of Getty Communications and
PhotoDisc, which included (i) an assessment of their respective recent financial
statements, and (ii) an analysis of their respective revenue, cash flow, growth
and operating performance trends.
ANALYSIS OF CERTAIN PUBLICLY TRADED COMPANIES--PHOTODISC
This analysis examines a company's valuation as compared to the valuation in
the public market of selected publicly traded companies. BT Alex. Brown compared
certain financial information (utilizing the valuation measurements described
below) relating to PhotoDisc, a private company, to certain corresponding
information for a selected group of four publicly traded companies in the
business services industry (consisting of CBT Group PLC, Gartner Group Inc.,
Sitel Corporation and Sylvan Learning Systems, Inc. (collectively, the "Business
Services Firms")) and certain corresponding information for a selected group of
four publicly traded companies in the on-line commerce industry (consisting of
Amazon.com, Inc., C--Net, Inc., E*TRADE Group, Inc. and ONSALE, Inc.
(collectively, the "On-line Commerce Firms")). Such financial information
included, among other things, (i) market trading multiples as of September 12,
1997 based on their enterprise values, and (ii) market trading multiples as of
September 12, 1997 based on
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their equity market values. The financial information used in connection with
the multiples provided below with respect to the Business Services Firms and the
On-line Commerce Firms was based on the latest reported twelve-month period as
derived from publicly available information and on estimated EPS for calendar
years 1997 and 1998 as reported by IBES. Revenue estimates for calendar years
1997 and 1998 for the Online Commerce Firms were derived from BT Alex. Brown
Incorporated research for Amazon.com and ONSALE, from Montgomery Securities
research for C--Net, and Robertson Stephens research for E*TRADE. BT Alex. Brown
noted that the mean multiple for enterprise value to trailing twelve-month
revenue for the Business Services Firms was 7.8x with a range of 1.8x to 17.1x,
resulting in a mean implied valuation for PhotoDisc of $281.8 million with a
range of $68.4 million to $615.6 million, and that the mean of the same
multiples for the On-line Commerce Firms was 15.2x with a range of 8.0x to
20.4x, resulting in mean implied valuation for PhotoDisc of $547.2 million with
a range of $290.1 million to $733.8 million. BT Alex. Brown noted that the mean
multiple of enterprise value to calendar year 1998 revenue for the On-line
Commerce Firms was 5.3x with a range of 1.6x to 8.2x, resulting in a mean
implied valuation for PhotoDisc of $331.5 million with a range of $102.7 million
to $507.8 million. BT Alex. Brown noted that the mean multiple of enterprise
value to trailing twelve-month EBITDA of the Business Services Firms was 41.5x
with a range of 12.5x to 72.7x, resulting in a mean implied valuation for
PhotoDisc of $236.8 million with a range of $73.1 million to $413.1 million. BT
Alex. Brown noted that the mean multiple of equity value to calendar year 1998
net income of the Business Services Firms was 32.1x with a range of 16.4x to
51.1x, resulting in a mean implied valuation for PhotoDisc of $195.3 million
with a range of $100.0 million to $310.7 million.
ANALYSIS OF IPO-VALUATION--PHOTODISC
BT Alex. Brown analyzed the potential value of PhotoDisc in an initial
public offering based on PhotoDisc's net income and revenue forecast for
calendar year 1998. BT Alex. Brown noted that, based on net income multiples
derived from the analysis of the Business Services Firms of 25.0x to 35.0x
calendar year 1998 net income, PhotoDisc's implied equity market valuation would
be $152.1 million to $213.0 million. BT Alex. Brown noted that, based on revenue
multiples derived from the analysis of the On-line Commerce Firms of 2.5x to
3.5x calendar year 1998 revenue, PhotoDisc's implied equity market valuation
would be $157.3 million to $219.3 million.
ANALYSIS OF SELECTED MERGERS AND ACQUISITIONS
BT Alex. Brown reviewed the financial terms, to the extent publicly
available, of eight completed mergers and acquisitions since 1994, including
four transactions in the software industry and four transactions in the visual
content industry. BT Alex. Brown calculated various financial multiples based on
certain publicly available information for each of the transactions. BT Alex.
Brown noted that none of the deals analyzed were truly representative, in part
due to the lack of publicly available information. BT Alex. Brown noted that the
mean multiple of enterprise value to trailing twelve-month revenue was 4.0x with
a range of 1.4x to 9.5x, resulting in a mean implied valuation for PhotoDisc of
$145.7 million with a range of $53.8 million to $344.3 million. BT Alex. Brown
noted that the mean multiple of equity value to trailing twelve-month net income
was 57.4x with a range of 18.0x to 181.4x, resulting in a mean implied valuation
for PhotoDisc of $154.9 million with a range of $48.6 million to $490.1 million.
All multiples for the selected mergers and acquisitions were based on public
information available at the time of announcement of such transaction, without
taking into account differing market and other conditions over the period during
which the transactions occurred.
CONTRIBUTION ANALYSIS
BT Alex. Brown analyzed the relative contributions of PhotoDisc and Getty
Communications to the pro forma income statement of the combined company, based
on historical data and projections for calendar years 1997 and 1998 for their
respective companies and compared such percentage contributions
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to PhotoDisc's relative pro forma ownership of the outstanding fully-diluted
capital of the combined company. BT Alex. Brown noted that due to PhotoDisc's
rapid historical growth and limited operating history, BT Alex. Brown focused
its attention on 1998 anticipated contribution. BT Alex. Brown's analysis showed
that on a pro forma combined basis (excluding (i) the effect of any synergies
that may be realized as a result of the Merger and (ii) non-recurring expenses
relating to the Merger), PhotoDisc would account for a percentage of the
combined company's pro forma revenue, pro forma EBITDA and pro forma net income
for the projected 1998 calendar year slightly in excess of the interest that
PhotoDisc Common Shareholders will receive in the Merger.
PRO FORMA COMBINED CASH FLOW AND EARNINGS ANALYSIS
BT Alex. Brown analyzed certain pro forma effects of the Merger on the
projected performance of Getty Communications. Based on such analysis, BT Alex.
Brown computed the resulting dilution/accretion to the combined company's
fully-diluted EBITDA estimate for the fiscal years ending 1998 and 1999,
pursuant to the Merger without taking into account any potential cost savings
and other synergies that PhotoDisc and Getty Communications might achieve if the
Merger were consummated and before non-recurring costs relating to the Merger.
BT Alex. Brown noted that the Merger would be generally neutral or modestly
accretive to the combined company's EBITDA and fully-diluted adjusted net income
for the fiscal year ending December 31, 1998, with greater accretion for the
fiscal year ending December 31, 1999. BT Alex. Brown noted that the estimates
used for the fiscal year ending December 31, 1999 were much less reliable than
the estimates used for the fiscal year ending December 31, 1998 due to the very
preliminary nature of the 1999 estimates.
DISCOUNTED CASH FLOW ANALYSIS--PHOTODISC
BT Alex. Brown calculated a range of present values for the equity value of
PhotoDisc based on estimates of PhotoDisc's future operating performance over a
five-year period and estimates of terminal value of PhotoDisc's enterprise value
at the end of such period. Estimates of the future operating performance of
PhotoDisc were based on the assumption that PhotoDisc, would, in general,
maintain its operating margins and revenue growth rates. Estimates of the
terminal value were calculated using a range of multiples of projected net
income (25.0x to 35.0x) based upon a review of the trading multiples of the
Business Services Firms. BT Alex. Brown aggregated the free cash flows through
2002 and the range of terminal values and discounted the combined cash flow
stream at a range of discount rates of 20.0% to 30.0%. BT Alex. Brown arrived at
such discount rates based on its judgement of weighted average cost of capital
of the Business Services Firms and On-line Commerce Firms, adjusted for a
liquidity discount in connection with the private company status of PhotoDisc.
This analysis indicated a range of values of $132.9 million to $264.0 million.
RELEVANT MARKET AND ECONOMIC FACTORS
In rendering its opinion, BT Alex. Brown considered, among other factors,
relevant market and economic factors in the media industry.
No company used in the analysis of selected publicly traded companies nor
any transaction used in the analyses of selected mergers and acquisitions
summarized above is identical to PhotoDisc, Getty Communications or the Merger.
Accordingly, such analyses must take into account differences in the financial
and operating characteristics of the Business Services Firms and On-line
Commerce Firms, the companies in the selected mergers and acquisitions and other
factors that would affect the public trading value and acquisition value of the
Business Services and On-line Commerce Firms, and the companies in the selected
mergers and acquisitions.
While the foregoing summary describes the analyses and factors that BT Alex.
Brown deemed material in its presentation to the Getty Communications Board, it
is not a comprehensive description of
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all of the analyses and factors considered by BT Alex. Brown. The preparation of
a fairness opinion is a complex process involving various determinations as to
the most appropriate and relevant methods of financial analysis and the
applications of these methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. BT Alex.
Brown believes that its analyses must be considered as a whole and that
selecting portions of its analyses and of the factors considered by it, without
considering all analyses and factors, would create an incomplete view of the
evaluation process underlying the BT Alex. Brown Opinion. In performing its
analyses, BT Alex. Brown considered general economic, market and financial
conditions and other matters, many of which are beyond the control of PhotoDisc
and Getty Communications. The analyses performed by BT Alex. Brown are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than those suggested by such analyses.
Accordingly, such analyses and estimates are inherently subject to substantial
uncertainty. Additionally, analyses relating to the value of a business do not
purport to be appraisals or to reflect the prices at which the business actually
may be sold. Furthermore, no opinion is being expressed as to the prices at
which shares of Getty Images Common Stock may trade at any future time.
Pursuant to a letter agreement dated July 14, 1997 between BT Alex. Brown
and Getty Communications, Getty Communications has agreed to indemnify BT Alex.
Brown and its directors, officers, agents, employees and controlling persons,
for certain costs, expenses, losses, claims, damages and liabilities related to
or arising out of the rendering of services under its engagement as financial
advisor. BT Alex. Brown is a division of Bankers Trust International PLC.
The Getty Communications Board retained BT Alex. Brown to act as its advisor
based upon BT Alex. Brown's qualifications, reputation, experience and
expertise. BT Alex. Brown is an internationally recognized investment banking
firm and, as a customary part of its investment banking business, is engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, private placements and valuations for
corporate and other purposes. BT Alex. Brown may actively trade the equity
securities of Getty Communications for its own account and for the account of
its customers. BT Alex. Brown regularly publishes research reports regarding the
media industry and the businesses and securities of publicly traded companies in
the media industry.
PHOTODISC'S REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS OF
PHOTODISC
At its September 13, 1997 meeting, the PhotoDisc Board unanimously approved
the Merger Agreement and the transactions contemplated thereby. In reaching its
conclusion to approve the Merger, the PhotoDisc Board considered a number of
factors, including the factors described below.
(i) The PhotoDisc Board considered the liquidity offered by the Merger
to the PhotoDisc Shareholders. The PhotoDisc Board believed that (A) the
Merger offered the PhotoDisc Shareholders the opportunity to own a publicly
traded stock of a significantly larger business enterprise and (B) PhotoDisc
Shareholders would have the opportunity to participate in the potential
growth of the combined company after the Closing. In addition, the PhotoDisc
Board considered the predominantly tax-free nature of the Merger, which will
permit PhotoDisc Shareholders to retain their investments without immediate
taxation of the majority of their gains. See "--Certain Income Tax
Considerations". The PhotoDisc Board also considered the risks and
uncertainties involved in an initial public offering of shares of PhotoDisc
Common Stock by PhotoDisc.
(ii) The PhotoDisc Board considered general business and competitive
conditions in its industry. In particular, the PhotoDisc Board considered
PhotoDisc's growth opportunities as an independent company compared with the
growth opportunities available to a publicly traded and larger company such
as Getty Communications. The PhotoDisc Board believed that in order to
compete more effectively and to take advantage of available growth
opportunities, PhotoDisc would need to increase investment in visual content
development, Internet and Web site development and marketing and
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distribution activities. The PhotoDisc Board considered that PhotoDisc's
current capital resources may not be sufficient to fund fully an increase in
investment and that a merger with Getty Communications, which has greater
financial resources, an extensive library of images and an existing
international marketing and distribution network, provides a desirable
alternative. The PhotoDisc Board also considered that the combination of the
reorganized brand-name of Getty Communications with PhotoDisc's innovative
royalty-free licensing would give the combined company greater leverage and
visibility in dealing with customers and suppliers.
(iii) The PhotoDisc Board considered that certain economies of scale
could result by combining the two companies' visual content, sales and
marketing activities, finance and administration organizations, customer
bases and Internet presence, and that such a combination could further
strengthen and broaden PhotoDisc's penetration into the stock photography
market.
(iv) The PhotoDisc Board considered the strength of the international
distribution network of Getty Communications, which could allow PhotoDisc to
market its royalty-free products to more customers.
(v) The PhotoDisc Board considered the presentation of BARS delivered to
the PhotoDisc Board on September 13, 1997, including BARS's oral opinion to
the effect that as of such date, the Net Purchase Price was fair from a
financial point of view to the PhotoDisc Shareholders. See "--Opinion of
BancAmerica Robertson Stephens, Financial Advisor to PhotoDisc".
In the course of Merger discussions, the PhotoDisc Board considered the
terms of the proposed offer, including factors relevant to the valuation of
PhotoDisc. Based on the $13 5/8 price of Getty Communications ADSs on September
12, 1997, the equivalent of about $12.40 per share of PhotoDisc Common Stock was
considered a favorable valuation for the PhotoDisc Shareholders. The PhotoDisc
Board also considered the financial performance of Getty Communications in
recent years and its enterprise value/EBITDA, and balanced these factors against
the risks associated with the potential volatility of shares of Getty Images
Common Stock. In addition, the PhotoDisc Board considered management's comments
about the strategic direction of Getty Communications and the added value that
Getty Communications could contribute to the combined company.
The PhotoDisc Board considered a number of additional factors relating to
the Merger, including the following: (i) the business, assets, management,
competitive position and prospects of PhotoDisc and Getty Communications, the
synergistic businesses of PhotoDisc and Getty Communications, the complementary
management teams and the strong competitive position of the combined company;
(ii) the financial condition, cash flows and results of operations of PhotoDisc
and Getty Communications, both on a historical and prospective basis, including
the strong balance sheet of the combined company, strong results of operations
and cash flows of the combined company; (iii) the strong position of Getty
Communications in the visual content industry; (iv) the significant potential
enhancement of the strategic and market position of the combined company beyond
that achievable by PhotoDisc alone and the increase in business opportunities
expected to result from the combination of the two companies; (v) the
consideration to be received by PhotoDisc Shareholders in the Merger and the
relationship between the market value of the Getty Images Shares to be issued in
exchange for shares of PhotoDisc Common Stock and the consideration received in
comparable merger transactions; (vi) PhotoDisc's view of the strength of the
management and sales organizations at Getty Communications; (vii) the belief
that the terms of the Merger Agreement, including the parties' representations,
warranties and covenants and the conditions to their respective obligations, are
reasonable; (viii) PhotoDisc management's view as to the potential for other
third parties to enter into strategic relationships with or to acquire or merge
with PhotoDisc or Getty Communications; (ix) the impact of the Merger on
PhotoDisc's customers and employees; and (x) the due diligence investigations of
Getty Communications conducted by management and financial and legal advisors.
The PhotoDisc Board also considered the terms of the Merger Agreement regarding
limitations on PhotoDisc's rights to consider and negotiate other acquisition
proposals.
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The PhotoDisc Board also identified and considered a variety of potentially
negative factors in its deliberations concerning the Merger, including, but not
limited to: (i) the timing and risks associated with the integration by Getty
Communications of PhotoDisc and with other businesses that Getty Communications
has recently acquired and whether the potential benefits sought in the Merger
and such other acquisitions might not be fully realized; (ii) the requirement
that the Scheme of Arrangement be approved by the Getty Shareholders and the
English High Court as a condition to Closing; (iii) the possibility that the
Merger might not be consummated and the effect of the public announcement of the
Merger on PhotoDisc's sales and operating results and on PhotoDisc's ability to
attract and retain key management, marketing and technical personnel; (iv) the
fact that the price of Getty Communications ADSs has fluctuated in the past and,
because the consideration to be paid to the PhotoDisc Common Shareholders is
tied to the price of Getty Communications ADSs, the consideration to be received
by PhotoDisc Common Shareholders will decline if the price of Getty
Communications ADSs declines; (v) the possibility of management disruption
associated with the Merger and the risk that, despite the efforts of PhotoDisc
and Getty Communications, key technical and management personnel might not
remain employed by PhotoDisc; (vi) the risks associated with the fact that the
Getty Images Board will contain a majority of directors elected by the Getty
Shareholders; (vii) the charges to be incurred in connection with the Merger,
including costs of integrating the businesses and transaction expenses arising
from the Merger; and (viii) the other risks described under "Risk Factors"
herein. The PhotoDisc Board believed that these potentially negative factors
were outweighed by the potential benefits of the Merger.
The foregoing discussion of the information and factors considered by the
PhotoDisc Board is not intended to be exhaustive but is believed to include all
material factors considered by the PhotoDisc Board. In view of the variety of
factors considered in connection with its evaluation of the Merger, the
PhotoDisc Board did not find it practicable to and did not quantify or otherwise
assign relative weights to the specific factors considered in reaching its
determination. In addition, individual members of the PhotoDisc Board may have
given different weights to different factors. In the course of its
deliberations, the PhotoDisc Board did not establish a range of value for
PhotoDisc; however, based on the factors outlined above, the PhotoDisc Board
determined that the Merger is in the best interests of PhotoDisc and its
shareholders.
THE PHOTODISC BOARD BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF
PHOTODISC AND ITS SHAREHOLDERS. THE PHOTODISC BOARD, THEREFORE, UNANIMOUSLY
RECOMMENDS THAT ITS SHAREHOLDERS VOTE FOR THE APPROVAL OF THE MERGER PROPOSAL.
OPINION OF BANCAMERICA ROBERTSON STEPHENS, FINANCIAL ADVISOR TO PHOTODISC
PhotoDisc retained BARS to act as its financial advisor in connection with
the Merger and to render an opinion as to the fairness, from a financial point
of view, to the shareholders of PhotoDisc of the Net Purchase Price. The full
text of BARS's opinion dated September 13, 1997 is attached to this Prospectus
as Annex D and is incorporated herein by reference, and the summary of the
opinion set forth below is qualified in its entirety by reference to the full
text of such opinion. PhotoDisc Shareholders are urged to read such opinion
carefully and in its entirety for a description of the procedures followed, the
factors considered, the assumptions made and the scope of review undertaken, as
well as limitations on the review undertaken, by BARS in rendering its opinion.
At the September 13, 1997 special meeting of the PhotoDisc Board, BARS
delivered its oral opinion, which subsequently was confirmed in writing, that as
of such date and based on the matters described therein, the Net Purchase Price
was fair to the PhotoDisc Shareholders, from a financial point of view. BARS did
not recommend to the PhotoDisc Board that any specific purchase price should
constitute the Net Purchase Price. No limitations were imposed by the PhotoDisc
Board on BARS with respect to the investigations made or procedures followed by
it in furnishing its opinion. BARS's opinion to the PhotoDisc Board addresses
only the fairness of the Net Purchase Price to the PhotoDisc Shareholders,
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from a financial point of view, and does not constitute a recommendation to any
such shareholder as to how such shareholder should vote at the PhotoDisc Special
Meeting. BARS expresses no opinion as to the tax consequences of the Merger, and
BARS's opinion as to the fairness of the Net Purchase Price does not take into
account the particular tax status or position of any shareholder of PhotoDisc.
In furnishing its opinion, BARS was not engaged as an agent or fiduciary of
PhotoDisc's shareholders or any other third party.
In connection with the preparation of its opinion dated September 13, 1997,
BARS, among other things: (i) reviewed financial information concerning
PhotoDisc and Getty Communications furnished to it by PhotoDisc and Getty
Communications, including certain PhotoDisc internal financial analyses and
forecasts prepared by the management of PhotoDisc; (ii) reviewed publicly
available information; (iii) held discussions with the managements of PhotoDisc
and Getty Communications concerning the businesses, past and current business
operations, financial condition and future prospects of both companies,
independently and combined; (iv) reviewed the Merger Agreement; (v) reviewed the
stock price and trading history of Getty Communications; (vi) prepared a pro
forma merger analysis for the combination of PhotoDisc and Getty Communications;
(vii) prepared a relative contribution analysis for PhotoDisc and Getty
Communications; (viii) reviewed the valuations of publicly traded companies that
it deemed comparable to Getty Communications; (ix) compared the financial terms
of the Merger with other transactions that it deemed relevant; (x) prepared a
discounted cash flow analysis of PhotoDisc; and (xi) made such other studies and
inquiries, and reviewed other such data, as it deemed relevant. BARS noted that
based on the $13.375 closing stock price of the Getty Communications ADSs on
September 11, 1997, and assuming $2.5 million in transaction expenses incurred
by PhotoDisc and $4 million in distribution payments to holders of PhotoDisc
Series A Preferred Stock, the Merger resulted in an aggregate PhotoDisc equity
value of approximately $161 million.
The following paragraphs summarize the analyses performed by BARS in
arriving at its opinion and reviewed with the PhotoDisc Board, but do not
purport to be a complete description of the analyses performed by BARS.
DISCOUNTED CASH FLOW ANALYSIS
BARS performed certain discounted cash flow analyses to estimate the present
value of the stand-alone, unlevered (before interest expense) after-tax cash
flows of the financial projections prepared by management of PhotoDisc. BARS
first discounted the projected, unlevered after-tax cash flows through December
31, 2002, using a range of discount rates from 15% to 25%. BARS then added to
the present value of the cash flows the terminal value of PhotoDisc in the
fiscal year ending December 31, 2002, discounted back at the same discount rate.
The terminal value was computed by multiplying PhotoDisc's projected earnings
before interest, taxes, depreciation and amortization ("EBITDA") in the fiscal
year ending March 31, 2002 by terminal multiples ranging from 9.0x to 13.0x. The
discounted cash flow valuation indicated implied equity valuations from $113.4
million to $224.1 million.
CONTRIBUTION ANALYSIS
BARS compared the contribution of PhotoDisc and Getty Communications to the
pro forma combined revenue, gross profit, and EBITDA for the combined company,
based on actual calendar year 1996 results and on publicly available forecasts
of BARS for Getty Communications and the forecasts of PhotoDisc's management of
PhotoDisc's financial performance for the 1997 and 1998 calendar years. BARS
noted that PhotoDisc's contribution to the combined company's pro forma revenue,
gross profit and EBITDA for the 1996, 1997 and 1998 calendar years in each case
implied an equity value less than the aggregate PhotoDisc equity value implied
in the Merger based on the closing stock price of the Getty Communications ADSs
on September 11, 1997.
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PRECEDENT ACQUISITION ANALYSIS
BARS analyzed publicly available information for six selected recent mergers
and acquisitions within the visual content industry (the "Precedent
Acquisitions"). BARS noted that none of the Precedent Acquisitions was identical
to the Merger. Certain of the Precedent Acquisitions were acquisitions of
libraries of visual content and not broader-based visual content businesses or
technology companies. All multiples for the Precedent Acquisitions were based on
public information available at the time of announcement of such transaction,
without taking into account differing market and other conditions over the
period during which the transactions occurred. All of the foregoing affects the
significance and relevance of this analysis.
In examining the precedent acquisitions, BARS analyzed certain financial
parameters of the acquired company relative to the total consideration offered
(including net debt assumed). Financial indicators compared included the latest
12 months' revenue and EBITDA. Based on total consideration offered to the
latest 12 months' revenue multiples, PhotoDisc's implied equity value was $96.6
million. Based on the total consideration offered to the latest 12 months'
EBITDA multiples, PhotoDisc's implied equity value was $113.3 million.
PRO FORMA ANALYSIS
BARS analyzed the pro forma EBITDA per share of the combined company based
on the Net Purchase Price (based on assumed transaction-related expenses of
$2,500,000) and financial projections for PhotoDisc provided by the management
of PhotoDisc and for Getty Communications based on publicly available BARS
analyst estimates. Such analysis indicated that, in the absence of synergies,
pro forma EBITDA per share of the combined company, compared to Getty
Communications as a stand-alone entity, would be substantially the same in 1997
and greater in 1998.
STOCK PRICE AND TRADING ANALYSIS
BARS reviewed the trading activity, including price and volume, of the Getty
Communications ADSs from September 11, 1996 to September 11, 1997. BARS noted
that during that period the daily closing sale prices of the Getty
Communications ADSs ranged from $10.75 to $17.75 with a mean of $14.338. The
trailing averages over the most recent 10-, 30-, and 60-day periods were
$12.456, $11.94 and $12.677, respectively. This information was presented to the
PhotoDisc Board as background information regarding the per share price the
Getty Communications ADSs over the indicated period.
COMPARABLE COMPANY ANALYSIS
Because Getty Communications was the only publicly traded company in the
visual content industry, BARS considered that it was the only company comparable
to PhotoDisc, and that a comparable company valuation analysis would not provide
additional meaningful indications of PhotoDisc's value.
The preparation of fairness opinions involves various determinations as to
the most appropriate and relevant quantitative and qualitative methods of
financial analyses and the application of those methods to the particular
circumstances; therefore, such opinions are not readily susceptible to summary
description. In arriving at its opinion, BARS did not attribute any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, BARS believes its analyses must be considered as a whole and that
considering any portion of such analyses and current factors could create a
misleading or incomplete view of the process underlying its opinion. In its
analyses, BARS made numerous assumptions with respect to industry performance,
general business and other conditions and matters, many of which are beyond the
control of PhotoDisc or Getty Communications. Any estimates contained in these
analyses are not necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less
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favorable than as set forth therein. In addition, analyses relating to the value
of businesses do not purport to be appraisals or to reflect the prices at which
businesses actually may be sold.
In arriving at its opinion, BARS did not independently verify any of the
foregoing information and relied on all such information being complete and
accurate in all material respects. Furthermore, BARS did not obtain any
independent appraisal of the properties or assets and liabilities of PhotoDisc
or any of its subsidiaries, nor was BARS furnished with any such evaluations or
appraisals. With respect to the financial and operating forecasts (and the
assumptions and bases therefor) of PhotoDisc that BARS reviewed, BARS assumed
that such forecasts had been reasonably prepared and reflected the best
available estimates and judgments of the PhotoDisc management and that such
projections and forecasts will be realized in the amounts and in the time
periods currently estimated by the management of PhotoDisc. In addition, BARS
relied upon estimates and judgements of PhotoDisc's and Getty Communications'
management as to the future financial performance of PhotoDisc. BARS has also
assumed that the Merger will be accounted for as a purchase of equity under
generally accepted accounting principles. BARS also assumed that the
transaction-related expenses incurred by PhotoDisc will be reasonable. While
BARS believes that its review, as described herein, is an adequate basis for the
opinion it expresses, its opinion is necessarily based upon market, economic,
and other conditions that existed and can be evaluated as of the date of the
BARS' opinion and on information available to it as of such date. BARS expresses
no opinion as to the value of any employee or non-competition arrangements or
agreements entered into in connection with the Merger Agreement or the Merger.
BARS was retained based on BARS's experience as a financial advisor in
connection with mergers and acquisitions and in securities valuations generally,
as well as BARS's investment banking relationship and familiarity with
PhotoDisc. BARS has provided certain investment banking services to PhotoDisc
from time to time, having been selected as an underwriter for the proposed
initial public offering of PhotoDisc Common Stock. In the ordinary course of
business, BARS may trade Getty Communications' securities for its own account
and the account of its customer and, accordingly, may at any time hold a long or
short position in Getty Communications' securities.
PhotoDisc engaged BARS pursuant to a letter agreement dated July 31, 1997.
The agreement provides that, for its services, BARS is entitled to receive a fee
equal to 1.2% of the aggregate fair market value at Closing of the consideration
paid, and debt assumed, by Getty Communications in the Merger, which fee becomes
due and payable upon consummation of the Merger. PhotoDisc has also agreed to
indemnify BARS for certain liabilities relating to or arising out of services
provided by BARS as financial advisor to PhotoDisc, including certain
liabilities under the federal securities laws.
FINANCING FOR THE MERGER
To finance in part the Merger, Getty Images intends to borrow approximately
$43 million from commercial banks. Getty Images is negotiating terms and
conditions for an acquisition loan. This loan is expected to be repayable over
five years from the date of the draw down, to bear interest at the rate of up to
1.5 percent per annum over U.S. dollar LIBOR and to be secured over the assets
and liabilities of Getty Images and its subsidiaries. Customary covenants,
warranties and events of default are also likely to be included.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the Getty Communications Board's recommendation that the
Getty Shareholders vote in favor of the Scheme of Arrangement and the PhotoDisc
Board's recommendation that the PhotoDisc Shareholders vote in favor of the
Merger Proposal, Getty Shareholders and the PhotoDisc Shareholders should be
aware that certain significant shareholders and a number of executive officers
of Getty Communications and PhotoDisc, including some officers who are also
directors, have certain interest in the Transactions that are different from, or
in addition to, the interests of the Getty Shareholders and
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PhotoDisc Shareholders generally. The Getty Communications Board and PhotoDisc
Board recognized such interests and determined that such interests neither
supported nor detracted from the Transactions being in the best interests of the
holders of Getty Ordinary Shares and PhotoDisc Common Stock, respectively.
OWNERSHIP OF GETTY ORDINARY SHARES; STOCK OPTIONS
As of September 30, 1997, the current directors and executive officers of
Getty Communications beneficially owned an aggregate of (i) shares
of Getty Class A Ordinary Shares (or approximately % of the then
outstanding Getty Class A Ordinary Shares), including Getty Class A Ordinary
Shares that may be acquired upon the exercise of outstanding warrants and the
exercise of outstanding stock options and (ii) shares of Getty Class
B Ordinary Shares (or approximately % of the then outstanding Getty Class A
Ordinary Shares, including Getty Class B Ordinary Shares that may be acquired
upon the exercise of outstanding warrants and the exercise of outstanding
options.
As of September 30, 1997, directors and executive officers of Getty
Communications held options (the "Getty Communications Options") under the Getty
Communications Executive Share Option Plan (the "Getty Communications Share
Option Plan"), to purchase an aggregate of 4,662,168 shares of Getty Class A
Ordinary Shares, of which options to purchase shares of Getty Class
A Ordinary Shares were exercisable.
OWNERSHIP OF PHOTODISC COMMON STOCK AND SERIES A PREFERRED STOCK; STOCK
OPTIONS
As of September 30, 1997, directors and executive officers of PhotoDisc
beneficially owned an aggregate of 8,648,909 shares of PhotoDisc Common Stock,
including shares issuable upon conversion of Series A Preferred Stock, which
represents approximately 85.3% of the then outstanding shares of PhotoDisc
Common Stock and Series A Preferred Stock (10,697,031 shares assuming exercise
of all outstanding options and warrants exercisable within 60 days).
As of September 30, 1997, directors and executive officers of PhotoDisc held
options under the PhotoDisc Stock Option Plan, to purchase an aggregate of
2,085,400 shares of PhotoDisc Common Stock, of which options to purchase
1,455,650 shares of PhotoDisc Common Stock were exercisable. All PhotoDisc
Options, whether or not exercisable or vested, will, pursuant to the Merger
Agreement, remain outstanding following the Effective Time and be assumed by
Getty Images in such manner that Getty Images (i) is a corporation "assuming a
stock option in a transaction to which Section 424(a) applied" within the
meaning of the Internal Revenue Code of 1986, as amended through the date of the
Merger Agreement (the "Code"), or (ii) to the extent that Section 424 of the
Code does not apply to any such PhotoDisc Options, would be such a corporation
were Section 424 of the Code applicable to such PhotoDisc Options. Each
PhotoDisc Option assumed by Getty Images will be exercisable upon the same terms
and conditions as under the PhotoDisc Stock Option Plan and the applicable
option agreement issued thereunder, except that (i) each such PhotoDisc Option
will be exercisable for that whole number of Getty Images Common Stock (rounded
down to the nearest whole share) determined by multiplying the number of shares
of PhotoDisc Common Stock subject to such PhotoDisc Option immediately prior to
the Effective Time by the PhotoDisc Exchange Ratio and (ii) the option price per
Getty Images Common Stock will be an amount equal to the option price per share
of PhotoDisc Common Stock subject to such PhotoDisc Option in effect immediately
prior to the Effective Time divided by the PhotoDisc Exchange Ratio (the option
price per share, as so determined, being rounded up to the nearest full cent).
EMPLOYMENT AGREEMENTS
As a condition to the consummation of the Transactions, Getty Images will
enter into Employment Agreements with Messrs. Mark Getty, Jonathan Klein and
Mark Torrance (each an "Executive" and
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collectively the "Executives"). The remuneration per annum to the Executives
will be as follows: Mr. Getty, $275,000; Mr. Klein, $325,000; and Mr. Torrance,
$275,000. Each Executive's compensation package will also include yearly
bonuses, certain options to purchase shares of Getty Images Common Stock and a
pension scheme equal to 20% of the Executive's annual salary.
Upon the termination of employment by Getty Images of any of the Executives,
other than for Cause (as defined below) or by reason of his voluntary
resignation for Good Reason (as defined below), such Executive will receive a
lump sum payment equal to the unpaid remuneration and maximum bonuses over the
greater of the term of the agreement and two years. See "Related Agreements--The
Employment Agreements".
In addition to the Employment Agreements, pursuant to a letter agreement
dated September 15, 1997, Getty Images acknowledged that in connection with the
transactions contemplated by the Merger Agreement, PhotoDisc intends to offer
employment agreements to Mr. Robert Chamberlain, Ms. Sally von Bargen, Mr.
Christian Birkeland, Ms. Natalie Angelillo and Mr. Michel Perrin and that Getty
Images intends to offer employment agreements to Mr. William Heston and Ms.
Heather Redman. The terms of each employment agreement will be subject to the
review and approval of Getty Images.
TORRANCE LEASE
PhotoDisc leases its executive offices in Seattle, Washington from Mr.
Torrance at the current rate of $43,059.97 per month. It is a condition to the
consummation of the Transactions that PhotoDisc enter into a new lease with Mr.
Torrance with respect to this facility. See "PhotoDisc--Certain Related Party
Transactions".
THE STOCKHOLDERS' AGREEMENT
One of the conditions to the consummation of the Transactions is that Getty
Images, the Getty Group and the Torrance Group enter into the Stockholders'
Agreement. Among other things, the Stockholders' Agreement limits the right of
the parties thereto to transfer their respective shares of Getty Images Common
Stock. See "Related Transactions--The Stockholders' Agreement".
THE REGISTRATION RIGHTS AGREEMENTS
One of the conditions to the consummation of the Transaction is that Getty
Images enter into the Registration Rights Agreements. The Registration Rights
Agreements will give the PDI Shareholders and Getty Investments certain rights
to require Getty Images to file a registration statement with respect to all or
a portion of such stockholder's shares of Getty Images Common Stock and to have
any or all of their Getty Images Common Stock included in any registration by
Getty Images. See "Related Transactions-- The Registration Rights Agreements".
GETTY PARTIES SHAREHOLDERS' AGREEMENT
The holders of the Getty Class B Ordinary Shares--Getty Investments, the
October 1993 Trust and Crediton Limited--have entered into a shareholders'
agreement, which will be amended, among other things, to limit the rights of
such parties to vote or transfer their Getty Images Shares. See "Getty
Images--Certain Related Party Transactions--Getty Parties Shareholders'
Agreement".
GETTY INVESTMENTS COMPANY AGREEMENT
Getty Investments is a limited liability company organized under the State
of Delaware and is governed by a limited liability company agreement among four
various Getty family trusts and 525 Investments Limited. See "Getty
Images--Certain Related Party Transactions--Getty Investments Company
Agreement".
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GETTY TRADEMARKS
Getty Investments and Getty Images will agree that in the event that Getty
Images becomes controlled by a third party not affiliated with the Getty family,
Getty Investments will have the right to call for an assignment to it of all
rights to the Getty Trademarks (as defined below). See "Getty Images-- Certain
Related Party Transactions--Getty Trademarks".
INDEMNIFICATION FOR GETTY INVESTMENTS
Getty Images has agreed to indemnify Getty Investments and its members for
liabilities arising in connection with the Transactions. See "Getty
Images--Certain Related Party Transactions-- Indemnification".
AGREEMENTS WITH CARLTON
Getty Communications has entered into certain agreements with Carlton in
connection with the Transactions. See "Getty Images--Certain Related Party
Transactions--Agreements with Carlton".
REGULATORY APPROVALS
The Merger is subject to the HSR Act, and the rules and regulations
thereunder, which provide that certain transactions may not be consummated until
required information and material have been furnished to the Justice Department
and the FTC and certain waiting periods have expired or been terminated. Getty
Communications and PhotoDisc filed the required information and material with
the Justice Department and the FTC on September 30, 1997.
ACCOUNTING TREATMENT
Getty Images will account for the Merger using the purchase method of
accounting in accordance with U.S. GAAP. The excess of the cost of acquisition
over the fair value of the assets and liabilities of PhotoDisc acquired will be
recorded as goodwill and amortized over a period not to exceed 40 years.
As a consequence of the Scheme of Arrangement, each issued and outstanding
Getty Ordinary Share will be cancelled. The shares of Getty Images Common Stock
issued to replace the cancelled shares will be recorded at par value.
TRANSACTION COSTS
Except as described below, whether or not the Closing occurs, all costs and
expenses, including, without limitation, fees and disbursements of counsel,
financial advisors and accountants, incurred in connection with the Merger
Agreement and the transactions contemplated by the Merger Agreement will be paid
by the party incurring such costs and expenses.
Transaction costs incurred by Getty Communications in connection with the
Transactions, including the fees of financial advisors, accountants and legal
counsel, are expected to be approximately $6.0 million if the Transactions are
completed. Such costs will be capitalized as part of the purchase price and
amortized over future periods if the Transactions are completed.
If the Closing occurs, all costs and expenses of BARS, Deloitte & Touche
LLP, Heller Ehrman White & McAuliffe and Freshfields and all other costs and
expenses incurred by PhotoDisc in connection with the Merger Agreement, the
Stockholders' Transaction Agreement, the Escrow Agreement and the transactions
contemplated by such agreements will be shared equally between PhotoDisc, on the
one hand, and the holders of shares of PhotoDisc Common Stock immediately prior
to the Effective Time on the other hand (on a pro rata basis) (such shared
expenses being the "Shared Expenses").
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PhotoDisc and the Principal Shareholders currently estimate that the total
amount of Shared Expenses will be $2.2 to $2.6 million. Five days prior to the
Closing, PhotoDisc will provide to Getty Images an updated estimate of the total
amount of the Shared Expenses (such estimated amount being the "Closing
Estimate"). All of the costs will be expensed by PhotoDisc prior to the
completion of the Transactions and the Principal Shareholders' share of the
amount equal to 120% of the Closing Estimate (such adjusted amount being the
"Adjusted Closing Estimate") will be factored into the calculation of the Merger
Consideration as provided in the Merger Agreement.
A final accounting of the Shared Expenses will be made within 45 days after
the Closing. In the event that the final amount of the Shared Expenses (the
"Final Expense Amount") is greater than the Adjusted Closing Estimate, each
Principal Shareholder will within 10 days of such final determination pay to
Getty Images such Principal Shareholder's pro rata share of 50% of the
difference between the Final Expense Amount and the Adjusted Closing Estimate.
In the event that the Final Expense Amount is less than the Adjusted Closing
Estimate, Getty Images will within 10 days of such final determination pay to
each Principal Shareholder such Principal Shareholder's pro rata share of 50% of
the difference between the Adjusted Closing Estimate and the Final Expense
Amount.
Certain costs will be incurred by Getty Communications and PhotoDisc even if
the Transactions are not completed, in which case such costs will be expensed as
one-time charges. Getty Communications and PhotoDisc have agreed that if the
Closing shall not have occurred by March 31, 1998 as a result of the breach of a
representation, warranty or covenant of a party, the breaching party shall
reimburse the non-breaching party for the reasonable costs and expenses incurred
by such party. In addition, Getty Communications and PhotoDisc have agreed that
if the Merger Agreement is terminated by PhotoDisc because Getty Communications
has not obtained the requisite approvals of the Getty Shareholders on or prior
to the earlier of January 31, 1998 or the date 31 days after the Registration
Statement is declared effective by the Commission, Getty Communications shall
reimburse PhotoDisc for all reasonable costs and expenses incurred by PhotoDisc
in connection with the Merger Agreement.
If the Transactions are completed, Getty Images will also record in the
quarter in which the Transactions are completed (which is expected to be the
first quarter of 1998) certain one-time charges in connection with integrating
certain portions of the operations, sales and marketing and finance and
administration organizations of the two companies. The potential magnitude of
these charges has not yet been determined.
CERTAIN INCOME TAX CONSIDERATIONS
GENERAL
The following general discussion summarizes (i) the material U.K. and U.S.
federal income tax consequences of the Scheme of Arrangement, (ii) the material
U.S. federal income tax consequences of the Merger and (iii) the material U.S.
federal income tax consequences of the ownership and disposition of shares of
Getty Images Common Stock. This discussion is based on U.S. federal income tax
law, including the Code, regulations, rulings, decisions and administrative
practice, on U.K. laws, decisions and administrative practice, and on the United
States-United Kingdom Income Tax Convention (the "Treaty") all as in effect on
the date hereof. Future legislation, regulations, administrative interpretations
or court decisions could change such laws either prospectively or retroactively.
This discussion does not address all aspects of taxation that may be important
to a Getty Shareholder or a PhotoDisc Shareholder in light of such shareholder's
particular circumstances or to shareholders subject to special rules, such as
financial institutions, tax-exempt organizations, insurance companies, dealers
in securities, persons who acquired their shares of Getty Communications or
PhotoDisc pursuant to the exercise of options or similar derivative securities
or otherwise as compensation, persons whose functional currency is not the U.S.
dollar or persons owning (directly, indirectly or constructively by application
or relevant attribution rules) ten percent or more of the voting power or value
of Getty Images, Getty Communications or PhotoDisc.
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Shareholders should consult their own tax advisors concerning the tax
consequences of the Transactions and the ownership and disposition of shares of
Getty Images Common Stock in light of their particular situations, as well as
under applicable state, local or foreign tax laws. This discussion assumes that
each Getty Shareholder and each PhotoDisc Shareholder holds Getty Communications
ADSs, Getty Class A Ordinary Shares or PhotoDisc Common Stock, as the case may
be, as capital assets within the meaning of section 1221 of the Code.
For purposes of the following discussion, a "U.S. Shareholder" is a
shareholder that is, for U.S. federal income tax purposes, subject to taxation
on his, her or its worldwide income. Subject to a variety of special rules,
including special transition rules in the case of trusts, the following are
treated as U.S. Shareholders: (i) a citizen or resident of the United States,
(ii) a corporation, partnership or other entity created or organized in or under
the laws of the United States or any political subdivision thereof, (iii) an
estate the income of which is subject to U.S. federal income taxation regardless
of its source, or (iv) a trust that is subject to the supervision of a court
within the United States and is under the control of a U.S. person. A "Non-U.S.
Shareholder" is a shareholder that is, for U.S. federal income tax purposes, (i)
a nonresident alien individual, (ii) a foreign corporation, (iii) a nonresident
alien fiduciary of a foreign estate or trust, or (iv) a foreign partnership one
or more of the members of which is, for U.S. federal income tax purposes, a
nonresident alien individual, a foreign corporation or a nonresident alien
fiduciary of a foreign estate or trust.
For U.S. federal income tax purposes and for purposes of the Treaty, a
holder of Getty Communications ADSs will be treated as owning the underlying
Getty Class A Ordinary Shares evidenced thereby. Accordingly, the following
discussion (except where otherwise expressly noted) applies equally to holders
of Getty Communications ADSs and Getty Class A Ordinary Shares.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE SCHEME OF ARRANGEMENT
Shearman & Sterling, special U.S. counsel to Getty Communications, is
expected to render an opinion, dated as of the effective date of the
Registration Statement (of which this Prospectus is a part) to the effect that
(i) the Scheme of Arrangement will be treated for U.S. federal income tax
purposes either (A) as a reorganization within the meaning of section 368(a) of
the Code or (B) when considered together with the Merger, as a tax-free
reorganization under section 351 of the Code, (ii) to the extent treated as a
reorganization, both Getty Communications and Getty Images will be a party to
that reorganization within the meaning of section 368(b) of the Code, and (iii)
no gain or loss will be recognized on the exchange of Getty Communications ADSs
for shares of Getty Images Common Stock, except in the case of persons owning,
directly, indirectly or pursuant to the operation of certain constructive
ownership rules, ten percent or more of the voting power of Getty Communications
(a "Ten Percent Shareholder"). The opinion of Shearman & Sterling will be
expressly based upon the accuracy of certain customary assumptions and certain
representations made to Shearman & Sterling by Getty Images, Getty
Communications, PhotoDisc and certain shareholders of Getty Communications and
PhotoDisc, as well as upon the assumptions that the Scheme of Arrangement will
be consummated in accordance with the description thereof contained herein, that
the Merger will be consummated in accordance with the Merger Agreement and that
there will be no change in any material facts between the date of such opinion
and the Effective Time. It is a condition to the consummation of the
Transactions that such opinion will not have been withdrawn or modified in any
material respect.
EXCHANGE OF GETTY COMMUNICATIONS ADSS FOR SHARES OF GETTY IMAGES COMMON
STOCK. A Getty Shareholder (other than a Ten Percent Shareholder) exchanging
Getty Communications ADSs for shares of Getty Images Common Stock will not
realize any gain or loss on such exchange for U.S. federal income tax purposes.
The tax basis of the shares of Getty Images Common Stock to be received by such
Getty Shareholder will be the same as the tax basis of the Getty Communications
ADSs surrendered in exchange therefor. The holding period of the shares of Getty
Images Common Stock received by such Getty
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Shareholder will include the period during which the holder held the Getty
Communications ADSs surrendered in exchange therefor.
As a consequence of the qualification of the Scheme of Arrangement as either
a reorganization or a transaction described in section 351 of the Code, neither
Getty Communications nor Getty Images will recognize any taxable gain for U.S.
federal income tax purposes upon consummation of the Scheme of Arrangement.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
Heller, Ehrman, White & McAuliffe, special counsel to PhotoDisc, is expected
to render an opinion, dated as of the effective date of the Registration
Statement (of which this Prospectus is a part), to the effect that (i) the
Merger will be treated for U.S. federal income tax purposes as a reorganization
within the meaning of section 368(a) of the Code, (ii) each of PhotoDisc and
Getty Images will be a party to that reorganization within the meaning of
section 368(b) of the Code, and (iii) no gain or loss will be recognized on the
exchange of PhotoDisc Common Stock for the Merger Consideration, except that
gain, if any, will be recognized to the extent of the Cash Consideration
received. The opinion of Heller, Ehrman, White & McAuliffe will be expressly
based upon the accuracy of certain customary assumptions and certain
representations made to such counsel by PhotoDisc, Getty Communications, Getty
Images and certain shareholders of PhotoDisc and Getty Communications, as well
as upon the assumptions that the Merger will be consummated in accordance with
the Merger Agreement and that there will be no change in any material facts
between the date of such opinion and the Effective Time. It is a condition to
the consummation of the Transactions that such opinion will not have been
withdrawn or modified in any material respect.
EXCHANGE OF SHARES OF PHOTODISC COMMON STOCK FOR SHARES OF GETTY IMAGES
COMMON STOCK. A PhotoDisc Shareholder exchanging shares of PhotoDisc Common
Stock for shares of Getty Images Common Stock and cash will realize gain
measured by the excess, if any, of (i) the sum of the amount of cash and the
fair market value of the Getty Images Common Stock received in the Merger over
(ii) such shareholder's tax basis in his shares of PhotoDisc Common Stock.
However, any such realized gain will be taxable only to the extent of the cash
received.
In determining whether any gain recognized will be treated as capital gain
or ordinary income under section 356(a) of the Code, each PhotoDisc Common
Shareholder will be considered to have received solely shares of Getty Images
Common Stock (and not cash) in the Merger and then to have retransferred to
Getty Images (in a constructive redemption in exchange for the Cash
Consideration) the number of such shares having a value equal to the Cash
Consideration received.
If the constructive exchange of shares for cash described above would, in
the case of a particular holder, qualify as a redemption under the tests of
section 302(b) of the Code (under the rules described below), the gain
recognized by such holder upon receipt of such cash would be treated as capital
gain. Pursuant to recently enacted legislation, capital gains of individuals
will generally be subject to U.S. federal income tax at a maximum stated rate of
(i) 20%, if the holder's holding period in the PhotoDisc Common Stock was more
than 18 months at the Effective Time, and (ii) 28%, if the holder's holding
period in the PhotoDisc Common Stock was more than one year, but less than 18
months at the Effective Time. Depending upon an individual's particular tax
situation, other provisions such as the phase-out of certain tax benefits at
higher income levels or the application of the "alternative minimum tax" may
result in the marginal tax actually applicable to such capital gains being
higher than the 28% or 20% rate normally applicable. Conversely, if the
constructive redemption would not so qualify, the cash received would be treated
as ordinary (i.e., dividend) income up to the shareholder's ratable share of the
accumulated "earnings and profits" of PhotoDisc.
In order to qualify as a redemption under section 302 of the Code, the
redemption distribution generally must either (i) terminate the shareholder's
interest in the redeeming corporation, (ii) constitute a
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"substantially disproportionate" redemption with respect to such shareholder, or
(iii) be "not essentially equivalent" to a dividend (all as discussed below).
The constructive ownership rules of section 318 of the Code apply in making each
of these determinations. Because each holder of shares of PhotoDisc Common stock
will receive shares of Getty Images Common Stock in the Merger separate from any
such stock deemed to be received and then exchanged for cash, it will generally
not be possible for a constructive redemption in the Merger to qualify under the
"complete termination" test described in (i) above. A redemption will normally
be treated as "substantially disproportionate" as to a given shareholder only if
the shareholder's actual and constructive percentage of the total voting stock
in the redeeming corporation immediately after the redemption is less than 80
percent of such holder's percentage of the total voting stock immediately prior
to the redemption. Finally, the "not essentially equivalent to a dividend" test
generally requires that the redemption result in some "meaningful reduction" of
the shareholder's actual and constructive interest in the corporation. In
accordance with a published ruling of the Internal Revenue Service, the receipt
of cash by a minority shareholder whose relative stock interest in the redeeming
corporation is "minimal" and who exercises no control over the affairs of the
redeeming corporation should qualify as a redemption if such shareholder suffers
some reduction in equity interest as a result of the redemption and in relation
to the shareholders of the redeeming corporation as a group.
Under the constructive ownership rules of section 318 of the Code, a
shareholder is deemed to own the shares that are owned or deemed to be owned by
certain members of his or her family (spouse, children, grandchildren and
parents) and other related parties, which include, for example, certain entities
in which the shareholder has a direct or indirect interest (including
partnerships, estates, trusts and corporations), or that are subject to being
acquired by such a shareholder (or a related person) by exercise of an option or
conversion right. Because application of the constructive ownership rules could
result in the receipt by a shareholder of ordinary income (rather than capital
gain) in the Merger, each shareholder should consult his or her own tax advisor
with respect to the application of the constructive ownership rules to his or
her particular circumstances. Each holder of shares of PhotoDisc Common stock
should consult with a personal tax advisor in arriving at a determination of
whether the Cash Consideration will be treated as capital gain or ordinary
income.
The tax basis of the Getty Images Common Stock to be received by a PhotoDisc
Shareholder will be the same as the tax basis of the PhotoDisc Common Stock
surrendered in exchange therefor, increased by the amount of gain recognized on
such exchange and decreased by the amount of cash received. The holding period
of the shares of Getty Images Common Stock received by a PhotoDisc Shareholder
will include the period during which the holder held the shares of PhotoDisc
Common Stock surrendered in exchange therefor.
As a consequence of the qualification of the Merger as a reorganization
under section 368(a) of the Code, neither PhotoDisc nor Getty Images will
recognize any taxable gain for U.S. federal income tax purposes upon
consummation of the Merger.
DISSENTING SHAREHOLDERS. A PhotoDisc Shareholder who exercises appraisal
rights and receives cash with respect to shares of PhotoDisc Common Stock will
be treated as though the shares of PhotoDisc Common Stock had been redeemed by
PhotoDisc. Such shareholder generally will recognize capital gain or loss upon
such redemption equal to the difference between the amount of cash received and
such shareholder's tax basis in the PhotoDisc Common Stock surrendered in
exchange therefore.
UNITED STATES TAX CONSEQUENCES TO NON-U.S. SHAREHOLDERS
OF THE OWNERSHIP OF GETTY IMAGES COMMON STOCK
The following is a summary of the principal U.S. federal income tax
consequences of the ownership and disposition of shares of Getty Images Common
Stock generally applicable to Non-U.S. Shareholders who are not engaged in a
trade or business within the United States.
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To the extent paid out of current or accumulated earnings and profits of
Getty Images ("E&P"), a distribution made to a Non-U.S. Shareholder with respect
to Getty Images Common Stock will be treated as a dividend. To the extent that
such distribution exceeds the E&P of Getty Images, it will be treated as a
non-taxable return of capital to the extent of the Non-U.S. Shareholder's
adjusted tax basis in the Getty Images Common Stock and thereafter as capital
gain.
Dividends paid by Getty Images to a Non-U.S. Shareholder will be subject to
a U.S. withholding tax at the statutory rate of 30%, subject to reduction by the
terms of an applicable treaty. For example, the Treaty provides that dividends
received by individuals who are U.K. residents and entitled to the benefits of
the Treaty pursuant to the terms thereof are generally subject to U.S.
withholding tax at the reduced rate of 15%.
Capital gains realized upon the disposition of shares of Getty Images Common
Stock by a Non-U.S. Shareholder who is not engaged in a trade or business within
the United States will generally not be subject to U.S. federal income tax.
BACKUP WITHHOLDING
Payments made in respect of shares of Getty Images Common Stock, including
the net proceeds received upon a sale or other disposition thereof, may be
subject to information reporting to the Internal Revenue Service ("IRS") and a
possible 31% U.S. backup withholding tax. Backup withholding will not apply,
however, to a holder who furnishes a correct taxpayer identification number or
certificate of foreign status and makes any other required certification or who
is otherwise exempt from backup withholding. Persons required to establish their
exempt status generally must provide such certification on IRS Form W-9 (Request
for Taxpayer Identification Number and Certification) in the case of U.S.
persons and on Form W-8 (Certification of Foreign Status) in the case of
non-U.S. persons. Backup withholding is not an additional tax and may be claimed
as a credit against the U.S. federal income tax liability of the holder, or
refunded, provided that the required information is furnished to the Internal
Revenue Service.
UNITED KINGDOM TAX CONSEQUENCES OF THE SCHEME OF ARRANGEMENT
In the case of a Getty Shareholder who is not a U.K. resident, the Scheme of
Arrangement will not have any U.K. tax consequences, provided that such Getty
Shareholder does not conduct any business in the United Kingdom through a branch
or agency.
The directors of Getty Communications have been advised that the principal
U.K. tax consequences of the Transactions for Getty Shareholders who are U.K.
residents are as set forth below.
The exchange of Getty Ordinary Shares by Getty Shareholders in return for
Getty Images Common Stock pursuant to the Scheme of Arrangement will not be
treated as a disposal by such shareholders of their existing Getty Ordinary
Shares for the purposes of U.K. taxation of capital gains. The tax basis of the
Getty Images Common Stock to be received by such Getty Shareholder will be the
same as the tax basis of the Getty Ordinary Shares surrendered in exchange
therefore. The holding period of the Getty Images Common Stock received by such
Getty Shareholder will be the same as the holding period of the Getty Ordinary
Shares surrendered in exchange therefor.
An application for tax clearance has been filed with the U.K. Inland Revenue
under section 138 of the Taxation of Chargeable Gains Act 1992 of the United
Kingdom seeking confirmation that the Board of the Inland Revenue is satisfied
that the Transactions will be implemented for bona fide commercial reasons and
not for tax avoidance purposes. A subsequent disposal of Getty Images Common
Stock may give rise to a U.K. capital gains tax liability. An application for
tax clearance has also been filed with the U.K. Inland Revenue seeking
confirmation that under section 707 of the Income and Corporation Taxes Act 1988
the United Kingdom that section 703 of such act does not apply in respect of the
Transactions.
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The above summary of the U.K. taxation treatment of the Transactions is not
exhaustive and, in particular, does not consider the position of any Getty
Shareholder otherwise than for investment purposes or, except to the extent
described in the first paragraph hereof, who is not a U.K. resident for tax
purposes. If you are in any doubt as to your taxation position, you should
consult your own professional adviser.
NO DISSENTERS' RIGHTS FOR GETTY SHAREHOLDERS
Holders of Getty Ordinary Shares will not have any appraisal, dissenter or
other similar rights in connection with the Transactions, although they will
have the right to raise objections at the Getty Court Meeting.
RIGHTS OF DISSENTING PHOTODISC SHAREHOLDERS
In accordance with Chapter 23B.13 of the WBCA, holders of shares of
PhotoDisc Common Stock will be entitled to dissenters' rights in connection with
the Merger. The following is a brief summary of the rights of PhotoDisc
Shareholders who dissent from the Merger. It is qualified in its entirety by
reference to the applicable statutory provisions of the WBCA, a copy of which is
attached hereto as Annex E.
Eight holders of shares of PhotoDisc Common Stock and Series A Preferred
Stock, representing approximately 82% of the outstanding shares of PhotoDisc
Common Stock and Series A Preferred Stock, have agreed to vote in favor of the
Merger Agreement and the related transactions and have waived any dissenters'
rights with respect to the Transactions.
A record or beneficial holder of shares of PhotoDisc Common Stock or Series
A Preferred Stock will have the right to dissent with respect to the Merger and,
subject to certain conditions, will be entitled to receive a cash payment equal
to the fair value of his or her shares under the WBCA. Each beneficial owner
asserting dissenters' rights must assert such rights with respect to all shares
of which such shareholder is the beneficial owner or over which he or she has
power to direct the vote, and such shareholder must submit to PhotoDisc, with or
prior to his or her assertion of dissenters' rights, the record shareholder's
written consent to such dissent. A record shareholder may assert dissenters'
rights as to fewer than all the shares registered in such shareholder's name
only if the shareholder dissents with respect to all shares beneficially owned
by any one person and notifies the corporation in writing of the name and
address of each person on whose behalf such shareholder asserts dissenters'
rights. A PhotoDisc dissenting shareholder (i) must deliver to PhotoDisc, before
the vote on the Merger Proposal is taken, written notice of his or her intent to
demand payment for his or her shares if the Merger is effectuated and (ii) must
not vote such shareholder's shares in favor of the Merger. A vote against the
Merger will not in itself satisfy the notice requirement, and failure to vote
against the Merger will not in itself constitute a waiver of dissenters' rights
with respect to such shares. SUCH NOTICE SHOULD BE DELIVERED TO PHOTODISC AT ITS
PRINCIPAL EXECUTIVE OFFICES, 2013 FOURTH AVENUE, SEATTLE, WASHINGTON 98121. A
SHAREHOLDER WHO DOES NOT SATISFY COMPLETELY BOTH OF THESE REQUIREMENTS WILL NOT
BE ENTITLED TO DISSENTERS' RIGHTS.
If the Merger is approved by the PhotoDisc Shareholders, PhotoDisc will send
written notice not later than ten days after the Effective Time to each of its
dissenting shareholders (i) stating where such shareholder must send his or her
written payment demand, (ii) stating where and when certificates representing
shares of PhotoDisc Common Stock or Series A Preferred Stock must be deposited,
(iii) containing a form for demanding payment which requires that the dissenter
certify whether or not he or she acquired beneficial ownership before the first
public announcement of the Merger on September 16, 1997 and (iv) setting a date
by which such written payment demand must be received. A PhotoDisc dissenting
shareholder who does not demand payment, certify that such shareholder acquired
the shares on or before September 16, 1997 and deposit his or her shares within
the time provided by such notice will not be entitled to dissenters' rights.
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PhotoDisc will pay to each PhotoDisc dissenting shareholder who complies
with the procedures described above, within 30 days after the later of the
Effective Time and the date the payment demand is received, the amount that
PhotoDisc estimates to be the fair value of his or her shares, plus accrued
interest. PhotoDisc will provide, along with such payment, certain financial
information, including PhotoDisc's balance sheet, income statement and statement
of changes in shareholders' equity for its last fiscal year and PhotoDisc's
latest available interim financial statements, an explanation of how PhotoDisc
estimated the fair value of the shares, an explanation of how the accrued
interest was calculated and certain other information; PROVIDED, HOWEVER, that
PhotoDisc may elect to withhold such payment from any dissenter who was not the
beneficial owner of the shares of PhotoDisc Common Stock as to which dissenters'
rights are asserted before the date of the first public announcement of the
Merger, September 16, 1997, and send a statement to such dissenter setting forth
its estimate of the fair value of such shares and offering to pay such amount,
with interest, as a final settlement of such dissenter's demand for payment. Any
dissenting shareholder who is dissatisfied with such payment or such offer may,
within 30 days of such payment or offer for payment, notify PhotoDisc in writing
of such shareholder's estimate of fair value of his or her shares and the amount
of interest due and demand payment thereof.
If any PhotoDisc dissenting shareholder's demand for payment is not settled
within 60 days after receipt by PhotoDisc of such shareholder's payment demand,
the WBCA requires that PhotoDisc commence a proceeding in King County Superior
Court, and petition the court to determine the fair value of the shares and
accrued interest, naming all PhotoDisc dissenting shareholders whose demands
remain unsettled as parties to the proceeding. The court may appoint one or more
persons as appraisers to receive evidence and recommend the fair value of the
shares. The dissenters will be entitled to the same discovery rights as parties
in other civil actions. Each dissenter made a party to the proceeding will be
entitled to judgment for the amount, if any, by which the court finds the fair
value of his or her own shares, plus interest, exceeds the amount paid by
PhotoDisc.
Holders of shares of PhotoDisc Common Stock or Series A Preferred Stock
should recognize that such a determination of fair value could result in a price
higher than, lower than or equal to the price available to PhotoDisc
Shareholders pursuant to the Merger. Under the WBCA, a court may consider a
variety of factors in determining the fair value. The WBCA requires that the
court consider all relevant facts and circumstances in determining the fair
value and that it not give undue emphasis to any one factor.
Court costs and appraisal fees would be assessed against PhotoDisc, except
that the court may assess such costs against some or all of the dissenters to
the extent that the court finds the dissenters acted arbitrarily, vexatiously or
not in good faith in demanding payment. The court may also assess the fees and
expenses of counsel and experts of the respective parties in amounts that the
court finds equitable: (i) against PhotoDisc, if the court finds that it did not
substantially comply with certain provisions of the WBCA concerning dissenters'
rights and (ii) against the dissenter or against PhotoDisc, if the court finds
that the party against whom the fees and expenses are assessed acted
arbitrarily, vexatiously or not in good faith. If the court finds that services
of counsel for any dissenter were of substantial benefit to other dissenters
similarly situated, and that the fees should not be assessed against PhotoDisc,
the court may award to such counsel reasonable fees to be paid out of the
amounts awarded to dissenters who benefited from the proceedings.
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THE SCHEME OF ARRANGEMENT
THE FOLLOWING SUMMARIZES CERTAIN ASPECTS OF THE SCHEME OF ARRANGEMENT. THE
SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE SHAREHOLDER CIRCULAR THAT IS BEING MAILED TO GETTY SHAREHOLDERS
IN CONNECTION WITH THE SCHEME OF ARRANGEMENT, A COPY OF WHICH HAS BEEN FILED AS
AN EXHIBIT TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART AND
IS INCORPORATED BY REFERENCE HEREIN. GETTY SHAREHOLDERS ARE URGED TO READ SUCH
EXHIBIT IN ITS ENTIRETY.
The Merger Agreement provides that Getty Images, Getty Communications, Getty
Investments and the public shareholders of Getty Communications will enter into
the Scheme of Arrangement pursuant to which, at the Effective Time, subject to
the sanction of the English High Court, the requisite approvals of the Getty
Shareholders and the satisfaction or waiver (where permissible) of certain other
conditions, each issued and outstanding Getty Class A Ordinary Share and Getty
Class B Ordinary Share will be cancelled, the Getty Shareholders will be issued
one share of Getty Images Common Stock for every two Getty Ordinary Shares held
of record by such holders, and Getty Communications will become a wholly owned
subsidiary of Getty Images. The Scheme of Arrangement will be a court-approved
arrangement pursuant to Section 425 of the Companies Act.
The Scheme of Arrangement requires the sanction of the English High Court
and certain approvals of the holders of Getty Ordinary Shares. The English High
Court has convened a meeting of the holders of Getty Class A Ordinary Shares to
be held on December , 1997, at p.m., London time at .
At the Getty Court Meeting, the Getty Class A Shareholders of record as of the
date of the Getty Court Meeting will be asked to consider and vote upon the
approval of the Scheme of Arrangement. Each Getty Class A Ordinary Share will
entitle the holder thereof to one vote on each matter that may properly come
before the Getty Court Meeting. The Scheme of Arrangement requires the
affirmative vote of a majority in number of the holders of the Getty Class A
Ordinary Shares present (in person or by proxy) at the Getty Court Meeting, with
such majority representing 75% or more of the votes attaching to the Getty Class
A Ordinary Shares voted at the Getty Court Meeting.
As a result of its controlling ownership interest in Getty Communications,
Getty Investments will not be entitled to vote at the Getty Court Meeting but
will undertake to the English High Court to be bound by the terms of the Scheme
of Arrangement. As a result of certain rights attached to Carlton's share
holdings in Getty Communications, Carlton will likely be treated by the English
High Court as a separate class of shareholder. Accordingly, Carlton is expected
to agree with the English High Court to abstain from voting at the Getty Court
Meeting and to undertake to the English High Court to be bound by the terms of
the Scheme of Arrangement.
Following the Getty Court Meeting and subject to the requisite shareholder
approvals having been obtained, Getty Communications will petition the English
High Court to approve the Scheme of Arrangement. Approval of the Scheme of
Arrangement by the English High Court is generally subject to it being satisfied
that:
(i) the statutory provisions have been complied with (including those
provisions that require delivery of information reasonably necessary to
enable a shareholder to determine how to vote);
(ii) groups of holders of Getty Ordinary Shares that have different
interests from each other have been identified correctly and holders of
shares voting on the Scheme of Arrangement have a common interest;
(iii) the applicable shareholder resolutions have been properly approved
by the relevant majority of such shareholders in number and in value; and
(iv) the Scheme of Arrangement is fair.
The Getty Communications Board has also convened an Extraordinary General
Meeting of the holders of Getty Class A Ordinary Shares and Getty Class B
Ordinary Shares to be held immediately after the Getty Court Meeting at the same
place. At the Getty EGM, the holders of record of Getty Class A
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Ordinary Shares and Getty Class B Ordinary Shares as of the date of the Getty
EGM will be asked to consider and vote upon the approval of the Scheme of
Arrangement and certain related matters. Each Getty Class A Ordinary Share will
entitle the holder thereof to one vote, and each Getty Class B Ordinary Share
will entitle the holder thereof to ten votes, on each matter that may properly
come before the Getty EGM. The Scheme of Arrangement requires the affirmative
vote of holders of Getty Class A Ordinary Shares and Getty Class B Ordinary
Shares present (in person or by proxy) at the Getty EGM representing 75% or more
of the votes attaching to the Getty Ordinary Shares voted at the Getty EGM. Both
Getty Investments and Carlton are expected to agree with the English High Court
to abstain from voting at the Getty EGM, but have stated that they support the
Scheme of Arrangement and will agree to be bound by its terms. See "The Getty
Shareholder Meetings--The Getty Voting Agreements".
In addition to the sanction of the English High Court and the requisite
shareholder approvals at the Getty Shareholder Meetings, the effectiveness of
the Scheme of Arrangement is subject to the additional conditions described
under "The Merger Agreement--Conditions to the Transactions".
The Scheme of Arrangement shall become effective when a copy of the court
order approving it is delivered to the Registrar of Companies for England and
Wales for registration, at which time all the issued share capital of Getty
Communications will become owned by Getty Images. The Scheme of Arrangement will
lapse if it does not become effective by March 31, 1998 (or such later date as
the English High Court may allow). Once effective, the Scheme of Arrangement
will bind all shareholders, including those who did not vote, or who voted
against it, or who could not be traced.
Appropriate arrangements will be made with The Bank of New York, as
depositary (the "Depositary") for the Getty Communications ADSs, to permit
holders of Getty Communications ADSs to vote on and participate in the Scheme of
Arrangement on the same basis as holders of Getty Class A Ordinary Shares. Each
Getty Communications ADS represents two Getty Class A Ordinary Shares.
Following completion of the Transactions, new share certificates
representing shares of Getty Images Common Stock will automatically be sent to
all Getty Shareholders and existing ordinary share certificates will be
cancelled and will be of no further effect.
GETTY COMMUNICATIONS SHARE OPTION SCHEME
Getty Communications has one share option scheme (the "Getty Communications
Option Scheme"). As of September 30, 1997 options were outstanding over
4,661,908 Getty Class A Ordinary Shares at prices between $5.00 and $10.97 per
share.
Optionholders under the Getty Communications Option Scheme will have the
right to exercise their options for a period one month after the date that they
are notified that the English High Court has sanctioned the Scheme of
Arrangement (irrespective of whether such options have vested at that time). If
such optionholders do not exercise their options during the one month period,
the options will lapse. A resolution which will be proposed at the Getty EGM to
amend the Articles of Association of Getty Communications to ensure that any
Getty Class A Ordinary Shares issued on the exercise of options after the Getty
Court Meeting and prior to the record date for the Scheme of Arrangement are
validly issued and outstanding. To ensure that any Getty Class A Ordinary Share
issued after such date can be exchanged for shares of Getty Images Common Stock,
a resolution will be proposed at the Getty EGM which will amend the Articles of
Association of Getty Communications to provide for put and call provisions to
apply to such Getty Images Shares.
Optionholders will also be offered the opportunity, as an alternative to
exercising their options, to exchange options over Getty Class A Ordinary Shares
for new options over shares of Getty Images Common Stock. The new options will
be over one share of Getty Images Common Stock for each two Getty Class A
Ordinary Shares under option prior to the exchange, with the exercise price for
each share of Getty Images Common Stock being the aggregate of the option price
for the two Getty Class A Ordinary Shares formerly under option. The new options
will vest as to 25 percent on the first anniversary of the original grant and
then rateably on a monthly basis over the following three years.
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THE MERGER AGREEMENT
THE FOLLOWING SUMMARIZES CERTAIN PROVISIONS OF THE MERGER AGREEMENT. THE
FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE MERGER AGREEMENT, WHICH IS
ATTACHED TO THIS PROSPECTUS AS ANNEX A AND IS INCORPORATED BY REFERENCE HEREIN.
GETTY SHAREHOLDERS AND PHOTODISC SHAREHOLDERS ARE URGED TO READ ANNEX A IN ITS
ENTIRETY.
THE EFFECTIVE TIME
The Effective Time will be the time the Merger becomes effective. As soon as
practicable following the Closing, the parties to the Merger Agreement will file
the Articles of Merger with the Washington Secretary of State in such form as is
required by, and executed in accordance with, the relevant provisions of the
WBCA and will make all other filings or recordings required under the WBCA. The
Merger will become effective at such time when the Articles of Merger are duly
filed with the Washington Secretary of State or at such later time as may be
agreed in writing by each of the parties thereto and specified in the Articles
of Merger.
CONVERSION OF PHOTODISC SHARES; PROCEDURES FOR EXCHANGE; FRACTIONAL SHARES
The conversion of PhotoDisc Common Stock into the right to receive the
Merger Consideration will occur automatically at the Effective Time. After the
Effective Time, holders of certificates evidencing shares of PhotoDisc Common
Stock (the "PhotoDisc Share Certificates") that were converted into the right to
receive shares of Getty Images Common Stock pursuant to the Merger Agreement may
surrender such PhotoDisc Share Certificates to Getty Images. Upon surrender of a
PhotoDisc Share Certificate, the holder of such PhotoDisc Share Certificate will
be entitled to receive in exchange therefor: (i) one or more certificates
representing, in the aggregate, that whole number of Getty Images Shares that
such holder has the right to receive in respect of such PhotoDisc Share
Certificate pursuant to the provisions of the Merger Agreement, and (ii) an
amount of cash by check or wire transfer equal to the amount in cash that such
holder has the right to receive pursuant to the provisions of the Merger
Agreement.
In the case of shares of PhotoDisc Common Stock held by the Principal
Shareholders immediately prior to the Effective Time, Getty Images will deliver
to the Escrow Agent one or more certificates registered in the names of the
Principal Shareholders representing the number of Getty Images Shares that are
to be held in escrow by the Escrow Agent in accordance with the Escrow
Agreement. The PhotoDisc Share Certificates surrendered to Getty Images will
forthwith be cancelled.
At the Effective Time, each share of PhotoDisc Common Stock that is owned by
PhotoDisc as treasury stock, by Getty Images or any direct or indirect wholly
owned subsidiary of Getty Images or PhotoDisc immediately prior to the Effective
Time automatically will be cancelled and retired and will cease to exist without
any conversion thereof and no payment or distribution will be made with respect
thereto or delivered in exchange therefor.
After the Effective Time, each PhotoDisc Share Certificate will represent
only the right to receive the Merger Consideration.
In the event of a transfer of ownership of shares of PhotoDisc Common Stock
that is not registered in the transfer records of PhotoDisc, the applicable
Merger Consideration may be paid to a person other than the person in whose name
the PhotoDisc Share Certificate so surrendered is registered if the PhotoDisc
Share Certificate representing such shares of PhotoDisc Common Stock is
presented to Getty Images, accompanied by all documents required to evidence and
effect such transfer and evidence that any applicable stock transfer taxes have
been paid.
No dividends or other distributions declared or made after the Effective
Time with respect to shares of Getty Images Common Stock with a record date
after the Effective Time will be paid to the holder of any unsurrendered
PhotoDisc Share Certificate with respect to the shares of Getty Images Common
Stock
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that such holder would be entitled to receive upon surrender of such PhotoDisc
Share Certificate, until such holder surrenders such PhotoDisc Share Certificate
in accordance with the Merger Agreement.
All shares of Getty Images Common Stock and cash issued upon conversion of
shares of PhotoDisc Common Stock in accordance with the terms of the Merger
Agreement will be deemed to have been issued or paid in full satisfaction of all
rights pertaining to such shares of PhotoDisc Common Stock.
No fractional Getty Images Shares will be issued upon the surrender for
exchange of PhotoDisc Share Certificates and such fractional shares interests
will not entitle the owner thereof to vote or to have any rights of a
stockholder of Getty Images. Each holder of shares of PhotoDisc Common Stock
exchanged pursuant to the Merger who otherwise would have been entitled to
receive a fraction of a share of Getty Images Common Stock (after taking into
account all shares of PhotoDisc Common Stock then held by such holder) will
receive, in lieu thereof, one share of Getty Images Common Stock.
REPRESENTATIONS AND WARRANTIES
PhotoDisc has made certain representations and warranties to Getty
Communications, Getty Images and Merger Sub relating to, among other things, the
following matters (which representations and warranties are subject, in certain
cases, to specified exceptions): (i) the due organization and good standing of
PhotoDisc; (ii) the authorization, execution, delivery, and performance of the
Merger Agreement by PhotoDisc; (iii) the capital stock of PhotoDisc and the
ownership of the PhotoDisc Common Stock and Series A Preferred Stock; (iv) the
existence and ownership of its subsidiaries; (v) the accuracy and completeness
of PhotoDisc's corporate books and records; (vi) the absence of any conflict
with the constituting documents of PhotoDisc or its subsidiaries, or with
applicable law, or with certain contracts; (vii) the absence of any governmental
consents or approvals required to consummate the Merger; (viii) the accuracy and
completeness of PhotoDisc's financial information; (ix) the absence of any
undisclosed material liabilities; (x) the accuracy and completeness of
information related to PhotoDisc or its subsidiaries contained in the
Registration Statement, this Prospectus and the Shareholder Circular that is
being mailed to Getty Shareholders in connection with the Scheme of Arrangement;
(xi) the conduct of PhotoDisc's business in the ordinary course; (xii) the
absence of material pending or threatened litigation; (xiii) compliance with
laws; (xiv) the absence of certain conflicts of interests on the part of certain
of PhotoDisc's affiliates; (xv) certain environmental matters; (xvi) PhotoDisc's
material contracts; (xvii) certain intellectual property matters; (xviii)
certain real property matters; (xix) PhotoDisc's assets; (xx) PhotoDisc's
customers and sales agents; (xxi) PhotoDisc's content providers; (xxii) certain
employee benefit matters; (xxiii) certain labor relations matters; (xxiv)
PhotoDisc's key employees; (xxv) certain tax matters; (xxvi) certain insurance
matters; (xxvii) the receipt of a fairness opinion from PhotoDisc's financial
advisor; (xxviii) the full disclosure of material information; and (xxix) the
absence of any brokerage, finder's or other fee due in connection with the
transactions contemplated by the Merger Agreement (except such fees and expenses
payable to BARS).
Getty Communications has made certain representations and warranties to
PhotoDisc relating to, among other things, the following matters (which
representations and warranties are subject, in certain cases, to specified
exceptions): (i) the due organization, good standing and corporate power of
Getty Communications; (ii) the authorization, execution, delivery, and
performance of the Merger Agreement by Getty Communications; (iii) the capital
stock of Getty Communications; (iv) the existence and ownership of its
subsidiaries; (v) the absence of any conflict with the constituting documents of
Getty or its subsidiaries, or with applicable law, or with certain contracts;
(vi) the absence of any governmental consents or approvals required to
consummate the Merger; (vii) the accuracy and completeness of the financial
information of Getty Communications and its reports filed with the Commission
and other regulatory authorities; (viii) the absence of any undisclosed material
liabilities; (ix) the accuracy and completeness of information related to Getty
Communications or its subsidiaries contained in the Registration Statement, this
Prospectus and the Shareholder Circular that is being mailed to Getty
Shareholders in connection with the Scheme of Arrangement; (x) the conduct of
the business of Getty
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Communications in the ordinary course; (xi) the absence of material pending or
threatened litigation; (xii) compliance with laws; (xiii) the absence of certain
conflicts of interests on the part of certain affiliates of Getty
Communications; (xiv) certain environmental matters; (xv) certain intellectual
property matters; (xvi) the absence of any obstacles to obtaining tax-free
treatment for the Transactions; (xvii) the receipt of a fairness opinion from
the financial advisor of Getty Communications; (xviii) the full disclosure of
material information; and (xix) the absence of any brokerage, finder's or other
fee due in connection with the transactions contemplated by the Merger Agreement
(except such fees and expenses payable to BT Alex. Brown).
Getty Images and Merger Sub have made certain representations and warranties
to PhotoDisc relating to, among other things, the following matters (which
representations and warranties are subject, in certain cases, to specified
exceptions): (i) the due organization, good standing and corporate power of
Getty Images and Merger Sub; (ii) the authorization, execution, delivery, and
performance of the Merger Agreement by Getty Images and Merger Sub; (iii) the
capital stock of both Getty Images and Merger Sub; (iv) the absence of any
conflict with the constituting documents of Getty Images and Merger Sub, or with
applicable law, or with certain contracts; (v) the absence of any governmental
consents or approvals required to consummate the Merger; (vi) the absence of
business activities on the part of Getty Images and Merger Sub outside of the
Merger; and (vii) the accuracy and completeness of information related to Getty
Images and Merger Sub contained in the Registration Statement, this Prospectus
and the Shareholder Circular that is being mailed to Getty Shareholders in
connection with the Scheme of Arrangement.
CONDITIONS TO THE TRANSACTIONS
The obligations of Getty Images, PhotoDisc and Merger Sub to effect the
Merger, and the obligations of Getty Images and Getty Communications to effect
the Scheme of Arrangement, are subject to the satisfaction or waiver (where
permissible), on or prior to the Effective Time, of various conditions, which
include, in addition to other customary closing conditions, the following:
(i) Getty Communications having obtained all approvals of the Getty
Shareholders required to approve the Merger Agreement and all the
transactions contemplated thereby, including the Scheme of Arrangement;
(ii) PhotoDisc having obtained all approvals of the PhotoDisc
Shareholders required to approve the Merger Agreement and all the
transactions contemplated thereby;
(iii) the English High Court having approved the Scheme of Arrangement
and Getty Communications having filed an office copy of the order of the
English High Court with the Registrar of Companies of England and Wales;
(iv) the shares of Getty Images Common Stock to be issued in the
Transactions having been authorized for quotation on the Nasdaq National
Market;
(v) the waiting period applicable to the Merger under the HSR Act having
expired or been terminated;
(vi) the Registration Statement having become effective under the
Securities Act and not being the subject of any stop order or proceedings
seeking a stop order, and all state securities or "blue sky" authorizations
necessary to carry out the transactions contemplated by the Merger Agreement
having been obtained and being in full force and effect;
(vii) no temporary restraining order, preliminary or permanent injunction
or other order issued by a court or other governmental entity of competent
jurisdiction being in effect and having the effect of making the Merger or
the Scheme of Arrangement illegal or otherwise prohibiting consummation of
the Merger or the Scheme of Arrangement;
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(viii) no pending or overtly threatened suit, action, investigation or
proceeding to which a governmental entity is a party (A) seeking to restrain
or prohibit the consummation of the Transactions or any of the other
transactions contemplated by Merger Agreement or seeking to obtain from
Getty Images, Getty Communications, PhotoDisc or Merger Sub or any of their
respective subsidiaries any damages that are material in relation to Getty
Communications and its subsidiaries, or to PhotoDisc and its subsidiaries,
(B) seeking to prohibit or limit the ownership or operation by Getty Images,
Getty Communications, PhotoDisc or Merger Sub or any of their respective
subsidiaries of any material portion of the business or assets of Getty
Communications and its subsidiaries, or PhotoDisc and its subsidiaries, or
seeking to require such parties to dispose of or hold separate any material
portion of the business or assets of Getty Communications and its
subsidiaries, or PhotoDisc and its subsidiaries, as a result of the
Transactions or any of the other transactions contemplated by Merger
Agreement, (C) seeking to prohibit Getty Images or any of its subsidiaries
from effectively controlling in any material respect the business or
operations of Getty Communications and its subsidiaries, or PhotoDisc and
its subsidiaries, or (D) which otherwise could have a Material Adverse
Effect (as defined below) on either Getty Images, Getty Communications or
PhotoDisc;
(ix) a Getty Images Stock Option Plan having been adopted in accordance
with the Merger Agreement;
(x) the Getty Images Board as of the Effective Time having been
reconstituted in accordance with the Merger Agreement;
(xi) each of Getty Images, PDI, Mr. Mark Torrance, Getty Investments,
Mr. Mark Getty, Mr. Jonathan Klein, the October 1993 Trust and Crediton
Limited having entered into the Stockholders' Agreement;
(xii) Getty Images having entered into the Registration Rights
Agreements, one with PDI and Mr. Torrance and one with Getty Investments;
(xiii) each of Messrs. Getty, Klein and Torrance having entered into his
respective Employment Agreement with Getty Images; and
(xiv) the Effective Time of the Transactions occurring simultaneously.
In addition, the obligations of PhotoDisc, on the one hand, and Getty Images
and Getty Communications, on the other hand, to effect the Merger or the Scheme
of Arrangement are subject to the satisfaction or waiver (where permissible), on
or prior to the Effective Time, of each of the following additional conditions,
among others:
(i) the representations and warranties of the other parties to the
Merger Agreement contained in the Merger Agreement that are qualified as to
materiality being true and correct, and the representations and warranties
of the other parties to the Merger Agreement contained in the Merger
Agreement that are not qualified as to materiality being true and correct in
all material respects as of the date of the Merger Agreement and as of the
date of the Closing (the "Closing Date") as though made on and as of the
Closing Date (except to the extent that such representations and warranties
speak as of an earlier date) and such party having received a certificate
signed on behalf of the other parties by the chairman and chief executive
officer of the other parties to such effect;
(ii) the other parties to the Merger Agreement having performed or
complied in all material respects with all agreements and covenants required
to be performed by them under the Merger Agreement at or prior to the
Closing Date, and such parties having received a certificate of the chairman
and chief executive officer of the other parties to such effect;
(iii) no event having occurred, or which reasonably could be expected to
occur, which, individually or in the aggregate, has or which reasonably
could be expected to have a Material Adverse Effect on the other party;
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(iv) such party having received the opinion of its counsel stating that
(A) the Merger or the Scheme of Arrangement, as the case may be, will be
treated for United States federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code, (B) the other parties to
the Merger Agreement will be a party to that reorganization within the
meaning of Section 368(b) of the Code and (C) no gain or loss will be
recognized on the exchange of such party's capital stock for the Merger
Consideration or shares of Getty Images Common Stock, as the case may be,
except that gain, if any, will be recognized to the extent of the Cash
Consideration received by PhotoDisc Common Shareholders, which opinion will
be dated on or about the date that is two business days prior to the Closing
Date and which will not have been withdrawn or modified in any material
respect as of the Closing Date; and
(v) such party having received from the other parties' counsel a legal
opinion, addressed to such party and dated the Closing Date, in form and
substance reasonably satisfactory to such party.
The obligations of Getty Images and Getty Communications to effect the
Scheme of Arrangement is subject to the satisfaction or waiver (where
permissible), on or prior to the Effective Time, of each of the following
additional conditions, among others:
(i) (A) the Stockholders' Transaction Agreement being in full force and
effect and no Principal Shareholder being in breach of or default under any
material term of the Stockholders' Transaction Agreement; (B) the
representations and warranties of each Principal Shareholder contained in
the Stockholders' Transaction Agreement that are qualified as to materiality
being true and correct, and the representations and warranties of each
Principal Shareholder contained in the Stockholders' Transaction Agreement
that are not so qualified being true and correct in all material respects,
in each case as of the date of the Merger Agreement and as of the Closing
Date as though made on and as of the Closing Date (except to the extent that
such representations and warranties speak as of an earlier date), and Getty
Communications having received certificates to such effect signed by or on
behalf of each Principal Shareholder; and (C) each Principal Shareholder
having performed or complied in all material respects with all agreements
and covenants required to be performed by it under the Stockholders'
Transaction Agreement at or prior to the Closing Date, and Getty
Communications having received certificates to such effect signed by or on
behalf of each Principal Shareholder;
(ii) the Escrow Agreement having been executed and delivered by all of
the Principal Shareholders, and being in full force and effect, and no party
thereto being in material breach of or default under the Escrow Agreement;
and
(iii) Getty Communications having received the resignations, effective as
of the Closing, of all the directors and officers of PhotoDisc and each of
its subsidiaries, except for such persons as will have been designated in
writing prior to the Closing by Getty Communications to PhotoDisc.
"Material Adverse Effect" means any circumstance, change in, or effect on a
party, its subsidiaries or their businesses that, individually or in the
aggregate with any other circumstances, changes in or effects on such party, its
subsidiaries or their businesses, is, or reasonably could be expected to be,
materially adverse to the business, operations, assets or liabilities, employee
relationships, customer or supplier relationships, results of operations or
condition (financial or otherwise) of such party and its subsidiaries, taken as
a whole.
CONDUCT OF BUSINESS PRIOR TO THE CLOSING
Pursuant to the Merger Agreement, Getty Communications and PhotoDisc have
agreed, among other things and subject to certain exceptions, that, between the
date of the Merger Agreement and the Closing, such parties will carry on their
respective businesses in the ordinary course in all material respects, in
substantially the same manner as previously conducted. Without limiting the
generality of the foregoing and subject to certain exceptions, Getty
Communications, PhotoDisc and their respective subsidiaries will
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use their best efforts to preserve intact their business organizations and not
to engage in any practice, take any action, fail to take any action or enter
into any transaction which could cause any representation or warranty of such
party to be untrue or which would result in a breach of any covenant made by
such party in the Merger Agreement.
In addition, PhotoDisc has agreed that, among other things and subject to
certain exceptions, PhotoDisc and its subsidiaries will keep available to Getty
Images the services of the employees of PhotoDisc and its subsidiaries and
preserve their current relationships with their customers, suppliers and other
persons with whom they have significant business relationships.
In addition, Getty Communications has agreed that, among other things and
subject to certain exceptions, Getty Communications and its subsidiaries will
not: (i) acquire or engage in discussions to acquire a royalty-free digital
stock photography company without the prior written approval of PhotoDisc; (ii)
issue or sell any options, warrants or other rights to acquire any securities of
Getty Communications without the prior written approval of PhotoDisc (except for
the issuance or sale by Getty Communications of options, warrants or rights to
acquire up to 100,000 Getty Ordinary Shares in connection with the hiring of new
employees by Getty Communications or its subsidiaries); or (iii) issue or sell
any shares of capital stock of Getty Communications; PROVIDED, HOWEVER, that (A)
Getty Communications may issue Getty Ordinary Shares upon the exercise of
options, warrants and other convertible securities outstanding on the date of
the Merger Agreement and (B) Getty Communications may issue a number of Getty
Ordinary Shares up to an aggregate of 20% of the Getty Ordinary Shares
outstanding on the date of the Merger Agreement in connection with acquisitions
of shares, assets or other properties.
Pursuant to the Merger Agreement, PhotoDisc has agreed that between the date
of the Merger Agreement and the earlier of (i) the Closing and (ii) the
termination of the Merger Agreement, neither PhotoDisc, its subsidiaries nor any
of their respective affiliates, officers, directors, representatives or agents
will (A) solicit, initiate, consider, encourage or accept any other proposals or
offers from any person (1) relating to any acquisition or purchase of all or any
portion of the capital stock or assets of PhotoDisc or any of its subsidiaries;
(2) to enter into any business combination with PhotoDisc or any of its
subsidiaries; or (3) to enter into any other extraordinary business transaction
involving or otherwise relating to PhotoDisc or any of its subsidiaries; or (B)
participate in any discussions, conversations, negotiations and other
communications regarding, or furnish to any other person any information with
respect to, or otherwise cooperate in any way, assist or participate in,
facilitate or encourage any effort or attempt by any other person to seek to do
any of the foregoing. In addition, PhotoDisc has agreed to cease immediately and
cause to be terminated all existing discussions, conversations, negotiations and
other communications with any persons previously conducted with respect to any
of the foregoing. PhotoDisc will notify Getty Communications promptly if any
such proposal or offer, or any inquiry or other contact with any person with
respect thereto, is made and will, in any such notice to Getty Communications,
indicate in reasonable detail the identity of the person making such proposal,
offer, inquiry or contact and the terms and conditions of such proposal, offer,
inquiry or other contact. PhotoDisc has agreed not to, and to cause PhotoDisc
and each of its subsidiaries not to, without the prior written consent of Getty
Communications, release any person from, or waive any provision of, any
confidentiality or standstill agreement to which PhotoDisc or any of its
subsidiaries is a party.
INDEMNIFICATION
Each of Getty Images, Getty Communications and their respective affiliates
(including, without limitation, PhotoDisc and its subsidiaries), officers,
directors, employees, agents, successors and assigns will be indemnified and
held harmless by the Principal Shareholders (who will be severally and not
jointly liable) for any and all liabilities, losses, damages, diminution in
value, claims, costs and expenses, interest, awards, judgments and penalties
(including, without limitation, reasonable attorneys' and consultants' fees and
expenses) actually suffered or incurred by them (hereinafter a "Loss"), arising
out of or resulting from:
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(i) the breach of any representation or warranty made by PhotoDisc or
such Principal Shareholder contained in the Transaction Documents (as
defined below); or
(ii) the breach of any covenant or agreement by PhotoDisc or such
Principal Shareholder contained in the Transaction Documents.
The PhotoDisc Shareholders and their respective affiliates, officers,
directors, employees, agents, successors and assigns will be indemnified and
held harmless by Getty Images and Getty Communications (who will be jointly and
severally liable) for any and all Losses, arising out of or resulting from:
(i) the breach of any representation or warranty made by Getty Images,
Getty Communications or Merger Sub contained in the Transaction Documents;
or
(ii) the breach of any covenant or agreement by Getty Images, Getty
Communications or Merger Sub contained in the Transaction Documents.
Notwithstanding anything to the contrary contained in the Merger Agreement:
(i) the maximum aggregate amount of indemnifiable Losses arising out of
or resulting from the causes enumerated which may be recovered: (A) from any
Principal Shareholder, other than the Investors (as defined below), will be
the amount equal to 20% of the value of the Merger Consideration to which
such Principal Shareholder is entitled pursuant to the Merger Agreement; (B)
from any Investor will be the amount equal to the number of shares of Getty
Images Common Stock deposited with the Escrow Agent and registered in the
name of such Investor pursuant to the Merger Agreement multiplied by the
Average Trading Price of Getty Communications ADSs at Closing; and (C) from
Getty Images and Getty Communications, will be the amount equal to 20% of
the aggregate value of the Merger Consideration to which all of the
Principal Shareholders are entitled pursuant to the Merger Agreement; and
(ii) no indemnification payment with respect to any indemnifiable Loss
will be payable until all such Losses aggregate to more than $1,500,000, at
which time all such Losses will be due.
In the Merger Agreement, the representations and warranties of the parties
to the Stockholders' Transaction Agreement contained in the Stockholders'
Transaction Agreement and all statements contained in the Merger Agreement and
the Stockholders' Transaction Agreement, the Exhibits to the Merger Agreement
and the Stockholders' Transaction Agreement, the disclosure schedules and any
certificate, financial statement or interim financial statement delivered
pursuant to the Merger Agreement or the Stockholders' Transaction Agreement
(collectively, the "Transaction Documents") will survive the Closing until March
31, 1999 and that the representations and warranties dealing with tax matters
will survive until the close of business on the 120th day following the
expiration of the applicable statute of limitations with respect to the tax
liability in question.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Closing:
(i) by Getty Communications if, after the date of the Merger Agreement:
(A) a Material Adverse Effect on PhotoDisc has occurred; (B) any material
representation or warranty of PhotoDisc or the Principal Shareholders
contained in the Merger Agreement or the Stockholders' Transaction Agreement
was not true and correct when made; (C) PhotoDisc or the Principal
Shareholders have not complied with any material covenant or agreement to be
complied with by such party and contained in the Merger Agreement or the
Stockholders' Transaction Agreement; or (D) PhotoDisc, any of its
subsidiaries or a Principal Shareholder makes a general assignment for the
benefit of creditors, or if any bankruptcy, insolvency or reorganization
proceeding is instituted by or against PhotoDisc, any of its subsidiaries or
a Principal Shareholder;
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(ii) by PhotoDisc if, after the date of the Merger Agreement: (A) a
Material Adverse Effect on Getty Communications has occurred; (B) any
material representation or warranty of Getty Communications, Getty Images or
Merger Sub was not true and correct when made; (C) Getty Communications,
Getty Images or Merger Sub has not complied with any material covenant or
agreement to be complied with by such party and contained in the Merger
Agreement or the Stockholders' Transaction Agreement; or (D) Getty
Communications makes a general assignment for the benefit of creditors, or
if any bankruptcy, insolvency or reorganization proceeding is instituted by
or against Getty Communications;
(iii) by either Getty Communications or PhotoDisc if the Closing has not
occurred by March 31, 1998;
(iv) by either Getty Communications or PhotoDisc in the event that any
governmental authority has issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the
transactions contemplated by the Merger Agreement and such order, decree,
ruling or other actions become final and nonappealable;
(v) by Getty Communications or PhotoDisc if the required approvals of
the Getty Shareholders or PhotoDisc Shareholders contemplated by the Merger
Agreement have not been obtained by reason of the failure to obtain the
required vote upon a vote taken at a meeting of shareholders duly convened
therefor or at any adjournment thereof;
(vi) by PhotoDisc if Getty Communications has not obtained the requisite
approvals of Getty Shareholders on or prior to the earlier of (i) January
31, 1998, or (ii) the date 31 days after the Registration Statement is
declared effective by the Commission;
(vii) by PhotoDisc if, after the date of the Merger Agreement, an
Extraordinary Corporate Event (as defined below) occurs; or
(viii) by the mutual written consent of Getty Communications and
PhotoDisc.
"Extraordinary Corporate Event" means the occurrence of any of the following
events: (i) the acquisition by any person other than Getty Investments or any
affiliate thereof (an "Extraordinary Corporate Event Third Party") of all or
substantially all of the total assets of Getty Communications and its
subsidiaries, taken as a whole; (ii) the acquisition by an Extraordinary
Corporate Event Third Party of 50% or more of the outstanding Getty Ordinary
Shares whether by tender, exchange offer or otherwise; (iii) the repurchase by
Getty Communications or any of its subsidiaries of 50% or more of the
outstanding Getty Ordinary Shares; or (iv) Getty Communications entering into an
agreement that would result in any of the actions set forth above.
AMENDMENT AND WAIVER
The Merger Agreement may not be amended or modified except by an instrument
in writing signed by, or on behalf of, the parties thereto or by a waiver set
forth in an instrument in writing signed by the party to be bound thereby.
Pursuant to the Merger Agreement, any party to the Merger Agreement may (i)
extend the time for the performance of any of the obligations or other act of
any other party to the Merger Agreement; (ii) waive any inaccuracies in the
representations and warranties of any other party contained in the Merger
Agreement or in any document delivered pursuant to the Merger Agreement; or
(iii) waive compliance with any of the agreements or conditions of any other
party contained in the Merger Agreement. Any such extension or waiver will be
valid only if set forth in an instrument in writing signed by the party to be
bound thereby.
GOVERNING LAW
The Merger Agreement will be governed by, and construed in accordance with,
the laws of the State of Delaware applicable to contracts executed in and to be
performed entirely within that State.
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RELATED AGREEMENTS
THE FOLLOWING IS A SUMMARY OF CERTAIN SIGNIFICANT PROVISIONS OF CERTAIN
AGREEMENTS RELATED TO THE MERGER AGREEMENT, COPIES OF WHICH ARE ATTACHED TO THIS
PROSPECTUS AS AN ANNEX OR WHICH HAVE BEEN FILED AS EXHIBITS TO THE REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS IS A PART. THE FOLLOWING DOES NOT PURPORT TO
BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COPIES OF THE
AGREEMENTS ATTACHED AS ANNEXES OR FILED AS EXHIBITS TO THE REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS IS A PART.
THE STOCKHOLDERS' TRANSACTION AGREEMENT
In connection with the execution of the Merger Agreement, Getty Images,
PhotoDisc, the Principal Shareholders and Mr. Mark Torrance, as designated
representative of the Principal Shareholders, executed and delivered the
Stockholders' Transaction Agreement, a copy of which is attached as Annex B to
this Prospectus. The Principal Shareholders are all of the holders of more than
10,000 shares of PhotoDisc Common Stock or Series A Preferred Stock as of the
date of the Merger Agreement.
Pursuant to the Stockholders' Transaction Agreement, each Principal
Shareholder made certain representations and warranties to Getty Images with
respect to the shares of PhotoDisc Common Stock owned by such Principal
Shareholder and agreed to indemnify Getty Images and Getty Communications for
certain breaches of representations and warranties and covenants of PhotoDisc
and such Principal Shareholder. Certain of the Principal Shareholders also
agreed that they would not solicit or negotiate any other business combination
or extraordinary business transaction involving PhotoDisc and its subsidiaries
and would not compete or interfere with PhotoDisc, its subsidiaries or their
businesses for certain specified periods.
NO SOLICITATION OR NEGOTIATION. Pursuant to the Stockholders' Transaction
Agreement, each Principal Shareholder agreed that, between the date of the
Stockholders' Transaction Agreement and the earlier of (i) the Closing and (ii)
the termination of the Stockholders' Transaction Agreement, neither such
Principal Shareholder nor any of such Principal Shareholder's respective agents
or affiliates will (A) solicit, initiate, consider, encourage or accept any
other proposals or offers from any person (1) relating to any acquisition or
purchase of all or any portion of the capital stock or assets of PhotoDisc or
its subsidiaries; (2) to enter into any business combination with PhotoDisc or
its subsidiaries; or (3) to enter into any other extraordinary business
transaction involving or otherwise relating to PhotoDisc or its subsidiaries or
(B) participate in any discussions, conversations, negotiations or other
communications regarding, or furnish to any other person any information with
respect to, or otherwise cooperate in any way, assist, facilitate or encourage
any effort or attempt by any other person to seek to do any of the foregoing.
Each Principal Shareholder agreed to immediately cease and cause to be
terminated all existing discussions, negotiations and other communications with
any person conducted prior to the execution of the Stockholders' Transaction
Agreement with respect to any of the foregoing. Each Principal Shareholder will
notify Getty Images promptly if any such proposal or offer, or any inquiry or
other contact with any person with respect thereto, is made and will, in any
such notice to Getty Images, indicate in reasonable detail the identity of the
person making such proposal, offer, inquiry or other contact.
Each Principal Shareholder further agreed not to release any person from, or
waive any provision of, any confidentiality or standstill agreement to which
such Principal Shareholder is a party with respect to information relating to
PhotoDisc or its subsidiaries or their businesses without the prior written
consent of Getty Images. Each Principal Shareholder agreed, severally and not
jointly, that such Principal Shareholder will not, and will not offer or agree
to, sell, transfer, assign or otherwise dispose of, or create or permit to exist
any security interest, option, right of first refusal, limitation on such
Principal Shareholder's voting rights or other encumbrance of any nature
whatsoever with respect to the shares of Getty Images Common Stock owned or that
may thereafter be acquired by such Principal Shareholder at any time prior to
the termination of the Stockholder's Transaction Agreement.
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NON-COMPETITION. For a period of three years after the Closing, no
Principal Shareholder, except the Investors (as defined below), will engage in
any business that manufactures, produces or supplies products or services of the
kind manufactured or supplied by PhotoDisc or its subsidiaries as of the Closing
Date, without the prior written consent of Getty Images, or own an interest in,
manage, control, lend money or other assistance to or participate in any person
that competes with Getty Images, PhotoDisc or its subsidiaries; provided,
however, that ownership of securities having no more than two percent of the
outstanding voting power of any competitor listed on any national securities
exchange or actively traded in the national over-the-counter market will not be
in violation of the foregoing. Each Principal Shareholder, except the Investors,
agreed that such Principal Shareholder will not, for a period of three years, in
any way solicit, advise or otherwise do business with any customers of PhotoDisc
or its subsidiaries or take away or interfere with any business or patronage of
PhotoDisc or its subsidiaries, or interfere with or hire any officers, employees
or agents of PhotoDisc or its subsidiaries, or induce them to leave the employ
of PhotoDisc or its subsidiaries or violate the terms of their contracts, or any
employment arrangements with PhotoDisc or its subsidiaries. The periods set
forth above will be two years with respect to each of Mr. Thomas D. Hughes, Mr.
Mark Callaghan, Ms. Colleen Maloney and Mr. Paul Shipman, all of whom are
signatories to the Stockholders' Transaction Agreement.
The "Investors" are each of Advent VII L.P., Advent Atlantic and Pacific
III, L.P., Advent New York L.P., TA Venture Investors Limited Partnership,
Geocapital III, L.P., Geocapital IV, L.P., The Broadview Partners Group and J&B
Venture Partners I, all of whom are signatories to the Stockholders' Transaction
Agreement.
CERTAIN REPRESENTATIONS AND WARRANTIES. Pursuant to the Stockholders'
Transaction Agreement, each of the Principal Shareholders, severally and not
jointly, made certain representations and warranties to Getty Images, Getty
Communications and Merger Sub relating to, among other things, the following
matters (which representations and warranties are subject, in certain cases, to
specified exceptions): (i) the authorization, execution, delivery, performance
and enforceability of the Stockholders' Transaction Agreement and the Escrow
Agreement by such Principal Shareholder; (ii) the absence of any conflict with
the constituting documents (if any) of such Principal Shareholder, or with
applicable law, or with certain contracts; (iii) the ownership of such Principal
Shareholder's shares of PhotoDisc Common Stock or Series A Preferred Stock and
options to purchase shares of PhotoDisc Common Stock; (iv) the absence of any
material pending or threatened litigation against such Principal Shareholder
which would interfere with the consummation of the transactions contemplated by
the Merger Agreement or effect such Principal Shareholder's ability to perform
such Principal Shareholder's obligations under the Stockholders' Transaction
Agreement; and (v) the absence of any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by the Merger
Agreement (except such fees and expenses payable to BARS as described in "The
Transactions--Opinion of BancAmerica Robertson Stephens, Financial Advisor to
PhotoDisc").
The representations and warranties of each Principal Shareholder in the
Stockholders' Transaction Agreement will survive the Closing until March 31,
1999.
ADDITIONAL COVENANTS AND AGREEMENTS. In the Stockholders' Transaction
Agreement, Getty Images and each Principal Shareholder made certain additional
covenants and agreements, including the following (which covenants and
agreements are subject, in certain cases, to specified exceptions): (i) each
Principal Shareholder acknowledged and agreed to be bound by the terms of the
Merger Agreement and accepted and assumed the obligations of such Principal
Shareholder under the provisions of the Merger Agreement related to
indemnification and the sharing of expenses; (ii) each Principal Shareholder
agreed to, and will cause its agents and affiliates to, treat and hold as
confidential all information relating to the business or the intellectual
property of PhotoDisc and its subsidiaries; (iii) each Principal Shareholder
agreed to release PhotoDisc and its subsidiaries, on or prior to Closing, from
all obligations to such Principal Shareholders accruing prior to the Closing,
except as to (A) obligations arising under any written agreements between such
Principal Shareholder and PhotoDisc or its subsidiaries, (B) obligations owed to
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such Principal Shareholder in such Principal Shareholder's capacity as director,
officer, employee or consultant to PhotoDisc or its subsidiaries, or (C)
obligations to maintain director and officer liability insurance; (iv) each
Principal Shareholder agreed to cooperate fully with Getty Images, Getty
Communications, PhotoDisc and Merger Sub to obtain all authorizations, consents
and approvals required to consummate the transactions contemplated by the Merger
Agreement; (v) each Principal Shareholder agreed to notify Getty Images
promptly, prior to Closing, of all material developments affecting the
representations, warranties or covenants of such Principal Shareholder in the
Stockholders' Transaction Agreement or Merger Agreement; (vi) each Principal
Shareholder agreed to cooperate fully with Getty Images, Getty Communications
and PhotoDisc in the preparation of the Registration Statement and the
Shareholder Circular that is being mailed to Getty Shareholders in connection
with the Scheme of Arrangement; (vii) each Principal Shareholder agreed to
execute and deliver, prior to Closing, an affiliate letter and a tax
representation letter; (viii) each Principal Shareholder agreed to appoint Mr.
Mark Torrance as the Principal Shareholders' Representative; (ix) each Principal
Shareholder agreed, from and after the Closing, not to use any of the
intellectual property owned or licensed by PhotoDisc or its subsidiaries; (x)
each Principal Shareholder agreed, prior to Closing, to enter into the Escrow
Agreement; (xi) each Principal Shareholder agreed to appoint the Principal
Shareholders' Representative as the agent to receive service of process for any
suit or action brought with respect to the Stockholders' Transaction Agreement,
the Merger Agreement, the Escrow Agreement or the transactions contemplated by
the Merger Agreement; (xii) each Principal Shareholder agreed that, effective
immediately prior to the Effective Time, all shares of Series A Preferred Stock
owned by such Principal Shareholder will automatically be converted into shares
of PhotoDisc Common Stock; (xiii) each Principal Shareholder that owns shares of
Series A Preferred Stock agreed that, effective as of the Effective Time, the
Series A Preferred Stock Purchase Agreement dated as of June 28, 1996, among
PhotoDisc and the holders of Series A Preferred Stock will be amended as set
forth in the Stockholders' Transaction Agreement; (xiv) each of the parties to
the Stockholders' Transaction Agreement will use all reasonable best efforts to
take all appropriate action as may be required to carry out the provision of the
Stockholders' Transaction Agreement and the Merger Agreement and to consummate
the transactions contemplated by the Merger Agreement.
TERMINATION. The Stockholders' Transaction Agreement will be terminated
upon (i) the termination of the Merger Agreement in accordance with its terms or
(ii) at any time prior to the Closing by the mutual written consent of Getty
Images and the Principal Shareholders' Representative.
GOVERNING LAW. The Stockholders' Transaction Agreement is governed by, and
construed in accordance with, the laws of the State of Delaware applicable to
contracts executed in and to be performed entirely within that state.
THE ESCROW AGREEMENT
One of the conditions to the consummation of the Transactions is that Getty
Images, the Principal Shareholders and the Escrow Agent execute and deliver on
or prior to Closing the Escrow Agreement substantially in the form attached as
an exhibit to the Merger Agreement, a copy of which is attached to this
Prospectus as Annex A.
ESTABLISHMENT OF THE ESCROW FUND. Pursuant to the Merger Agreement and the
Escrow Agreement, upon Closing, Getty Images will deposit into an escrow fund
(the "Escrow Fund") certificates evidencing the Escrow Shares to be issued in
the name of each Principal Shareholder pursuant to the Merger Agreement to
secure the indemnification obligations of the Principal Shareholders contained
in the Stockholders' Transaction Agreement and the Merger Agreement. See "The
Merger Agreement--Indemnification" and "--The Stockholders' Transaction
Agreement".
Each Principal Shareholder will have all rights with respect to the Escrow
Shares issued in such Principal Shareholder's name except (i) the right of
possession thereof or (ii) the right to sell, assign,
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pledge, hypothecate or otherwise dispose of such shares or any interest therein.
Such Principal Shareholder will have the right to exercise any voting rights
with respect to the Escrow Shares issued in such Principal Shareholder's name.
ESCROW AGENT. The Escrow Agent will establish, administer and distribute
the Escrow Fund pursuant to the terms of the Escrow Agreement. The Escrow Agent
will not be liable for any error of judgment, or any action taken, suffered or
omitted to be taken, pursuant to the Escrow Agreement, except in the case of its
negligence, bad faith or willful misconduct. Getty Images will reimburse and
indemnify the Escrow Agent against any loss, liability or expense, including,
without limitation, reasonable attorney's fees, incurred without negligence, bad
faith or willful misconduct on the part of the Escrow Agent arising out of, or
in connection with, the performance of its duties under the Escrow Agreement.
Getty Images will pay all of the Escrow Agent's fees and expenses.
THE STOCKHOLDERS' AGREEMENT
One of the conditions to the consummation of the Transactions is that
certain persons who will become significant stockholders in Getty Images execute
and deliver on or prior to Closing the Stockholders' Agreement having certain
principal terms defined in the Merger Agreement.
The Stockholders' Agreement is to be among Getty Images and (i) the Getty
Group and (ii) the Torrance Group (the Torrance Group, together with the Getty
Group, the "Significant Stockholders"). Pursuant to the agreed terms for the
Stockholders' Agreement, no Significant Stockholder may sell, encumber or
otherwise transfer such Significant Stockholder's shares of Getty Images Common
Stock except (i) to a Permitted Transferee (as defined below); (ii) pursuant to
the terms of the Stockholders' Agreement; (iii) subject to the arrangements
within their respective "Group", pursuant to a registered public offering of
shares of Getty Images Common Stock in which no person or "Group" will purchase
more than 5% of the then outstanding shares of Getty Images Common Stock; or
(iv) subject to any arrangements within their respective "Group", sales within
the Rule 144 volume limitation. A "Permitted Transferee" is defined as (i) Getty
Images or its subsidiaries; (ii) in the case of any Significant Stockholder who
is a natural person, a person to whom shares of Getty Images Common Stock are
transferred from such Significant Stockholder by gift, will or the laws of
descent and distribution; (iii) any other member of the Getty Group or the
Torrance Group, as the case may be; or (iv) any affiliate of any Significant
Stockholder.
If any Significant Stockholder (a "Prospective Seller") receives from a
person, other than a Permitted Transferee or another Significant Stockholder (a
"Stockholders' Agreement Third Party"), a bona fide offer to purchase any or all
of such Prospective Seller's shares of Getty Images Common Stock (the "Offered
Stock") and such Prospective Seller desires to sell the Offered Stock to such
Stockholders' Agreement Third Party, the Prospective Seller must provide written
notice (the "Offer Notice") of such offer to Getty Images and the other
Significant Stockholders constituting the Significant Stockholders' "Group" in
which the Prospective Seller does not belong. The Offer Notice will constitute
an offer by such Prospective Seller to sell to the recipients of such Offer
Notice all of the Offered Stock at the price per share of Getty Images Common
Stock at which the sale to the Stockholders' Agreement Third Party is proposed
to be made in cash and will be irrevocable for ten days after receipt of such
Offer Notice. The Prospective Seller has the right to reject any or all of the
acceptances of the offer to sell the Offered Stock and sell all, but not less
than all, the Offered Stock to the Stockholders' Agreement Third Party if (i)
the Prospective Seller has not received acceptances as to all the Offered Stock
prior to the expiration of the ten-day period following receipt of the Offer
Notice or (ii) an accepting party fails to consummate the purchase of the
Offered Stock and neither Getty Images nor the other Significant Stockholders
who received the Offer Notice are prepared to purchase such Offered Stock within
five business days of receiving notice of such failed purchase. The obligations
and rights of the Significant Stockholders relating to the rights of first
refusal will terminate when the Getty Group or the Torrance Group, as the case
may be, and any of such Group's Permitted Transferees collectively own fewer
than the greater of 3,000,000
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shares of Getty Images Common Stock and such number of shares of Getty Images
Common Stock as is equal to 2% or less of the then outstanding shares of Getty
Images Common Stock.
Each of the Torrance Group and Getty Group will have the right, subject to
termination conditions, to appoint one director, each director with an initial
term to expire in 1998. For so long as the Getty Group has the right to appoint
one director, it shall also have the right to appoint from among the directors
of Getty Images, the Chairman of Getty Images, provided however, that for so
long as either Mark Torrance or Mark Getty are Co-Chairmen of the Board, such
right shall not be in effect.
THE REGISTRATION RIGHTS AGREEMENTS
One of the conditions to the consummation of the Transactions is that Getty
Images enter into Registration Rights Agreements, one with PDI and Mr. Mark
Torrance (the "PDI Shareholders") and a second with Getty Investments having
certain principal terms defined in the Merger Agreement.
Pursuant to the terms of the Registration Rights Agreement to be entered
into among Getty Images and the PDI Shareholders (the "PDI Registration Rights
Agreement"), the PDI Shareholders may require Getty Images to file a
registration statement with respect to all or a portion of the PDI Shareholders'
shares of Getty Images Common Stock (a "PDI Demand Right"). The PDI Shareholders
will have three "long form" and two "short form" PDI Demand Rights. The PDI
Shareholders may exercise a "long form" PDI Demand Right only if the aggregate
number of Getty Images Common Stock covered by the "long form" PDI Demand Right
is greater than such number of Getty Images Common Stock equal to [25]% of the
aggregate shares of Getty Images Common Stock owned by the PDI Shareholders as
of the Effective Time. The PDI Shareholders may exercise a "short form" PDI
Demand Right only if the aggregate number of shares of Getty Images Common Stock
covered by such Demand Right is greater than [350,000] shares. In addition to
their PDI Demand Rights, the PDI Shareholders will have the right to have any or
all of their shares of Getty Images Common Stock included in any registration by
Getty Images (a "PDI Piggy-Back Right"), subject to certain limitations that may
be imposed by the managing underwriter. Both the PDI Demand Rights and PDI
Piggy-Back Rights will terminate on the earlier of (i) immediately, once all of
the PDI Shareholders' shares of the Getty Images Common Stock can be sold within
a three-month period under the volume limitation of Rule 144 of the Securities
Act or (ii) on the 15th anniversary of the date of the PDI Registration Rights
Agreement.
Pursuant to the terms of the Registration Rights Agreement among Getty
Images and Getty Investments (the "Getty Investments Registration Rights
Agreement"), Getty Investments may require Getty Images to file a registration
statement with respect to all or a portion of Getty Investments' shares of Getty
Images Common Stock (a "Getty Demand Right"). Getty Investments will have five
"long form" Getty Demand Rights, which may be exercised only if the aggregate
number of shares of Getty Images Common Stock covered by the "long form" Getty
Demand Right is greater than [850,000] shares. In addition to their Getty Demand
Rights, Getty Investments will have the right to have any or all of their shares
of Getty Images Common Stock included in any registration by Getty Images (a
"Getty Piggy-Back Right"), subject to certain limitations that may be imposed by
the managing underwriter. Both the Getty Demand Rights and the Getty Piggy-Back
Rights will terminate on the earlier of (i) immediately, once all of the shares
of Getty Images Common Stock held by Getty Investments can be sold within a
three-month period under the volume limitation of Rule 144 of the Securities Act
or (ii) on the 15th anniversary of the date of the Getty Investments
Registration Rights Agreement.
In addition to the registration rights described above, certain other
shareholders of Getty Communications and PhotoDisc will also have registration
rights with respect to the shares of Getty Images Common Stock that such holders
will receive in the Transactions in exchange for their shares of Getty Ordinary
Shares and PhotoDisc Common Stock, respectively.
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THE EMPLOYMENT AGREEMENTS
One of the conditions to the consummation of the Transactions is that Getty
Images enter into the Employment Agreements with the Executives having certain
principal terms defined in the Merger Agreement.
Each Employment Agreement will have an initial fixed term of two years
commencing January 1, 1998, continuing thereafter until the earlier of the
termination of such agreement by either party with 12 months' prior written
notice and December 31, 2000. The remuneration per annum to the Executives will
be as follows: Mr. Mark Getty, $275,000; Mr. Mark Torrance, $275,000; and Mr.
Jonathan Klein, $325,000. The remuneration to each Executive will be reviewed
annually on April 1 of each year and adjusted upwards in line with market
equivalents. In addition, Mr. Getty and Mr. Torrance will receive bonuses of up
to 50% of their remuneration subject to the achievement of certain performance
targets set by the Getty Images Board, and Mr. Klein will receive a bonus of up
to 60% of his remuneration subject to the achievement of certain performance
targets set by the Getty Images Board. The compensation package of each
Executive will also include (i) options over 75,000 shares of Getty Images
Common Stock issued at Closing (50,000 in the case of Mr. Torrance), exercisable
at the market price of shares of Getty Images Common Stock at Closing and fully
vesting one year after the Closing and (ii) options over 500,000 shares of Getty
Images Common Stock issued at Closing, exercisable at the market price of shares
of Getty Images Common Stock at Closing and vesting on a schedule of 25 percent
one year after the Closing and rateably each month thereafter over the following
three years.
Upon the termination of employment by Getty Images of any of the Executives,
other than for Cause (as defined below) or by reason of his voluntary
resignation for Good Reason (as defined below), such Executive will receive a
lump sum payment equal to the unpaid remuneration and maximum bonuses over the
greater of the term of the contract and two years. In addition, each Executive
will be entitled to retain all options as if he remained an employee and vesting
will be accelerated. "Cause" is defined as (i) willful, material and repeated
non-performance of such Executive's duties (other than by reason of illness or
disability) after notice from the Getty Images Board of such failure; (ii) the
commission of a felony or common law fraud by such Executive; or (iii) any
material breach of any material term of such Executive's Employment Agreement.
"Good Reason" is defined as (i) an adverse and material change to such
Executive's duties, titles or reporting responsibilities; (ii) a material breach
by Getty Images of any term of such Executive's Employment Agreement; (iii) a
reduction in such Executive's base salary or bonus opportunity or Getty Images'
failure to pay such Executive any material amount of compensation when due; or
(iv) a relocation of such Executive's principal business location without his
prior written consent.
In addition to the Employment Agreements, pursuant to a letter agreement
dated September 15, 1997, Getty Images acknowledged that in connection with the
transactions contemplated by the Merger Agreement, PhotoDisc intends to offer
employment agreements to Mr. Robert Chamberlain, Ms. Sally von Bargen, Mr.
Christian Birkeland, Ms. Natalie Angelillo and Mr. Michel Perrin and that Getty
Images intends to offer employment agreements to Mr. William Heston and Ms.
Heather Redman. The terms of each employment agreement will be subject to the
review and approval of Getty Images.
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THE GETTY SHAREHOLDER MEETINGS
THE GETTY COURT MEETING
The English High Court has convened the Getty Court Meeting to be held on
December , 1997, at p.m., London time at . At the Getty
Court Meeting, the Getty Class A Shareholders of record as of the date of the
Getty Court Meeting will be asked to consider and vote upon the approval of the
Scheme of Arrangement. The quorum for the Getty Court Meeting will be the vote
of such number of Getty Class A Ordinary Shares and shareholders as the English
High Court determines constitutes a fair representation of the opinions of the
Getty Class A Shareholders. Voting at the Getty Court Meeting will be on a poll
and, accordingly, each Getty Class A Ordinary Share will entitle the holder
thereof present in person or by proxy to one vote on each matter that may
properly come before the Getty Court Meeting. The Scheme of Arrangement requires
the affirmative vote of a majority in number of the holders of the Getty Class A
Ordinary Shares present (in person or by proxy) at the Getty Court Meeting, with
such majority representing 75% or more of the votes attaching to the Getty Class
A Ordinary Shares voted at the Getty Court Meeting. As a result of its
controlling ownership interest in Getty Communications, Getty Investments L.L.C.
("Getty Investments") will not be entitled to vote at the Getty Court Meeting.
As a result of certain rights attached to the shareholdings of Carlton
Communications B.V. ("Carlton") in Getty Communications, Carlton is expected to
agree with the English High Court to abstain from voting at the Getty Court
Meeting.
THE GETTY EGM
The Getty Communications Board has convened the Getty EGM to be held
immediately after the Getty Court Meeting at the same place. At the Getty EGM,
the Getty Shareholders of record as of the date of the Getty EGM will be asked
to consider and vote upon the approval of the Scheme of Arrangement and certain
related matters. As provided in the Getty Communications Articles of
Association, the quorum for the Getty EGM will be two or more persons holding
Getty Ordinary Shares in person or by proxy. Voting at the Getty EGM will be on
a poll and, accordingly, each Getty Class A Ordinary Share will entitle the
holder thereof to one vote, and each Getty Class B Ordinary Share will entitle
the holder thereof to ten votes, on each matter that may properly come before
the Getty EGM. The Scheme of Arrangement requires the affirmative vote of
holders of Getty Class A Ordinary Shares and Getty Class B Ordinary Shares
present (in person or by proxy) at the Getty EGM representing 75% or more of the
votes attaching to the Getty Ordinary Shares voted at the Getty EGM. Both Getty
Investments and Carlton are expected to agree with the English High Court to
abstain from voting at the Getty EGM, but have stated that they support the
Scheme of Arrangement and will be bound by its terms. See "--The Getty Voting
Agreements."
THE GETTY VOTING AGREEMENTS
In connection with entering into the Merger Agreement, Getty Images, Getty
Communications and PhotoDisc entered into separate Voting Agreements with Getty
Investments and Carlton (Carlton, together with Getty Investments, the "Getty
Voting Shareholders"), both dated as of September 16, 1997 (collectively, the
"Getty Voting Agreements"), copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part. Together, Getty
Investments and Carlton control the right to vote approximately 30.3% of the
outstanding voting power of the Getty Ordinary Shares.
Pursuant to the Getty Voting Agreements, each Getty Voting Shareholder
agreed (i) to be bound by the Scheme of Arrangement; (ii) to execute all such
documents and to do all such acts as may be reasonably necessary or desirable
for the purpose of giving effect to the Scheme of Arrangement; (iii) to vote, if
requested by PhotoDisc, in favor of all resolutions to be proposed at the Getty
Shareholder Meetings (if such vote is necessary to implement the Scheme of
Arrangement); (iv) to vote against any proposal for any recapitalization,
merger, sale of assets or other business combination between Getty
Communications and any person or entity (other than the Transactions); (v) to
deliver valid and duly completed forms of proxy appointing the chairman of any
such meeting as such Getty Voting Shareholder's proxy to vote in favor of all
such resolutions; and (vi) to vote in favor of any other matter necessary to
effect the consummation of the transactions contemplated by the Transactions.
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THE SPECIAL MEETING OF PHOTODISC SHAREHOLDERS
The Merger Agreement requires the affirmative vote of the holders of
two-thirds of the issued shares of PhotoDisc Common Stock and Series A Preferred
Stock, voting together as a single class. The PhotoDisc Board has called a
Special Meeting of the holders of shares of PhotoDisc Common Stock and Series A
Preferred Stock to be held on December , 1997 at a.m., Seattle time at
. At the PhotoDisc Special Meeting, the PhotoDisc Shareholders
of record as of the close of business on November , 1997 will be asked to
consider and vote upon the Merger Proposal and such other business as may
properly come before the meeting.
RECORD DATE
The PhotoDisc Board has fixed November , 1997 as the PhotoDisc Record Date
for determination of PhotoDisc Shareholders entitled to notice of and to vote at
the PhotoDisc Special Meeting. Accordingly, only holders of record of shares of
PhotoDisc Common Stock or Series A Preferred Stock at the close of business on
November , 1997 will be entitled to notice of and to vote at the PhotoDisc
Special Meeting. Each holder of record of shares of PhotoDisc Common Stock or
Series A Preferred Stock on the PhotoDisc Record Date is entitled to cast one
vote per share, exercisable in person or by a properly executed proxy, at the
PhotoDisc Special Meeting. As of the PhotoDisc Record Date, there were
shares of PhotoDisc Common Stock outstanding and entitled to vote, which
were held by holders of record, and there were shares of Series A
Preferred Stock outstanding and entitled to vote, which were held by
holders of record.
VOTING AT THE PHOTODISC SPECIAL MEETING
PhotoDisc Shareholders representing a majority of the shares of PhotoDisc
Common Stock and Series A Preferred Stock outstanding on the PhotoDisc Record
Date must be represented in person or by proxy at the PhotoDisc Special Meeting
in order for a quorum to be present for purposes of voting on the Merger
Proposal.
Pursuant to the PhotoDisc Articles of Incorporation and applicable law, the
affirmative vote of the holders of two-thirds of the outstanding shares of
PhotoDisc Common Stock and Series A Preferred Stock entitled to vote thereon,
voting together as a single class, is required to approve and adopt the Merger
Proposal. Abstentions will be considered represented at the PhotoDisc Special
Meeting for the purpose of calculating quorum. However, abstentions from voting
on the Merger Proposal will have the practical effect of a vote "against" the
Merger Proposal since it is one less vote in favor of the Merger Proposal.
In connection with entering into the Merger Agreement, certain of the
shareholders of PhotoDisc (the "PhotoDisc Voting Shareholders") entered into a
Voting Agreement with Getty Images dated as of September 15, 1997 (the
"PhotoDisc Voting Agreement"), a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The PhotoDisc Voting
Shareholders are Mr. Mark Torrance (on behalf of himself and PDI), Mr. Christian
Birkeland, Ms. Sally von Bargen and Mr. Michael Child (on behalf of Advent VII,
L.P., Advent Atlantic and Pacific III, L.P., Advent New York, L.P. and TA
Venture Investors Limited Partnership). Collectively, the PhotoDisc Voting
Shareholders hold a total of 7,175,230 shares of PhotoDisc Common Stock and
1,181,861 shares of Series A Preferred Stock, representing approximately 82% of
the currently outstanding voting power of the PhotoDisc Common Stock and Series
A Preferred Stock (approximately 74% assuming the exercise of currently
exercisable options and warrants to purchase shares of PhotoDisc Common Stock
held by persons other than such holders).
Pursuant to the PhotoDisc Voting Agreement, each PhotoDisc Voting
Shareholder agreed to appoint Getty Images as such PhotoDisc Voting
Shareholder's true and lawful attorney and proxy, to vote each of the PhotoDisc
Voting Shareholder's shares of PhotoDisc Common Stock or Series A Preferred
Stock owned and which subsequently may be acquired by such PhotoDisc Voting
Shareholder, as such PhotoDisc
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Voting Shareholder's proxy, at every meeting of the shareholders of PhotoDisc:
(i) in favor of the adoption of the Merger Agreement, and approval of the Merger
and the other transactions contemplated by the Merger Agreement; (ii) against
any proposal for recapitalization, merger, sale of assets or other business
combination between PhotoDisc and any person or entity (other than the Merger);
and (iii) in favor of any other matter necessary to effect the consummation of
the transactions contemplated by the Merger Agreement.
Ms. Wade Torrance, the former spouse of Mr. Torrance and a substantial
shareholder of PDI, has approved and consented to PDI entering into the
Stockholders' Transaction Agreement and the PhotoDisc Voting Agreement and
consummating the transactions contemplated thereby.
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THE VISUAL CONTENT INDUSTRY
The visual content industry supplies images to a varied and growing customer
base, ranging from individual consumers to major multinational corporations.
Images are used to communicate messages in a wide variety of applications,
including print, electronic and broadcast advertising, direct mail and marketing
brochures, educational and training publications, books, magazines, newspapers,
corporate communications and annual reports, motion pictures, broadcasting,
CD-ROM products, web sites, other on-line uses, sales and in-house presentations
and various consumer uses.
Visual content can be broadly divided into commissioned imagery and
non-commissioned imagery. Commissioned images are commissioned from
photographers and cinematographers by particular clients for a single
predetermined application. Non-commissioned images, commonly referred to as
"stock", are provided by agencies that maintain libraries of selected images
which can be licensed for use by different clients for different purposes.
Getty Images will be primarily active in the non-commissioned sector of the
visual content industry. Getty Images believes that the market share of
non-commissioned imagery has been increasing as the quality of images available
from non-commissioned agencies has become comparable to the quality of
commissioned images. Non-commissioned imagery offers the advantages of lower
cost, immediate availability and the ability to preview an image for
appropriateness prior to license.
Non-commissioned images are commercially available from two types of
providers:
- Agencies that license images for specific uses ("rights-protected
licensing"). These agencies offer and negotiate licenses that can be
tailored for each image and customer application. Licenses typically grant
a degree of exclusivity of use to licensees and impose restrictions on the
permissible number of copies that can be made, the medium of reproduction
or publication, uses by other parties and other factors, including the
geographic area, duration and purpose of use.
- Agencies that license images on a standard fee basis for multiple uses
(commonly referred to as "royalty-free licensing"). These agencies offer
images that can be used on a non-exclusive basis for virtually any
purpose, pursuant to non-negotiable, "shrink-wrap" or "point-and-click"
license agreements. Royalty-free agencies typically deliver imagery via
CD-ROM products and, in some cases, the Internet.
CONTENT CATEGORIES
The visual content industry consists of several different types of content.
The categories of content currently commercially available in the
non-commissioned sector of the industry are:
- CONTEMPORARY STOCK PHOTOGRAPHY images cover a wide variety of contemporary
subjects, including lifestyles, families, business, science, health and
beauty, sports, transportation, travel and the environment. The three
major contemporary stock photography businesses are Tony Stone Images, The
Image Bank and Visual Communications. These businesses have historically
supplied images to a customer base of commercial users.
- ARCHIVAL PHOTOGRAPHY consists of collections of images and illustrations
covering well-known historic moments, people and places up to the present
day, as well as images reflecting the history of society, entertainment,
travel, industry and culture. Hulton Getty and the Bettman Archive are the
world's two largest privately owned collections of archival photography.
- CONTEMPORARY STOCK AND ARCHIVAL FOOTAGE are the film equivalents of
contemporary stock photography and archival photography. These categories
currently form growing, but still relatively small parts of, the visual
content industry. Energy Film Library and The Image Bank are the two
leading contemporary stock footage providers on a worldwide basis.
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- NEWS, CURRENT AFFAIRS, FEATURES AND CELEBRITY MATERIAL consists of
photographs or footage of specific events or the activities of well-known
people. Participants in this segment of the industry include wire services
and several general and specialist news and reportage agencies, including
Gamma Liaison.
USERS AND USES
The visual content market supplies imagery to creative professionals in the
visual communications industry, including graphic designers, art directors and
art buyers at advertising agencies, marketing and communications professionals,
Web and new media designers, newspaper, magazine, book, music and video
publishers and broadcast and media production companies. In addition, new market
segments are emerging, including business users, who are not graphic designers
or other professional users of images, such as managerial and sales
professionals, and small office/home office ("SOHO") users, and potentially
consumers.
These customers use imagery in a variety of applications, including print,
electronic and broadcast advertising, direct mail and marketing brochures,
educational and training publications, books, magazines, newspapers, corporate
communications and annual reports, motion pictures, broadcasting, CD-ROM
products, web sites, other on-line uses, sales and in-house presentations and
various consumer uses.
Getty Images believes that there have been significant increases in recent
years in the numbers of users and uses of images, partly as a result of a
greater appreciation of the value of images for conveying, symbolizing and
reinforcing marketing and editorial messages and partly as a result of a
proliferation in communication channels, particularly via the Internet and in
the cable and satellite broadcasting industry.
Getty Images expects that the footage sector will continue to grow as
technological developments in cable and satellite broadcasting and new media
industries lead to a major increase in demand for stock and archival footage.
TECHNOLOGY
Getty Images believes that a number of technological advances have
contributed to recent developments in the visual content industry and to
increased demand for digital images. These advances include:
- ADVANCES IN COMPUTER HARDWARE. The development of faster and less
expensive desktop computers, high-quality color monitors and CD-ROM drives
and related compression technologies have made it possible for personal
computer users to review and distribute high-quality color images.
- SOFTWARE DEVELOPMENT. Developments in software applications and tools,
such as Adobe PhotoShop and PhotoDeluxe, as well as the popularity of
low-priced desktop publishing applications, such as Microsoft Publisher,
have enabled personal computer users to enhance, manipulate and edit color
images and combine them on a single page with text and other graphics.
- ADVANCES IN PRINTING TECHNOLOGIES. Advances in commercial four color
printing technologies have made professional printing more accessible and
cost effective for many professional applications. In addition, the recent
introduction of relatively inexpensive, higher resolution color printers
have made it possible for non-professionals and personal computer users to
print high-quality color images at low cost without professional
assistance.
- THE INTERNET. Significant increases in the use of the Internet, both as a
medium for communications and as a platform for commercial transactions,
have occurred. This increased use of the Internet has resulted in growth
in commercial promotion and advertising in Websites and other on-line
communications, which, in turn, have contributed to an increase in demand
for and use of digital images for such promotion, advertising and
communication. In addition, the Internet provides a new more efficient
means of marketing and distributing images for such uses and more
traditional uses.
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Getty Images believes that the visual content industry will continue to
develop and change as a result of several factors, including (i) expected
proliferation of image applications in society and the increasing use of images
to communicate and convey messages in the publishing, broadcasting and
electronic domains; (ii) expected continuing shifts from the use of
single-purpose commissioned images to library-sourced images as the quality,
certainty and cost benefits of non-commissioned images become more widely
recognized and appreciated by professional users of images; (iii) continued
evolution in Internet use and commerce and the development and commercialization
of new technologies in the areas of digitization, scanning and color printing,
facilitating use by professionals and non-professionals; and (iv) expected
consolidation in the industry, which will benefit well capitalized,
technology-enabled companies with a global reach. Getty Images believes that it
will be positioned to capitalize on the future opportunities resulting from
these changes.
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GETTY IMAGES
OVERVIEW
Getty Images, the company that will result from the merger of Getty
Communications and PhotoDisc, will be one of the leading visual content
providers worldwide. Getty Communications will contribute its broad spectrum of
high-quality, branded content and extensive international distribution network
of wholly owned sales offices and dedicated agents. PhotoDisc will contribute
its expertise and brand in the digitization and electronic delivery of images
and its experience with royalty-free licensing models and on-line commerce.
Getty Images believes that, following completion of the Merger, it will be
positioned to satisfy the visual content needs of existing, emerging and new
market segments in the visual content industry.
Getty Images will seek to capitalize on the following strengths:
- BREADTH AND DEPTH OF BRANDED HIGH-QUALITY CONTENT. Getty Images will
provide visual content to its customers across all content categories
through its leading brands. Tony Stone Images is one of the world's
leading providers of high-quality, rights-protected licensed contemporary
stock photography to a professional user base. Hulton Getty is one of the
two largest privately-owned collections of archival photography in the
world. Energy Film Library is one of the leading international providers
of licensable motion imagery, providing footage to feature films,
advertisors and other professional users. Gamma Liaison is a leading North
American news and reportage agency, primarily serving the magazine,
newspaper and publishing market. PhotoDisc is the leading provider of
digital stock photography on a royalty-free licensed basis.
- COMPREHENSIVE RANGE OF LICENSING OPTIONS AND PRODUCT AND SERVICE FEATURES.
Getty Images will offer its customers a comprehensive range of options to
meet their creative needs, from full-service to self-service access, from
rights-protected licensing to royalty-free licensing, and from physical
delivery of transparencies to electronic delivery of digital images.
Through Tony Stone Images, Hulton Getty, Gamma Liaison and Energy Film
Library, Getty Images will offer experienced personal assistance in
addressing the creative needs of professional customers, rights-protected
licensing and rights tracking. Through PhotoDisc, Getty Images will offer
digital contemporary stock photography on a royalty-free basis and
PhotoDisc will serve as the platform for royalty-free products in other
content categories.
- COMPREHENSIVE DISTRIBUTION CAPABILITIES. Getty Images will have wholly
owned offices in 17 cities in 13 countries, and a network of dedicated
agents in 15 countries. Getty Images believes that control of its
distribution outlets results in more focused marketing activities, higher
and more consistent service standards and brand maintenance. Building on
PhotoDisc's current success as the leading Web commerce visual content
provider, Getty Images' products will also be offered to customers
worldwide through the Internet, enabling customers to access imagery
anywhere, any time.
- TECHNOLOGICAL EXPERTISE. Getty Images will be a leader in the use of
technology in the visual content industry. The ability of Getty Images to
use the Internet in the marketing, management and delivery of imagery will
be leveraged across all content categories, as appropriate to the needs of
its customers. Getty Images believes that technological advances will also
allow Getty Images to realize operating efficiencies.
Getty Images believes that these strengths will combine to allow it to take
advantage of both increasing demand for visual content and opportunities arising
in the rapidly changing visual content industry.
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STRATEGY
Getty Images will aim to provide high quality, relevant imagery across all
categories of the visual content market to the broadest range of customers in
existing, emerging and new markets, in ways that most appropriately meet their
needs. In order to achieve this aim, Getty Images will pursue the following core
strategies:
- EMPHASIZE CONTENT QUALITY AND RELEVANCE. Getty Images believes that
content quality and relevance are critical for long-term success in the
visual content industry. Getty Images will focus on identifying its
customers' needs throughout the creation, selection and production process
to create high quality branded imagery relevant to the needs of its
customers in each geographic region and market. Getty Images will combine
excellence in creativity and image professionalism with expertise in
scanning and image enhancement to provide the highest quality images to
its customers.
- OFFER COMPREHENSIVE RANGE OF BRANDED CUSTOMER SOLUTIONS. Getty Images will
offer its customers a comprehensive range of options to meet their
commercial and creative needs, from full-service to self-service access,
from rights-protected licensing to royalty-free licensing, and from
physical delivery of transparencies to electronic delivery of digital
images.
- PROMOTE AND IMPROVE BRAND IDENTITIES. Getty Images believes that Tony
Stone Images, Hulton Getty, Gamma Liaison, Energy Film Library and
PhotoDisc represent pre-eminent brand names in their respective visual
content categories. Getty Images will continue to enhance the quality,
value and accessibility of these collections to reinforce their
international brand identities and to create new brands in these and other
visual content categories.
- LEVERAGE TECHNOLOGICAL EXPERTISE. Getty Images intends to leverage its
technological expertise to make its content collections available in
digital format and accessible on-line, as well as to develop and integrate
new products, services and delivery mechanisms. An example is PhotoDisc's
Lightbox-SM- feature, which enables multiple parties in different
locations to view images simultaneously. Getty Images also believes that
it can realize internal operating efficiencies through increasing use of
technology.
- ENHANCE COMPREHENSIVE DISTRIBUTION NETWORK. Getty Images believes that it
will have the most comprehensive distribution network in the visual
content industry with the combination of its worldwide network of wholly
owned offices and dedicated agents and its Internet distribution
capabilities. In order to enlarge its available customer base and further
penetrate its existing customer base, Getty Images intends to strengthen
its distribution capabilities by enhancing online access to its visual
content collections, by establishing wholly owned offices in additional
key territories and by developing agent relationships in new markets.
- DEVELOP NEW MARKETS, PRODUCTS AND CUSTOMER TYPES. Getty Images believes
that the increasing use of imagery in communications and the emergence of
advanced technologies has resulted in opportunities to develop products
and services targeted at emerging and new and potentially larger segments
of the potential customer base and to further penetrate existing market
segments. Getty Images expects to develop products and services for the
corporate and SOHO markets and believes that it will be positioned to
enter other potential new markets, including the consumer market.
- PURSUE STRATEGIC ACQUISITIONS. The visual content industry is currently
very fragmented with a few international players, a number of regional
players and a large number of small businesses that specialize in a
particular content type or geographical area. Getty Images believes that
the fragmented nature of the industry offers significant growth
opportunities through the consolidation of smaller independent businesses
that lack sufficient resources to compete in a rapidly changing
environment. Getty Images will target companies that offer one or more of
the following features: (i) complementary visual content; (ii) a presence
in a geographic market where Getty Images is under-represented; or (iii)
access to new technologies.
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COMPETITION
The visual content market is characterized by strong competition. The
principal competitive factors in the non-commissioned sectors of the visual
content industry are company reputation, the quality, relevance and diversity of
the images, the quality of contributing photographers and cinematographers under
contract to an agency, customer service, pricing, ease of purchase and use,
accessibility, distribution capability and speed of fulfillment. In addition,
Getty Communications has faced, and Getty Images will face, competition from
commissioned imagery.
The principal competitors of Tony Stone Images include (i) small libraries
generally operating on a local basis; (ii) specialist libraries focusing on
particular subjects such as transport, architecture or natural history; (iii)
medium-sized general libraries operating primarily in their home market; (iv)
regional agencies headquartered in a large market such as the United States,
Germany, the United Kingdom and France and which often have nonexclusive agents
in other markets; and (v) two international competitors, The Image Bank and
Visual Communications. Royalty-free stock photography agencies have also emerged
as an alternative to rights-protected stock photography agencies for
applications where rights-protection and other services are not customer
requirements.
The Hulton Getty collection competes with specialized archival collections
and regional stock
photography agencies with archival content in its collections, including the
Bettman Archive, and other privately owned and public domain collectors.
In the news and reportage industry in the United States, Gamma Liaison
competes with a number of agencies that distribute similar material.
Energy Film Library competes with small specialized footage providers and
The Image Bank.
PhotoDisc competes with other royalty-free stock photography agencies,
including Digital Stock, Image Club, Inc., a wholly owned subsidiary of Adobe
Systems Incorporated, and Digital Vision.
BOARD OF DIRECTORS OF GETTY IMAGES FOLLOWING THE MERGER
The Merger Agreement provides that the Getty Images Board will take all
actions necessary to reconstitute the Getty Images Board as of the Effective
Time of the Merger to consist of the following persons:
Directors whose terms shall expire at the first annual
meeting of stockholders after the Effective Time:
- --------------------------------------------------------------------------------
Andrew Garb
Anthony Stone
Director to be determined
Directors whose terms shall expire at the second annual
meeting of stockholders after the Effective Time:
- --------------------------------------------------------------------------------
Manny Fernandez
Christopher Sporborg
Director to be determined
Directors whose terms shall expire at the third annual
meeting of stockholders after the Effective Time:
- --------------------------------------------------------------------------------
Mark Getty
Jonathan Klein
Mark Torrance
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Mr. Torrance will propose to the Getty Images Board non-employees with
appropriate industry experience to fill the two vacancies indicated above. The
Getty Images Board will consider any proposed appointee in good faith. The
directors to be determined may be appointed before, on or after the Effective
Time of the Merger.
The Merger Agreement also provides that the Getty Images Board will take all
actions necessary (i) to establish an Executive Committee of the Getty Images
Board as of the Effective Time of the Merger and to appoint Messrs. Getty, Klein
and Torrance to such committee as of the Effective Time, and (ii) to appoint
Messrs. Getty and Torrance as Co-Chairmen of the Getty Images Board as of the
Effective Time of the Merger. It has also been agreed that Mr. Klein will be
appointed Chief Executive Officer of Getty Images as of the Effective Time of
the Merger.
Getty Images intends to establish an audit committee and a compensation
committee.
For biographical information on Messrs. Garb, Stone, Fernandez, Sporborg,
Getty and Klein, see "Getty Communications--Management of Getty Communications".
For biographical information on Mr. Torrance, see "PhotoDisc--Management of
PhotoDisc".
MANAGEMENT OF GETTY IMAGES FOLLOWING THE MERGER
The officers of Getty Images upon the consummation of the Transactions, and
their ages as of September 30, 1997 will be as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --------- ------------------------------------------
<S> <C> <C>
OFFICERS OF GETTY IMAGES
Mark Getty................................ 37 Co-Chairman and Director
Mark Torrance............................. 51 Co-Chairman and Director
Jonathan Klein............................ 37 Chief Executive Officer and Director
Lawrence Gould............................ 38 Chief Financial Officer and Senior Vice
President, Finance
Nick Evans-Lombe.......................... 31 Senior Vice President, Strategy and
Corporate Development
William Heston............................ 38 Senior Vice President, Head of Getty
Images Web Group
Stephen Mayes............................. 39 Senior Vice President, Creative
Heather Redman............................ 33 Senior Vice President, General Counsel and
Secretary
Don Smith................................. 37 Senior Vice President, Services
Warwick Woodhouse......................... 45 Senior Vice President, Planning
OFFICERS OF GETTY IMAGES' SUBSIDIARIES WHO
SERVE ON THE GETTY IMAGES MANAGEMENT
TEAM
Michel Bernard............................ 61 Managing Director, Gamma Liaison
Andrew Duncomb............................ 31 President, Tony Stone Images/Hulton Getty
Americas
Jan Ross.................................. 45 Chief Executive Officer, Energy Film
Library
Stephen Warshaw........................... 49 Managing Director, Tony Stone Images and
Hulton Getty
Michele Vitucci........................... 35 Managing Director, Tony Stone
Images/Hulton Getty Europe
Robert Chamberlain........................ 44 Senior Vice President, PhotoDisc
Sally von Bargen.......................... 48 Senior Vice President, PhotoDisc
</TABLE>
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For biographical information on Messrs. Getty, Klein, Gould, Evans-Lombe,
Mayes, Woodhouse, Smith, Warshaw, Bernard, Duncomb and Vitucci and Ms. Ross, see
"Getty Communications--Management of Getty Communications". For biographical
information on Mses. Redman and von Bargen and Messrs. Torrance Heston and
Chamberlain, see "PhotoDisc--Management of PhotoDisc".
EXPECTED STOCK OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND FIVE PERCENT
STOCKHOLDERS OF GETTY IMAGES FOLLOWING THE MERGER
It is anticipated that, after giving effect to the Transactions (and
assuming that the Average Trading Price of Getty Communications ADSs at Closing
is $16.68 and the other assumptions described in "Unaudited Condensed Pro Forma
Consolidated Financial Information"), approximately 27,025,000 Getty Images
Shares will be outstanding and approximately 6,140,000 additional Getty Images
Shares will be reserved for issuance upon the exercise of options.
The following table sets forth certain information regarding the expected
beneficial ownership of shares of Getty Images Common Stock following the
Transactions (i) by each person expected by Getty Images to own beneficially
more than five percent of the then outstanding shares of Getty Images Common
Stock, (ii) by each director and executive officer of Getty Images named in
"--Board of Directors of Getty Images Following the Merger" and "--Management of
Getty Images Following the Merger" and (iii) by all directors and executive
officers of Getty Images as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
(1)
--------------------------
NUMBER OF PERCENT OF
SHARES CLASS(2)
--------- ---------------
<S> <C> <C>
Getty Investments, L.L.C. (3)............................................. %
PDI, L.L.C. (4)...........................................................
Mark Torrance (5).........................................................
Wade Torrance (6).........................................................
Carlton Communications BV (7).............................................
Mark H. Getty (8).........................................................
Jonathan D. Klein (9).....................................................
Andrew Garb............................................................... *
Anthony Stone............................................................. *
Manny Fernandez (10)...................................................... *
Christopher Sporborg...................................................... *
Lawrence J. Gould (11).................................................... *
Nick Evans-Lombe (12)..................................................... *
Heather Redman (13)....................................................... *
Stephen T. Mayes (14)..................................................... *
Warwick Woodhouse (15).................................................... *
William Heston (16)....................................................... *
Don P. Smith (17)......................................................... *
Stephen Warshaw........................................................... *
Jan Ross.................................................................. *
Robert J. Chamberlain (18)................................................ *
Sally von Bargen (19)..................................................... *
Michel Bernard (20)....................................................... *
Andrew Duncomb (21)....................................................... *
Michele Vitucci (22)...................................................... *
All directors and executive officers as a group (23) (21 persons).........
</TABLE>
- ------------------------
* Less than one percent of the outstanding shares of Getty Images Common
Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission. In computing the number of shares beneficially owned by a person
and the percentage of ownership of that person, shares subject to options
held by that person that are currently exercisable or exercisable within 60
days of the Closing are deemed outstanding. Such shares, however, are not
deemed outstanding for the purpose of computing the percentage ownership of
each other person. Except pursuant to applicable community property laws or
as indicated in the footnotes to this table, to Getty Images' knowledge,
each shareholder identified in the table possesses sole voting and
investment power with respect to all shares of Getty Images Common Stock
shown as beneficially owned by such shareholder.
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(2) Applicable percentage of ownership for each stockholder is based on
27,025,384 shares of Getty Images Common Stock which will be outstanding as
of the Closing plus the number of options, warrants, rights or conversion
privileges with respect to Getty Images Common Stock owned by such person.
(3) The address of Getty Investments is 1325 Airmotive Way, Suite 262, Reno,
Nevada 89502.
(4) Mr. Mark Torrance, who will be Co-Chairman of Getty Images upon the Closing
of the Transactions, is manager of PDI and has sole voting power with
respect to the shares held by PDI and disclaims beneficial ownership of
shares held by PDI in which he has no pecuniary interest. Mr.
Torrance, Ms. Wade Torrance and three trusts established for the benefit of
their children are the sole members of PDI. The address for PDI is 2013
Fourth Avenue, Seattle, Washington 98121.
(5) Mr. Torrance has sole voting power with respect to the shares held by PDI,
and disclaims beneficial ownership of shares held by PDI in which he
has no pecuniary interest. See Note 3. Mr. Torrance's address is 2013 Fourth
Avenue, Seattle, Washington 98121.
(6) Includes shares of Getty Images Common Stock held by PDI. Ms.
Torrance's address is The Highlands, Seattle, Washington 98117.
(7) The address of Carlton is 25 Knightsbridge, London SWIX 7RZ, England.
(8) Includes shares of Getty Images Common Stock issuable upon exercise of
outstanding options and shares held by the October 1993 Trust, a trust
established by Mr. Mark Getty of which he and his immediate family are the
beneficiaries. The Getty Images Common Stock held by the October 1993 Trust
are subject to the Getty Parties Shareholders' Agreement and are voted as
directed by Getty Investments (see "Getty Images--Certain Related Party
Transactions--Getty Parties Shareholders' Agreement").
(9) Includes shares of Getty Images Common Stock issuable upon exercise of
outstanding options and shares held by Crediton Limited, a trust
established by Mr. Jonathan Klein of which he and his immediate family are
the beneficiaries. The Getty Images Common Stock held by Crediton Limited
are subject to the Getty Parties Shareholders' Agreement and are voted as
directed by Getty Investments (see "Getty Images--Certain Related Party
Transactions--Getty Parties Shareholders' Agreement").
(10) Represents shares of Getty Images Common Stock issuable upon exercise
of outstanding options.
(11) Includes shares of Getty Images Common Stock issuable upon exercise
of outstanding options.
(12) Represents shares of Getty Images Common Stock issuable upon exercise
of outstanding options.
(13) Represents shares of Getty Images Common Stock issuable upon exercise
of outstanding options.
(14) Represents shares of Getty Images Common Stock issuable upon exercise
of outstanding options.
(15) Represents shares of Getty Images Common Stock issuable upon exercise
of outstanding options.
(16) Represents shares of Getty Images Common Stock issuable upon exercise
of outstanding options.
(17) Represents shares of Getty Images Common Stock issuable upon exercise
of outstanding options.
(18) Represents shares of Getty Images Common Stock issuable upon exercise
of outstanding options.
(19) Represents shares of Getty Images Common Stock issuable upon exercise
of outstanding options.
(20) Represents shares of Getty Images Common Stock issuable upon exercise
of outstanding options.
(21) Represents shares of Getty Images Common Stock issuable upon exercise
of outstanding options.
(22) Represents shares of Getty Images Common Stock issuable upon exercise
of outstanding options.
(23) Includes shares issuable upon exercise of outstanding options to
purchase Getty Images Common Stock.
GETTY IMAGES STOCK OPTION PLAN
On or prior to the Closing, the Getty Images Board will adopt the Getty
Images Common Stock Option Plan (the "Getty Images Option Plan").
Under the Getty Images Option Plan, the Getty Images Board will have the
discretion to grant options with an exercise price equal to the market price of
the Getty Images Common Stock at the date of the grant. Options will vest on a
schedule of 25 percent on the first anniversary of the date of the grant and
then rateably each month over the next three years. Options will become
exercisable to the extent vested and will lapse to the extent not exercised
after the expiration of seven years from the date of the grant.
The Getty Images Option Plan will provide for the grant of options to
acquire shares of Getty Images Common Stock to directors, employees and
consultants of Getty Images and its subsidiaries, subject to adjustment
following certain changes in Getty Images' stock capital, including a
recapitalization or rights issue. Under the Getty Images Option Plan, options
are awarded by the Compensation
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Committee of the Getty Images Board at an exercise price and on a vesting
schedule as described above. Generally, options awarded under the Getty Images
Option Plan may not be exercised prior to vesting. Where, however, the
optionholder ceases to be an employee (whether by reason of death or otherwise)
the options may be exercised to the extent vested and, at the discretion of the
Getty Images Board, to the extent not vested within twelve months of such
optionholder ceasing to be an employee. Options granted under the Getty Images
Option Plan are not transferable and may not be exercised except by the person
to whom such options were granted. Options may not be granted under the Getty
Images Option Plan after the tenth anniversary of its adoption.
Options over 400,000 shares of Getty Images Common Stock will be granted
under the Getty Images Option Plan at the market price at the Closing of the
Transactions, including options to purchase 75,000 shares of Getty Images Common
Stock to each of Mr. Mark Getty and Mr. Jonathan Klein and options to purchase
50,000 share of Getty Images Common Stock to each of Mr. Mark Torrance and Mr.
Nick Evans-Lombe. Options over shares of Getty Images Common Stock may
be granted to other employees of Getty Images at the Closing. In addition,
pursuant to the Employment Agreements, each of Messrs. Getty, Torrance and Klein
will be issued options over 500,000 shares of Getty Images Common Stock at
Closing, vesting on a schedule of 25% one year after the Closing and rateable
each month thereafter over the following three years. See "Related
Agreements--The Employment Agreements".
DIVIDEND POLICY OF GETTY IMAGES FOLLOWING THE MERGER
Dividends as may be determined by the Getty Images Board may be declared and
paid on the shares of Getty Images Common Stock from time to time out of any
funds legally available therefor. Under Delaware law, Getty Images may only pay
dividends from its surplus as defined and calculated according to Delaware law,
or in the case there is no surplus, out of Getty Images' net profits for the
fiscal year in which the dividend is declared and/or the preceding fiscal year;
except that no dividends may be paid out of such net profits if the net assets
of the corporation are less than the aggregate amount of capital represented by
the issued and outstanding stock having a preference upon the distribution of
assets.
It is currently contemplated that, following the Transactions, Getty Images
will not pay cash dividends in the foreseeable future, but will retain earnings
to provide funds for the operation and expansion of its business. Dividend
decisions will be based upon a number of factors, including the operating
results and financial requirements of Getty Images and such other considerations
as the Getty Images Board deem relevant. See "Comparison of Rights of PhotoDisc
Stockholders and Getty Stockholders--Changes Principally Attributable to
Differences Between the DGCL and the WBCA--Dividends".
CERTAIN RELATED PARTY TRANSACTIONS
GETTY PARTIES SHAREHOLDERS' AGREEMENT
The holders of the Getty Class B Ordinary Shares--Getty Investments, the
October 1993 Trust and Crediton Limited--have entered into a shareholders'
agreement with respect to their ownership of such shares. The parties thereto
have agreed to amend such agreement prior to the consummation of the
Transactions (such agreement, as amended, being the "Getty Parties Shareholders'
Agreement"). Certain provisions of the Getty Parties Shareholders' Agreement are
described below.
The Getty Parties Shareholders' Agreement provides that all Getty Class B
Ordinary Shares (and all shares of Getty Images Common Stock into which such
shares are converted in the Scheme of Arrangement)held by the parties thereto
will be voted as directed by the board of directors of Getty Investments. Before
transferring such shares (other than certain permitted transfers to affiliates
or family members who, as a condition of such permitted transfer, must agree to
be bound by the terms of the Getty Parties Shareholders' Agreement), the parties
must first offer such shares to the other parties. The price at which such
shares must be offered is either the price that another purchaser is willing to
pay for such shares or, in the event of a transfer pursuant to an exercise of
registration rights, the average closing market price of the
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Getty Images Shares over the preceding ten business days. In the event that
these rights of first refusal are not taken up, then the rights of first refusal
in the Stockholders' Agreement apply. See "Related Agreements--Stockholders'
Agreement".
In the Getty Parties Shareholders' Agreement, the October 1993 Trust and
Crediton Limited will agree to retain at least 311,301 Getty Images Shares until
July 7, 2001 and thereafter to retain at least 155,651 Getty Images Shares for
an additional two years, PROVIDED, HOWEVER, that the October 1993 Trust and
Crediton Limited may sell shares in the event that (i) Mr. Mark Getty (in the
case of the October 1993 Trust) or Mr. Jonathan Klein (in the case of Crediton
Limited) ceases to be employed by Getty Images, or (ii) Getty Investments ceases
at any time to hold at least percent of the then outstanding shares of Getty
Images Common Stock. In addition, if Getty Investments sells any Getty Images
Shares, the October 1993 Trust and Crediton Limited will be permitted to sell
the same proportion of their Getty Images Shares which are subject to this sale
restriction as the number of Getty Images Shares sold by Getty Investment bears
to its total number of Getty Images Shares. The Getty Parties Shareholders'
Agreement will provide that each of the October 1993 Trust and Crediton Limited
will, in consideration of its participation under such agreement, receive an
annual fee from Getty Investments in 1998 of L and L , subject to
certain inflation adjustments, respectively, and thereafter an annual fee of
L and L , subject to certain inflation adjustments, respectively, for
each of the next four years.
The Getty Parties Shareholders' Agreement also provides that each of the
October 1993 Trust and Crediton Limited will have the right to nominate a
director to the board of directors of Getty Investments (the "Getty Investments
Board"). Such parties have nominated Mr. Getty and Mr. Klein to the Getty
Investments Board. The October 1993 Trust also has the right to nominate the
chairman of Getty Investments. The October 1993 Trust has appointed Mr. Getty as
Chairman of Getty Investments.
Getty Investments will agree in the Getty Parties Shareholders' Agreement
that, subject to certain exceptions, it will not operate or own or control any
other business in the visual content industry.
The Getty Parties Shareholders' Agreement expires on July 7, 2003, but may
be terminated early with respect to a party (or its permitted transferees) who
ceases to be a shareholder of Getty Images. The Getty Parties Shareholders'
Agreement terminates for all parties if Getty Investments ceases to own at least
two percent of the then outstanding shares of Getty Images Common Stock.
GETTY INVESTMENTS COMPANY AGREEMENT
Getty Investments is a limited liability company organized in the State of
Delaware and is governed by a limited liability company agreement among the four
various Getty family trusts (the "Getty Trusts") and 525 Investments Limited
(the "Getty Investments Company Agreement"). The membership interests of the
Getty Trusts in Getty Investments are held as to 37.5 percent by The Cheyne Walk
Trust, as to 18.75 percent by the Ronald Family Trust A, as to 18.75 percent by
the Ronald Family Trust B and as to 12.5 percent by the Gordon P. Getty Family
Trust. The remaining 12.5 percent interest is held by 525 Investments Limited.
The four Getty Trusts result from the partition in 1988 of the Sarah C. Getty
Trust in accordance with a court order in 1985. Two of the four trustees of The
Cheyne Walk Trust are also two of the four trustees of the Ronald Family Trust
B, two of the three trustees of the Ronald Family Trust A are also two of the
four trustees of the Ronald Family Trust B. The life income beneficiaries of the
four Getty Trusts referred to above are the children of J.P. Getty, and the
remainder beneficiaries are his grandchildren (including Mr. Mark Getty) and
other descendants. 525 Investments Limited is a company owned by the family
trusts of J.P. Getty KBE, one of the children of J.P. Getty. Mr. Mark Getty is
the son of J.P. Getty KBE.
The Getty Investments Company Agreement provides that the Getty Investments
Board will consist of six directors. One director will be appointed by each of
the four Getty Trusts. In addition, the members of Getty Investments agree to
appoint one person nominated by each of the October 1993 Trust and Crediton
Limited. The members also agree to appoint the director nominated by the October
1993 Trust as the
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Chairman of the Board of Getty Investments. Mr. Getty has been appointed a
director and chairman by the October 1993 Trust and Mr. Klein has been appointed
a director by Crediton Limited. Decisions at meetings of the Getty Investments
Board require a simple majority of the total number of directors, i.e. four
directors. Of the six members of the Getty Investments Board, three (Mr. Getty,
Mr. Klein and Mr. Garb) will also be directors of Getty Images. There are
currently no voting arrangements whereby one member of Getty Investments can
control a majority of the members of the Getty Investments Board.
INDEMNIFICATION
Getty Images has agreed to indemnify Getty Investments and its members for
liabilities arising in connection with the Transactions. Under this agreement,
the parties being indemnified have the right to require Getty Images to procure
its subsidiaries to also give this indemnification.
AGREEMENTS WITH CARLTON
Carlton Communications BV ("Carlton") has entered into an agreement with
Getty Communications with respect to its ownership of approximately ten percent
of the currently outstanding Getty Class A Ordinary Shares. Carlton and Getty
Communications have agreed to amend such agreement prior to the consummation of
the Transactions (such agreement, as amended, being the "Carlton Agreement").
Certain provisions of the Carlton Agreement are described below.
The Carlton Agreement provides that Getty Images will take all steps
necessary to carry out a registered offering of shares of Getty Images Common
Stock as soon as practicable after the closing of the Transactions and that
Carlton will be given the opportunity to sell up to 100% of its holding of
shares in Getty Images Common Stock in such offering. In the event that Getty
Images has not filed an effective registration statement for such offering with
the Commission by March 31, 1998, it shall file a shelf registration statement
with the Commission as soon as possible after March 31, 1998. If, prior to March
31, 1998, Getty Images demonstrates that it is taking all necessary steps to
carry out a secondary offering then Carlton may postpone the need to file a
shelf registration statement, with such postponement not to extend beyond the
earliest of (i) 14 days after the secondary offering is completed, (ii) 14 days
after a decision is taken not to proceed with the secondary offering and (iii)
June 30, 1998.
During the secondary offering, if Carlton does not take up the right to sell
all of its shares of Getty Images Common Stock at a price equal to or more than
$16 per share then Getty Images shall be entitled to refuse to file a shelf
registration statement. Any obligation to keep the shelf registration statement
effective shall terminate on the first anniversary of the effectiveness of the
Merger.
GETTY TRADEMARKS
Getty Communications has applied for trademark protection for the names
Getty Communications and Hulton Getty, and derivatives thereof (including the
name "Getty Images") and the related logo (together, the "Getty Trademarks").
Getty Investments and Getty Images will agree that in the event that Getty
Images becomes controlled by a third party not affiliated with the Getty family,
Getty Investments will have the right to call for an assignment to it, for a
nominal sum, of all rights to the Getty Trademarks. Upon such assignment, Getty
Images will have twelve months in which it can still use the Getty Trademarks
and thereafter will have to cease such use.
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GETTY COMMUNICATIONS
OVERVIEW
Getty Communications is one of the leading international providers of visual
content to a diverse range of professional users of images, including
advertising and design agencies, magazines, newspapers, broadcasters, production
companies and new media publishers. Getty Communications markets rights to
images and footage through its international network of wholly owned offices in
London, Chicago, New York, Los Angeles, Toronto, Munich, Hamburg, Paris,
Amsterdam, Brussels, Copenhagen, Stockholm, Vienna and Hong Kong and dedicated
agents in 15 countries.
Getty Communications seeks to differentiate itself through its commitment to
the highest level of quality in the creation, selection and production of
relevant images capable of multiple sales, its focus on customer service, the
quality and breadth of its content, its strong brand names, its worldwide
distribution network and its continuing investment in value-added systems and
technologies.
VISUAL CONTENT COLLECTIONS
Getty Communications' visual content collections are: (i) Tony Stone Images,
one of the world's leading providers of contemporary stock photography; (ii)
Hulton Getty, one of the two largest privately owned collections of archival
photography in the world; (iii) Gamma Liaison, a leading North American news and
reportage agency; and (iv) Energy Film Library, one of the world's leading stock
footage companies.
CONTEMPORARY STOCK PHOTOGRAPHY--TONY STONE IMAGES
Tony Stone Images is one of the world's leading providers of contemporary
stock photography and supplies images to a customer base of principally
professional users. The images cover a wide variety of contemporary subjects,
including lifestyles, families, business, science, health and beauty, sports,
transportation, travel and the environment. The customer base includes
advertising and design agencies, local and international design consultants,
magazine, newspaper, book and new media publishers, poster and calendar
manufacturers, and travel companies.
Tony Stone Images is dedicated to providing high-quality images relevant to
the needs of its customers by focusing on a relatively small number of images.
Its core collection (the "Dupe Master Collection") contained approximately
55,000 images as of September 30, 1997 and accounted for approximately 82
percent of Getty Communications' sales in 1996. The Dupe Master Collection is a
tightly edited, relevant and manageable collection that is designed to meet the
needs of all major customer segments and achieve greater sales with greater
efficiency and superior levels of customer service. The Dupe Master Collection
is complemented by the mainstock collection, which comprises more than one
million images that have been selected for their subject matter or the demand in
a particular market.
Getty Communications believes that Tony Stone Images is the world leader in
offering stock photography equal in creative and technical aspects to
commissioned work. Throughout the creation, selection and production processes,
Tony Stone Images focuses on producing images of the highest technical and
aesthetic quality of the subjects or concepts that are in demand, and on
anticipating future trends and customer needs. Tony Stone Images has creative
teams in London, Los Angeles, Seattle, Paris and Munich that analyze customer
requests and buying behavior and perform research in key markets in order to
target and source images.
The skill and creativity of Tony Stone Images' contributing photographers
are fundamental to the success of its business. Contributing photographers
include highly respected, internationally renowned professional photographers
representing a variety of styles, specialties and backgrounds. Tony Stone Images
currently contracts with approximately 700 active photographers.
Tony Stone Images has established in-house teams of skilled digital artists
that retouch, enhance and manipulate images to improve their salability. This
team also manipulates images to design and create
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images digitally, including composites of separate photographs, illustrations,
digital graphics and text. Getty Communications has found and believes that this
type of image processing brings greater returns due to the higher demand and
higher prices for such images.
ARCHIVAL PHOTOGRAPHY--HULTON GETTY
Hulton Getty is one of the largest privately owned collections of archival
photography in the world. Its archive consists of approximately 300 separate
collections totalling approximately 15 million images, including vintage prints
by renowned photographers such as Man Ray, Bill Brandt, Alfred Eisenstadt and
Robert Capa, dating back to the beginning of photography. The Hulton Getty
collection includes images from all over the world and covers significant
events, people and places from the nineteenth and twentieth centuries. Key
collections within the archive include:
- The Picture Post Collection (1938-1957): images of everyday life, social
conditions, sport, politics and entertainment by leading international
photojournalists from the Picture Post magazine, a U.K. magazine similar
in style and content to LIFE magazine or Paris Match.
- The Keystone Collection (1900-1980s): incorporating the files of three
major London reportage agencies comprising Keystone Press, Fox Photos and
Central Press and an important U.S. archive, Three Lions.
- London Evening Standard & Express Collections (1927-1989): extensive news
and feature libraries formed by one of the world's largest newspaper
groups.
- London Stereoscopic Company (1854-c.1910): approximately 100,000 original
glass plate negatives, vintage prints and daybooks of 3-D views, celebrity
portraits, travel photography and illustrated books from one of the
world's first commercial photography firms.
- Henry Guttman Collection (1800-1940s): specializing in modern and
historical European affairs, crime, early cinema and photography and
including old catalogs, books and book plates, prints and engravings.
Traditionally, the Hulton Getty collection has been used solely by
professional users, predominantly magazine, news and book publishers in the
United Kingdom. Since the acquisition of the Hulton Getty collection, there has
been an on going process of selecting, digitizing and indexing the most
marketable images of the collection to enhance the accessibility and appeal to a
broader customer base. Selected images are available for search and review
through the Hulton Getty Web site, which presently comprises 130,000 images.
More than 10,000 new images are being added to the Web site each month.
NEWS AND REPORTAGE--GAMMA LIAISON
Gamma Liaison, Inc. ("Gamma Liaison"), is a leading North American news and
reportage agency, sourcing stories worldwide and distributing images to
magazines, newspapers and book publishers, as well as advertising and design
agencies and other creative professionals. Gamma Liaison's library contains
several million photographs covering the major events, personalities and
entertainment of the last 30 years. Gamma Liaison receives material from
approximately 3,500 photographers worldwide. Since 1986, every image accepted by
the agency has been indexed using key words, creating one of the largest
databases in the industry. In addition to providing contemporary news and
reportage to its customers, Gamma Liaison also provides archival content to the
Hulton Getty collection.
Gamma Liaison currently has a relationship with Gamma Presse Images ("Gamma
Presse"), an independent Paris-based news and reportage agency, for the foreign
distribution and production of news and reportage imagery. Gamma Liaison has the
responsibility for the production of news and reportage imagery in North
America, South America, the Far East and the southern parts of Africa, while
Gamma Presse is responsible for production of photographs in Europe, the Middle
East and the central and northern parts of Africa. Sales are handled by Gamma
Liaison in the United States, by Gamma Presse in France and by agents managed by
Gamma Presse in other countries.
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CONTEMPORARY STOCK FOOTAGE--ENERGY FILM LIBRARY
Energy Film Library is one of the leading international providers of
licensable motion imagery (often referred to as stock footage) to the
advertising, television, feature film, corporate communications and new media
markets. Energy Film Library's footage has been used in major feature films such
as "Independence Day", "Jerry Maguire", "Volcano" and "Men in Black", among
others.
Energy Film Library, which now includes the archives of the previously
acquired Fabulous Footage, maintains and licenses a growing library of over
9,500 hours of commercially desirable cinematography covering a broad range of
contemporary and archival subject matter. The collection of Energy Film Library,
which is generally licensed in short clips of 10 to 20 seconds, includes
material covering landscapes, cityscapes, wildlife, scenics, business, sports
and lifestyle.
The Energy Film Library is known for the breadth of its imagery and the high
resolution of its content. It is catalogued on computer for quick access and
retrieval, and master elements are available in film, tape and digital formats.
Energy Film Library represents imagery from over 200 leading cinematographers
and film producers.
Energy Film Library has formed strategic alliances with technology and
telecommunications companies to develop on-line and Internet services. With the
assistance of strategic partners, Energy Film Library has converted a selection
of its most popular imagery into digital formats. It has strategic relationships
with Silicon Graphics and Intel, and it recently co-developed a visual search
software application for media asset management with IBM. In an ongoing project
with Avid Technology, Energy Film Library has developed an Avid-ready digital
film library that would allow customers to preview, via an on-line service or on
CD-ROM, digital clips for downloading directly onto an Avid or other editing
system.
MARKETING
Getty Communications markets its products to professional users of images
such as advertising and design companies, magazines, newspapers, broadcasters,
production companies and new media publishers, as well as corporate users
involved in marketing and communications.
Getty Communications primarily markets its branded contemporary and archival
photography through printed catalogs. To date, Tony Stone Images has published
16 general catalogs covering a wide range of subjects and concepts and five
specialist catalogs. In 1997, Tony Stone Images published a general catalog and
the specialist catalogs "Interpretations" and "Portraits". Typically, general
catalogs are published annually and in 19 languages corresponding to Tony Stone
Images' most important geographic markets, with an aggregate current print run
of approximately 200,000 copies. Tony Stone Images also markets its products
through catalogs on CD-ROM discs. CD-ROM catalogs enable customers to select
from a wide range of images on-screen at their offices. In addition, Getty
Communications anticipates that customers will be able to search the Dupe Master
Collection via the Internet by the end of 1997.
In March 1997, Getty Communications published the first Hulton Getty catalog
since its acquisition of the Hulton Getty collection in order to market the
images to a broader customer base. In addition, Getty Communications markets the
Hulton Getty collection through a Web site established in March 1997 and direct
mail advertising. There are currently over 130,000 images available for search
on the Hulton Getty Web site.
Gamma Liaison markets its news and reportage photographs principally through
direct mail advertising on a quarterly basis.
Energy Film Library markets its stock footage through demonstration reels
sent directly to its customers and potential customers. These demonstration
reels contain samples of available footage.
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SALES AND DISTRIBUTION
SALES AND RESEARCH
Each of Getty Communications' wholly owned offices has a sales force
organized by customer and industry group. Sales executives provide creative and
technical support to customers both pre- and post-sale. The sales force assists
customers in developing selection requests ("briefs"), which are then passed on
to a researcher responsible for compiling a selection of images that respond to
the brief. Individual account executives have developed an in-depth knowledge of
the requirements of the customers whom they serve, and thus can add significant
commercial and creative value.
As of September 30, 1997, 130,000 images were available for search on the
Hulton Getty Website and more than 10,000 are being added each month. During
1997, the Dupe Master Collection was made available for search and selection
online using a keyword-based search system, allowing internal researchers and
selected customers to conduct research online, with the aim of reducing time and
costs. Getty Communications anticipates that the Dupe Master Collection will be
offered for search on-line to customers generally by the end of 1997. Getty
Communications has also commenced a program of "scan-on-demand" whereby
customers can receive reproduction quality digital files online, reducing the
dependence on physical handling of transparencies.
RIGHTS-PROTECTED LICENSING AND RIGHTS CONTROL
All of the images of Tony Stone Images and Hulton Getty are individually
marketed for specific customer applications. Licenses typically impose
restrictions on the permissible number of copies that can be made, the medium of
reproduction or publication, uses by other parties and other factors, including
the geographic area, duration and purpose of use. To ensure that their customers
can realize the full benefit of their negotiated licenses by allowing them to
negotiate exclusive rights, Tony Stone Images and Hulton Getty have developed a
computerized rights-protection system that monitors the licensing of images
throughout its global network of wholly owned offices and dedicated agents. The
system also enables Getty Communications to maximize revenue per image by
permitting multiple sales of the same image, without allowing the same rights to
be granted to different customers for conflicting uses. A central database
records image usage and its corresponding sales value, information that can then
be used in the targeting of popular subjects and the creation of new images of
the most saleable subjects. Energy Film Library also uses a computerized
rights-protection system.
DISTRIBUTION NETWORK
Getty Communications markets its branded content through an international
distribution network of wholly owned offices in 15 cities in Europe, North
America and the Far East and dedicated agents in 15 countries, primarily in
Europe and Asia. Getty Communications' policy is to own offices in major markets
and to work closely with dedicated agents in other markets. Management believes
that control of its outlets results in more focused marketing activities and
better brand maintenance, which leads to higher sales and market share.
Most agents have represented Getty Communications or its subsidiaries for
more than five years. Getty Communications provides agents with products and
marketing material and assists with marketing initiatives and brand positioning.
It initiates programs to develop its agents' local operations, including library
enhancement, staff training and business development. Agents are required to
invest in marketing activities and to pay for catalogs and duplicate
transparencies of images for their offices.
INTELLECTUAL PROPERTY
Getty Communications obtains most of the images in its contemporary
collections from independent photographers on an exclusive basis. Professional
photographers and cinematographers strongly prefer to retain ownership of their
work. As a result, copyright to an image remains with the contributing
photographer in most cases, while Getty Communications obtains the exclusive
right to market the image
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on behalf of the photographer for a specified period of time (generally five to
seven years, which management believes to be the useful life of contemporary
images). Getty Communications believes that Tony Stone Images, Gamma Liaison or
Energy Film Library could not achieve the quality, image creativity, diversity
or relevance that their collections currently possess if they sought to obtain
an ownership interest in the images that they market.
Due to the archival nature of the Hulton Getty collection (some images are
in the public domain), commissions are not payable on a substantial portion of
the collection. Energy Film Library owns the copyright to approximately 25% of
its cinematography collection.
EMPLOYEES
As of September 30, 1997, Getty Communications had 795 employees. Of these,
339 were located in North America, 316 in the United Kingdom, and 136 in the
rest of the world. Getty Communications believes that it has satisfactory
relations with its employees.
PROPERTY
Getty Communications is headquartered in Camden Town, London, England, where
an aggregate of approximately 30,000 square feet in two buildings is leased. The
leases expire in 2010 and 2015. Getty Communications' North American operations
are headquartered in Chicago, Illinois, where an aggregate of approximately
38,000 square feet is leased. The leases expire in 2003 and 2007. Getty
Communications leases other facilities throughout Europe and North America.
LEGAL PROCEEDINGS
Getty Communications has been and may continue to be subject to claims from
time to time in the ordinary course of its business, including claims of alleged
infringement by Getty Communications of the trademarks and other rights of third
parties, such as failure to secure model releases.
On September 18, 1997, Digital Stock Corporation, a California corporation
("Digital Stock"), and two directors and shareholders of Digital Stock, filed a
complaint in the United States District Court for the Southern District of
California against Getty Communications, Mark Getty and Jonathan Klein alleging,
among other things, breach of contract, fraud and misappropriation of trade
secrets by Getty Communications in connection with discussions regarding a
potential acquisition of Digital Stock by Getty Communications. The complaint
seeks, among other things, unspecified compensatory damages, punitive damages
and costs and an injunction prohibiting the defendants from using or disclosing
trade secrets and confidential information of Digital Stock. Getty
Communications only recently learned about the existence of this complaint and
is currently assessing the alleged claims. Getty Communications intends to
defend vigorously against the action.
RECENT DEVELOPMENTS
One of the core strategies of Getty Communications is to pursue strategic
acquisitions of complementary content collections. Getty Communications is
currently in discussions to acquire a visual content company for approximately
L30.5 million, of which approximately L16 million would be paid in the form of
cash and approximately L14.5 million would be paid in the form of Getty Class A
Ordinary Shares (valued on the basis of an average trading price of Getty
Communications ADSs during a period prior to the completion of such
acquisition). Getty Communications believes that a definitive agreement for such
acquisition could be executed during the fourth quarter of 1997 and that the
acquisition could be completed on or before completion of the Transactions.
However, no assurance can be given that an agreement will be reached with
respect to such acquisition or that such acquisition will be completed.
Simon Thornley resigned from the Getty Communications Board and as an
officer of Getty Communications as of September 30, 1997. He has been retained
as a consultant to the company. Michael Green resigned from the board of
directors of Getty Communications as of October 3, 1997.
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SELECTED CONSOLIDATED FINANCIAL DATA OF GETTY COMMUNICATIONS
The following selected consolidated financial data should be read in
conjunction with "--Getty Communications' Management's Discussion and Analysis
of Financial Condition and Results of Operations of Getty Communications" and
the consolidated financial statements of Getty Communications and the notes
thereto included elsewhere in this Prospectus. See "Index to Consolidated
Financial Information".
The selected consolidated financial data as of and for the year ended
December 31, 1992 have been derived from the U.K. GAAP audited consolidated
financial statements of Tony Stone Images and adjusted in accordance with U.S.
GAAP. The selected consolidated financial data as of and for the year ended
December 31, 1993 have been derived from the audited consolidated financial
statements of Tony Stone Images, which were prepared in accordance with U.S.
GAAP. The selected consolidated financial data as of and for the year ended
December 31, 1994 and as of March 13, 1995 and for the period January 1, 1995
through March 13, 1995 have been derived from the consolidated financial
statements of Tony Stone Images included elsewhere in this Prospectus, which
have been audited by Coopers & Lybrand as stated in their report appearing
herein, and have been prepared in accordance with U.S. GAAP. The selected
consolidated financial data for the period March 14, 1995 through December 31,
1995 and as of December 31, 1995 and for the year ended December 31, 1996 and as
of December 31, 1996 have been derived from the consolidated financial
statements of Getty Communications included elsewhere in this Prospectus, which
have also been audited by Coopers & Lybrand as stated in their report appearing
herein, and have been prepared in accordance with U.S. GAAP.
The selected consolidated financial data as of and for the six-month periods
ended June 30, 1996 and 1997 have been derived from the unaudited consolidated
financial statements of Getty Communications for those periods included
elsewhere in this Prospectus. In the opinion of the management of Getty
Communications, the selected consolidated financial data as of and for the
six-month periods ended June 30, 1996 and 1997 have been prepared on a basis
consistent with the audited consolidated financial statements of Getty
Communications included in this Prospectus. In addition, they reflect all
adjustments (which are of a normal recurring nature) necessary to present fairly
in all material respects the results of operations for such periods and the
financial position at the end of each such period. The selected consolidated
financial data for interim periods are not necessarily indicative of full year
results.
The selected consolidated financial data also present the unaudited combined
results of Tony Stone Images and Getty Communications for the year ended
December 31, 1995, which reflects the combination of the audited results of Tony
Stone Images, the predecessor of Getty Communications, for the period from
January 1 through March 13, 1995 with the audited results of Getty
Communications for the period from March 14 through December 31, 1995.
Management of Getty Communications believes that this is the most meaningful
presentation for comparative purposes. See "--Getty Communications' Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Getty Communications--Overview".
The selected consolidated financial data has been translated from pounds
sterling, the previously adopted reporting currency of Getty Communications,
into U.S. dollars, which will be the reporting currency of Getty Images. The
basis of the translations is described in "--Getty Communications' Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Overview".
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<TABLE>
<CAPTION>
TONY STONE IMAGES
(PREDECESSOR COMPANY) GETTY COMMUNICATIONS
-------------------------------------------- -----------------------------------
JANUARY 1 MARCH 14
THROUGH THROUGH YEAR ENDED
YEAR ENDED DECEMBER 31, MARCH 13, DEC. 31, DECEMBER 31,
------------------------------- ----------- ----------- ----------------------
1992 1993 1994 1995 1995 1995(1) 1996
--------- --------- --------- ----------- ----------- ----------- ---------
$ $ $ $ $ $ $
(IN THOUSANDS, EXCEPT PER SHARE AND PER ADS DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales.................................. 23,729 27,559 42,052 9,498 53,523 63,021 85,014
Cost of sales.......................... 8,645 10,204 16,290 3,618 21,096 24,714 32,156
--------- --------- --------- ----------- ----------- ----------- ---------
Gross profit........................... 15,084 17,355 25,762 5,880 32,427 38,307 52,858
Selling, general and administrative
expenses............................. 11,446 13,297 19,140 4,918 22,737 27,655 37,250
--------- --------- --------- ----------- ----------- ----------- ---------
Operating income before amortization
and depreciation..................... 3,638 4,058 6,622 962 9,690 10,652 15,608
Amortization of Intangibles............ -- 94 1,134 390 1,990 2,380 2,155
Depreciation........................... 1,589 1,784 2,267 588 3,017 3,605 5,486
--------- --------- --------- ----------- ----------- ----------- ---------
Operating income/(loss)................ 2,049 2,180 3,221 (16) 4,683 4,667 7,967
Net interest (expense)/income.......... (195) (160) (218) (62) (1,406) (1,468) (1,951)
Exchange gains/(losses)................ 629 (278) 247 119 (30) 89 (306)
--------- --------- --------- ----------- ----------- ----------- ---------
Income before income taxes............. 2,483 1,742 3,250 41 3,247 3,288 5,710
Income taxes........................... (967) (573) (1,556) (144) (1,873) (2,017) (2,982)
--------- --------- --------- ----------- ----------- ----------- ---------
Net income/(loss)...................... 1,516 1,169 1,694 (103) 1,374 1,271 2,728
--------- --------- --------- ----------- ----------- ----------- ---------
--------- --------- --------- ----------- ----------- ----------- ---------
Income per share(2).................... 0.06 0.05 0.10
----------- ----------- ---------
----------- ----------- ---------
Shares used in computing per share
amounts (thousands)(2)............... 23,390 23,390 27,832
----------- ----------- ---------
----------- ----------- ---------
Income per ADS(3)...................... 0.12 0.11 0.20
----------- ----------- ---------
----------- ----------- ---------
OPERATING DATA:
EBITDA(4).............................. 3,638 4,058 6,622 962 9,690 10,652 15,608
--------- --------- --------- ----------- ----------- ----------- ---------
--------- --------- --------- ----------- ----------- ----------- ---------
Net cash provided by/(used in):
Operating activities................. 3,386 2,264 5,202 509 6,448 6,957 13,502
Investing activities................. (2,217) (2,183) (5,296) (1,106) (23,476) (24,582) (25,953)
Financing activities................. (690) 229 (314) (38) 18,958 18,920 64,290
Net increase/(decrease) in cash and
cash equivalents..................... 479 310 (408) (635) 1,930 1,295 51,839
--------- --------- --------- ----------- ----------- ----------- ---------
--------- --------- --------- ----------- ----------- ----------- ---------
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1996 1997
--------- ---------
$ $
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales.................................. 40,115 48,718
Cost of sales.......................... 15,500 18,340
--------- ---------
Gross profit........................... 24,615 30,378
Selling, general and administrative
expenses............................. 17,406 21,363
--------- ---------
Operating income before amortization
and depreciation..................... 7,209 9,015
Amortization of Intangibles............ 1,008 1,349
Depreciation........................... 2,512 3,623
--------- ---------
Operating income/(loss)................ 3,689 4,043
Net interest (expense)/income.......... (1,360) 781
Exchange gains/(losses)................ (191) (312)
--------- ---------
Income before income taxes............. 2,138 4,512
Income taxes........................... (1,214) (2,070)
--------- ---------
Net income/(loss)...................... 924 2,442
--------- ---------
--------- ---------
Income per share(2).................... 0.04 0.06
--------- ---------
--------- ---------
Shares used in computing per share
amounts (thousands)(2)............... 23,390 38,469
--------- ---------
--------- ---------
Income per ADS(3)...................... 0.08 0.13
--------- ---------
--------- ---------
OPERATING DATA:
EBITDA(4).............................. 7,209 9,015
--------- ---------
--------- ---------
Net cash provided by/(used in):
Operating activities................. 5,450 7,300
Investing activities................. (19,919) (13,654)
Financing activities................. 13,945 (2,109)
Net increase/(decrease) in cash and
cash equivalents..................... (524) (8,463)
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
TONY STONE IMAGES GETTY COMMUNICATIONS
(PREDECESSOR COMPANY) ------------------------------
--------------------------------------------
AT AT AT
AT DECEMBER 31, MARCH 13, DECEMBER 31, DECEMBER 31,
------------------------------- ----------- --------------- -------------
1992 1993 1994 1995 1995 1996
--------- --------- --------- ----------- --------------- -------------
$ $ $ $ $ $
(IN THOUSANDS, EXCEPT PER SHARE AND PER ADS DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................... 1,257 1,533 1,208 589 1,899 58,939
Total assets...................................... 11,326 14,975 25,334 26,064 71,024 163,504
Long-term debt, net of current maturities......... 660 1,311 2,617 2,728 8,704 17,910
Shareholders' equity.............................. 2,668 4,026 5,984 54 27,012 113,523
<CAPTION>
AT
JUNE 30,
-----------
1997
-----------
$
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................... 48,697
Total assets...................................... 167,014
Long-term debt, net of current maturities......... 15,603
Shareholders' equity.............................. 115,757
</TABLE>
- ----------------------------------
(1) Reflects the combination of the audited results of Tony Stone Images, the
predecessor of Getty Communications, for the period from January 1 through
March 13, 1995 with the audited results of Getty Communications for the
period from March 14 through December 31, 1995.
(2) Income per share has not been computed for periods which relate to Tony
Stone Images as compared to Getty Communications. See Note 1 to the
consolidated financial statements of Getty Communications included elsewhere
in this Prospectus. Amounts for the year ended December 31, 1995 have been
computed assuming the same number of shares outstanding as determined for
Getty Communications for the period March 14, 1995 through December 31,
1995.
(3) Net income per Getty Communications ADS is calculated by adjusting net
income per share data for the ratio of two Getty Class A Ordinary Shares per
Getty Communications ADS.
(4) "EBITDA" is defined as earnings before interest, taxes, exchange
gains/(losses), depreciation and amortization. Thus, EBITDA with respect to
Getty Communications comprises sales less cost of sales and selling, general
and administrative expenses. Getty Communications believes that EBITDA
provides investors and analysts with a measure of operating income
unaffected by the financing and accounting effects of acquisitions and
assists in explaining trends in the operating performance of Getty
Communications. This was illustrated in 1995, when Getty Communications's
net income fell as a result of the financing and accounting effects of the
acquisition of Tony Stone Images with a consequent increase in net interest
expense and amortization of intangibles, while EBITDA rose by approximately
61 percent over 1994. EBITDA should not be considered as an alternative to
operating income as an indicator of Getty Communications' operating
performance or to cash flows as a measure of Getty Communications'
liquidity.
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GETTY COMMUNICATIONS' MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF GETTY COMMUNICATIONS
THE FOLLOWING SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL
STATEMENTS OF GETTY COMMUNICATIONS AND THE NOTES THERETO, "--SELECTED
CONSOLIDATED FINANCIAL DATA OF GETTY COMMUNICATIONS" AND OTHER FINANCIAL
INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE
HEREIN. FOR PURPOSES OF THE FOLLOWING, 1995 AMOUNTS REFLECT THE COMBINED RESULTS
OF TONY STONE IMAGES AND GETTY COMMUNICATIONS FOR THE ENTIRE CALENDAR YEAR, AS
MANAGEMENT BELIEVES THAT THIS IS THE MOST MEANINGFUL PRESENTATION FOR
COMPARATIVE PURPOSES. SEE "--BASIS OF PRESENTATION". IN THE FOLLOWING
DISCUSSION, THE "COMPANY" REFERS TO TONY STONE IMAGES IN 1994, GETTY
COMMUNICATIONS COMBINED WITH TONY STONE IMAGES FOR 1995, AND GETTY
COMMUNICATIONS THEREAFTER. ALL FINANCIAL DATA REFERRED TO IN THE FOLLOWING
MANAGEMENT'S DISCUSSION HAS BEEN PREPARED IN ACCORDANCE WITH U.S. GAAP.
THE STATEMENTS IN THIS SECTION THAT ARE NOT HISTORICAL FACTS ARE
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. GETTY
COMMUNICATIONS' ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF A VARIETY OF FACTORS, INCLUDING
THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Getty Communications commenced operations on March 14, 1995 with the
acquisition of Tony Stone Images, one of the world's leading providers of
contemporary stock photography. In April 1996, the Company broadened its visual
content product offerings with the acquisitions of Hulton Getty, one of the
world's largest privately owned collections of archival photography, and
Fabulous Footage, a leading North American provider of contemporary stock
footage. In November 1996, the Company strengthened its distribution in Belgium,
Denmark, Holland and Sweden with the acquisition of World View, its former agent
in these territories. In March 1997, Getty Communications acquired Gamma
Liaison, a well-established leading company in the photojournalism market. In
July 1997, Getty Communications acquired Energy Film Library, one of the leading
international providers of contemporary stock footage to the advertising,
television, feature film, corporate communications and multimedia markets. In
August 1997, Getty Communications strengthened its position in the Asia Pacific
market with the acquisition of Profile Photo Library, its former agent in Hong
Kong.
Getty Communications' sales are primarily derived from the marketing of
image reproduction and broadcasting rights to a range of business customers.
Historically, approximately 90 percent of the Company's sales have been
generated through its wholly owned offices, with the remainder through its
international network of agents. Sales generally comprise a large number of
relatively small transactions, priced in the range of $250 to $750. Prices are
determined primarily by the customer's intended use of the image or clip and
vary significantly across geographic markets and customer groups.
Getty Communications' cost of sales consists primarily of payments to
contributing photographers and cinematographers. These suppliers are generally
under contract with one of the wholly owned offices and, under industry standard
terms, generally receive as payment: (i) 50 percent of the sales generated by
their images in the same territory as the office to which they are contracted
("in-territory sales") and on revenues received from agents; and (ii) 30 percent
of the sales generated by their images outside of the territory of the office to
which they are contracted ("out-of-territory sales"). Minimal payments are due
for sales of Hulton Getty's archival imagery as most of this product is owned by
Getty Communications.
Getty Communications' selling, general and administrative expenses include
salaries and related staff costs, premises and utility costs, and marketing and
catalog costs. The increase in these costs is driven primarily by acquisitions
and by the volume of image transactions.
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Getty Communications amortizes goodwill and other intangibles acquired and
depreciates the cost of the investment in image duplicates ("dupes"), digital
files, the archival picture collection, computer systems and other fixed assets
over their expected useful lives.
As a result of Getty Communications' various acquisitions and their
consequential financial and accounting effects on net income, Getty
Communications believes that EBITDA provides investors and analysts with an
appropriate measure to explain the operating performance of Getty
Communications. Getty Communications defines EBITDA as earnings before interest,
taxes, exchange gains/(losses), depreciation and amortization.
BASIS OF PRESENTATION
Management's discussion and analysis of the 1994 results refers to the
audited consolidated results of Tony Stone Images for the year ended December
31, 1994. The 1995 discussion and analysis refers to the combination of the
audited consolidated results of Tony Stone Images for the pre-acquisition period
January 1, 1995 through March 13, 1995 and the audited consolidated results of
Getty Communications from the date of acquisition of Tony Stone Images on March
14, 1995 through December 31, 1995. The 1996 discussion and analysis refers to
the audited consolidated results of Getty Communications for the year ended
December 31, 1996 and includes the post-acquisition results of Hulton Getty,
Fabulous Footage and the World View group of companies. Management's discussion
and analysis of the results for the six month periods ended June 30, 1996 and
1997 refers to the unaudited interim consolidated financial statements for those
periods and includes the post-acquisition results of Hulton Getty and Fabulous
Footage in respect of the six month period ended June 30, 1996 and of Gamma
Liaison in respect of the six month period ended June 30, 1997.
The presentation of the combined results of Tony Stone Images and Getty
Communications for 1995 is considered by management to provide the most
meaningful basis for the following discussion and analysis, as the Company had
no operations prior to the acquisition. The only change in basis of the net
assets of Tony Stone Images resulting from the acquisition was the creation of
goodwill and other intangibles.
Getty Communications has previously adopted pounds sterling as its reporting
currency. Getty Images will adopt U.S. dollars as its reporting currency. To
facilitate comparison of the future results of Getty Images with the historical
results of Getty Communications, the historical results of Getty Communications
have been translated into U.S. dollars for purposes of this management's
discussion and analysis using the following exchange rates of U.S. dollars to
one pound sterling:
PERIOD AVERAGE RATES:
<TABLE>
<CAPTION>
JANUARY 1 MARCH 14
THROUGH THROUGH YEAR ENDED SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 13, DECEMBER 31, DECEMBER 31, JUNE 30,
- ------------------------------- ----------- ------------- ------------- --------------------
1992 1993 1994 1995 1995 1996 1996 1997
- --------- --------- --------- ----------- ------------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1.7525 1.4892 1.5319 1.5801 1.5780 1.5606 1.5271 1.6335
</TABLE>
PERIOD END RATES:
<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 13, AT DECEMBER 31, AT JUNE 30,
- ------------------------------- ------------- -------------------- --------------------
1992 1993 1994 1995 1995 1996 1996 1997
- --------- --------- --------- ------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1.5140 1.4768 1.5645 1.5914 1.5526 1.7113 1.5538 1.6643
</TABLE>
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SIX MONTHS ENDED JUNE 30, 1996 AND 1997
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------------------------
1996 1997
--------- PERCENT --------- PERCENT
$ OF SALES $ OF SALES
----------- -----------
(IN THOUSANDS, EXCEPT NET INCOME PER
<S> <C> <C> <C> <C>
ADS AND PERCENTAGES)
STATEMENT OF OPERATIONS DATA:
Sales........................................................ 40,115 100.0% 48,718 100.0%
Gross profit................................................. 24,615 61.4 30,378 62.4
Operating income............................................. 3,689 9.2 4,043 8.3
Net income................................................... 924 2.3 2,442 5.0
Net income per ADS........................................... 0.08 0.13
OPERATING DATA:
EBITDA(1).................................................... 7,209 18.0 9,015 18.5
--------- ----- --------- -----
--------- ----- --------- -----
Volume of Image Transactions................................. 85 113
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) EBITDA is defined as earnings before interest, taxes, exchange
gains/(losses), depreciation and amortization. Getty Communications
believes that EBITDA provides investors and analysts with a measure of
operating income unaffected by the financing and accounting effects of
acquisitions and assists in explaining trends in the operating performance
of Getty Communications. EBITDA should not be considered as an alternative
to operating income as an indicator of Getty Communications' operating
performance or in cash flows as a measure of Getty Communications'
liquidity.
SALES. Getty Communications' sales rose from $40.1 million in the six
months ended June 30, 1996 to $48.7 million in the six months ended June 30,
1997, an increase of 21.4 percent. Movements in currencies during the six months
adversely affected the sales reported in US. dollars of non-U.S. operations. Had
the equivalent 1996 exchange rates been applied, sales would have been $50
million in the six months ended June 30, 1997, 3 percent higher than the figures
reported and growth over 1996 would have been 25 percent for the six months to
June 30, 1997.
The market for visual content continues to grow and Getty Communications
continues to increase its worldwide market share due to the quality, breadth and
relevance of the images offered. This has been achieved despite difficult local
trading conditions in some of our key markets. The number of images and clips
marketed by Getty Communications in the first six months of 1996 and 1997 was
85,000 and 113,000, respectively, a growth of 32.9 percent. In management's
view, this growth is attributed to continuing increases in the breadth of Getty
Communications' imagery, the improvement in the distribution network, continuing
high levels of customer service and contribution from the acquisitions. This was
supported by the launch of three catalogs during the six months ended June 1997,
including the specialist Hulton Getty and Interpretations catalogs and the
launch of the on-line and digital fulfillment systems.
COST OF SALES. Getty Communications' cost of sales, which largely comprise
amounts payable to contributing photographers and film makers, rose from $15.6
million in the six months ended June 30, 1996 to $18.3 million in the six months
ended June 30, 1997. As a percentage of sales, cost of sales fell from 38.6
percent in the six months ended June 30, 1996 to 37.6 percent in the six months
ended June 30, 1997. This reduction arises from a change in the mix of sales and
margins within Getty Communications' operations, in particular, the inclusion of
sales of Hulton Getty images from April 1996 on which minimal commission is
payable. The Hulton Getty images are, for the most part, free of any requirement
to pay commission.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Getty Communications'
selling, general and administrative expenses increased by 22.7 percent from
$17.4 million in the six months ended June 30, 1996 to
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$21.4 million in 1997. The increase was primarily due to the inclusion of new
acquisitions. The largest component of the increase in selling, general and
administrative expenses remains salaries and related staff costs, which grew by
35 percent from $9.3 million in 1996 to $12.6 million in 1997 in the six-month
period.
As a percentage of sales, selling, general and administrative expenses for
Getty Communications were 43.4 percent in the six months ended June 30, 1996 and
43.9 percent in the six months ended June 30, 1997. The increase is attributable
to higher levels of expenses in companies acquired. Within Tony Stone Images
(now including Hulton Getty) selling, general and administrative expenses have
been reduced, reflecting management's continued success in focusing on cost
control and more effective use of systems. This is illustrated in the second
quarter where selling, general and administrative expense were reduced from 44.5
percent of sales in 1996 to 42.8 percent in 1997.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles amounted to $1.0
million in the six months ended June 30, 1996 and increased to $1.3 million in
the six months ended June 30, 1997. The increase in amortization is primarily
due to the inclusion of amortization relating to the acquisition of Gamma
Liaison in March 1997 and the 1996 acquisitions.
DEPRECIATION. Depreciation increased by 44.2 percent from $2.5 million in
the six months ended June 30, 1996 to $3.6 million in the six months ended June
30, 1997. The increase primarily arose from the acquisitions, together with a
continuing investment in capital expenditure. In the six months ended June 30,
1997, Getty Communications invested $6.5 million in fixed assets (including
duplicate transparencies and the digitization of the collections) compared to
$3.2 million in the six months to June 30, 1996.
NET INTEREST INCOME. Net interest income amounted to $781,000 in the six
months ended June 30, 1997, compared with an expense of $1.4 million in the six
months ended June 30, 1996. The 1997 interest income was generated on Getty
Communications' cash balances, which stood at $48.7 million at June 30, 1997.
NET EXCHANGE LOSSES. Getty Communications had net exchange losses of
$191,000 in the six months ended June 30, 1996 and $312,000 in the six months
ended June 30, 1997. These have largely arisen from movements in the value of
sterling against Getty Communications' other main functional currencies. In
particular, the British pound traded at historically high levels against Getty
Communications' main European functional currencies.
Getty Communications hedges a substantial majority of contracted net
receivables and payables using a combination of internal hedging, forward
exchange contracts and foreign currency term loans.
INCOME TAXES. Getty Communications' income tax charge amounted to $1.2
million in the six months ended June 30, 1996, an effective rate of 56.8
percent, compared to $2.1 million for 1997, an effective rate of 45.9 percent.
Excluding the effect of the amortization of intangibles, which is not tax
deductible, Getty Communications had an effective tax rate of 38.6 percent in
1996, and 35.3 percent in 1997.
The changes in the effective rate of tax, excluding the impact of the
amortization of intangibles, are due to a variation in profit mix and tax rates
in the countries in which Getty Communications operates.
NET INCOME. As a result of the foregoing, net income amounted to $924,000
in the six months ended June 30, 1996 compared to $2.4 million in the six months
ended June 30, 1997.
EBITDA. EBITDA increased from $7.2 million in the six months ended June 30,
1996 to $9.0 million in the six months ended June 30, 1997. EBITDA as a
percentage of sales increased from 18.0 percent to 18.5 percent in the six-month
period.
Movements in currencies had a significant effect on EBITDA during the six
months ended June 30, 1997. Had the equivalent 1996 exchange rates applied,
EBITDA would have been approximately $10 million in the six months ended June
30, 1997, approximately 11 percent higher than the figures reported.
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Growth over 1996 on this basis would have been approximately 38 percent for the
six months to June 30, 1997. EBITDA, as a percentage of (restated) sales, at
equivalent 1996 exchange rates was approximately 20 percent in the six-month
period ended June 30, 1997 compared to 18 percent in the six-month period ended
June 30, 1996.
"EBITDA" is defined as earnings before interest, taxes, exchange
gains/(losses), depreciation and amortization. Thus, EBITDA with respect to
Getty Communications comprises sales less cost of sales and selling, general and
administrative expenses. Getty Communications believes that EBITDA provides a
measure of operating income unaffected by the financing of the business and the
accounting effects of acquisitions and assists in explaining trends in the
operating performance of Getty Communications. EBITDA should not be considered
as an alternative to operating income as an indicator of Getty Communications'
operating performance or to cash flows as a measure of Getty Communications'
liquidity.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $5.5 million and $7.3 million
in the six months ended June 30, 1996 and 1997, respectively. The increased
operating cash flow was primarily due to higher EBITDA in 1997.
Net cash used in investing activities totalled $19.9 million and $13.7
million in the six months ended June 30, 1996 and 1997, respectively. During the
six months ended June 30, 1997, Getty Communications acquired Gamma Liaison. For
the six months ended June 30, 1996, the cash invested was primarily in respect
of the acquisitions of Hulton Getty and Fabulous Footage, both in April 1996. In
the six months ended June 30, 1997, Getty Communications invested $6.5 million
in fixed assets (including duplicate transparencies and the digitization of the
collections) compared to $3.2 million in the six months to June 30, 1996.
On June 30, 1997, Getty Communications had cash balances of $48.7 million
and unutilized revolving credit facilities of L3.8 million in the United
Kingdom, $1 million in the United States and Fr 2.5 million in France.
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THREE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
RESULTS OF OPERATIONS
The following table sets forth selected statement of operations and
operating data of the Company and such data as a percentage of sales for the
three years ended December 31, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1994 1995(1) 1996
--------- PERCENT --------- PERCENT --------- PERCENT
$ OF SALES $ OF SALES $ OF SALES
----------- ----------- -----------
(IN THOUSANDS, EXCEPT NET INCOME PER ADS AND PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales........................................ 42,052 100.0% 63,021 100.0% 85,014 100.0%
Gross profit................................. 25,762 61.3 38,307 60.8 52,858 62.2
Operating income............................. 3,221 7.7 4,667 7.4 7,967 9.4
Net income................................... 1,694 4.0 1,271 2.0 2,728 3.2
Net income per ADS........................... -- 0.11 0.20
OPERATING DATA:
EBITDA(2).................................... 6,622 15.7% 10,652 16.9% 15,608 18.4%
--------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- -----
Number of Image Transactions................. 105 134 183
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------------
(1) Reflects the combination of the audited results of Tony Stone Images, Getty
Communications' predecessor, for the period from January 1 through March 13,
1995, with the audited results of Getty Communications for the period from
March 14 through December 31, 1995.
(2) EBITDA should not be considered a substitute for net income as a measure of
Getty Communications' operating results or for cash flows as a measure of
liquidity.
SALES. Getty Communications' sales for 1994, 1995 and 1996 were $42.1
million, $63.0 million and $85.0 million, respectively, representing increases
of 49.9 percent in 1995 and 34.9 percent in 1996 over the respective previous
year. Hulton Getty and Fabulous Footage contributed $5.9 million of sales in
1996. Sales at Tony Stone Images of contemporary stock photography grew by 29
percent in 1996.
In 1994, 1995 and 1996, approximately 89 percent, 89 percent and 90 percent,
respectively, of sales were made by Getty Communications' wholly owned offices,
with the balance made by agents. Within the wholly owned offices management
monitors a number of key sales performance indicators, including the volume and
prices of images marketed.
VOLUME. The number of images and clips marketed in 1994, 1995 and 1996 was
approximately 105,000, 134,000 and 183,000, respectively. This represents growth
of 28 percent in 1995 and 37 percent in 1996 over the respective previous year.
Getty Communications believes that these increases are attributable to growth in
the stock photography market and gains in market share and, in 1996, the
contribution from Hulton Getty and Fabulous Footage.
The main source of the industry's growth in this period has been a
continuing increase in demand for imagery, combined with increasing recognition
and acceptance of stock photography as an alternative to commissioned
photography. In addition to the above, the two key internal sales drivers have
been the size of Getty Communications' core collection (the "Dupe Master
Collection") and the number of catalogs through which it is marketed.
In 1996, sales of images from the Dupe Master Collection accounted for
approximately 82 percent of Getty Communications' sales. This contemporary
collection grew in number by approximately 30 percent in 1995 and 19 percent in
1996 to approximately 47,500 images at December 31, 1996.
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Getty Communications published two Tony Stone Images' catalogs, one general
and one specialist, in each of 1995 and 1996. Management currently intends to
continue producing one general catalog annually and in 1997 has produced three
specialist catalogs, one of which was dedicated to Hulton Getty.
PRICING. Sales generally comprise a large number of relatively small
transactions in the range of $250 to $750. The price for images and clips is
determined primarily by the customer's intended use and the nature of the
product, and varies significantly across geographic markets and customer groups.
For example, prices tend to be higher in the advertising and design markets than
in the publishing market, higher for clip and contemporary images than for
archival images and higher in North America and continental Europe than in the
United Kingdom. The average price of contemporary images grew marginally in both
1995 and 1996.
CURRENCY. In 1996, 58 percent of Getty Communications' sales were generated
in currencies other than dollars. Getty Communications' results of operations
are affected by fluctuations in exchange rates between the U.S. dollar, in which
a large minority of Getty Communications' sales and expenses are recorded, and
the other currencies in which a majority of its sales and costs are recorded,
particularly the pound sterling, the German mark and the French franc. In
general, appreciation of the U.S. dollar, relative to another currency, has an
adverse impact on Getty Communications sales and profits while depreciation of
the U.S. dollar has a positive effect. Nevertheless, currency fluctuations did
not materially affect sales in 1995 or 1996.
SALES BY AGENTS. Agents remit to Getty Communications 60 percent of the
gross sales they derive from licensing Getty Communications' images. Getty
Communications' share of sales by agents was $4.6 million, $7.1 million and $8.6
million in 1994, 1995 and 1996, respectively, representing growth of 54 percent
in 1995 and 21 percent in 1996 over the respective previous year. The growth in
the period was primarily as a result of the continuing growth of the market,
especially in Europe.
COST OF SALES. Getty Communications' cost of sales was $16.3 million, $24.7
million and $32.2 million in 1994, 1995 and 1996, with approximately 98 percent
of this cost comprising amounts payable to contributing photographers and
cinematographers. Other costs of sales include local image delivery and
reframing costs.
As a percentage of sales, contributing photographer and cinematographer
payments were 37.7 percent in 1994, 38.2 percent in 1995 and 37.1 percent in
1996. In 1995, when Getty Communications was exclusively selling contemporary
images, the increase in cost, as a percentage of sales, was attributable to an
increase in the sales of "in-territory" sales (sales on which the contributor
gets 50 percent) as distinct from "out-of-territory" sales (sales on which the
contributor gets 30 percent). The decrease in 1996 costs, as a percentage of
sales, is attributable to the sales of archival images from Hulton Getty which,
for the most part, do not give rise to any payments to contributors. The margin
is expected to continue to improve as proportionately more archival images are
sold, particularly following the launch of the Hulton Getty catalog and on-line
system.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $19.1 million, $27.7 million and $37.2 million in
1994, 1995 and 1996, respectively, representing 45.5 percent, 43.9 percent and
43.8 percent of sales in each respective year. Key factors contributing to the
increase in selling, general and administrative expenses were the inclusion of
costs associated with the operations of Hulton Getty and Fabulous Footage in
Getty Communications' results and the hiring of additional employees as a result
of sales growth over the period.
The slight decrease in selling, general and administrative expenses as a
percentage of sales was primarily attributable to operating efficiencies and
economies of scale achieved at Tony Stone Images, offset by higher operating
costs attributable to Hulton Getty. At Tony Stone Images, selling, general and
administrative expenses as a percentage of sales were 45.5 percent, 43.9 percent
and 41.9 percent in 1994,
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1995 and 1996, respectively. Selling, general and administrative expenses
attributable to Hulton Getty accounted for 69 percent of its gross sales.
Salaries and related staff costs represented 26.5 percent, 24.3 percent and
24.3 percent of sales in 1994, 1995 and 1996, respectively. These costs are
primarily a function of the average full-time equivalent employees involved in
the selling, general and administrative activities which was 298, 376 and 504 in
1994, 1995 and 1996, respectively. The year on year increase arises from
acquisitions and growth in the volume of sales. Since image research, selection
and delivery are currently primarily conducted manually, increased sales volume
requires increased staffing. Management expects that systems enhancements and
digitization will have a positive impact on Getty Communications' required
staffing levels in the future.
Selling, general and administrative costs also include premises and utility
costs, marketing, catalog costs and other costs. These have also increased as a
result of acquisitions and growth of Getty Communications. Marketing and catalog
costs accounted for 11 percent of selling, general and administrative costs in
1996 and comprise direct mail, advertising, promotions, trade shows, exhibitions
and catalogs. Catalogs are Getty Communications' principal shop window, costs
for which are expensed over their useful lives, giving rise to charges, net of
photographer commissions of $1.0 million, $1.2 million and $2.0 million in 1994,
1995 and 1996. This cost is expected to increase following the launch of four
catalogs in 1997.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles amounted to $1.1
million, $2.4 million and $2.2 million in 1994, 1995 and 1996, respectively.
Amortization of intangibles includes amortization of goodwill and other
intangibles that arose from acquisitions in 1994 and the acquisition of Tony
Stone Images in March 1995, Fabulous Footage in April 1996 and the World View
group of companies in November 1996. The increase attributable to Tony Stone
Images in 1995 was $1.6 million. The reduction in 1996 was attributable to
certain elements of goodwill being written down to nil during that year.
DEPRECIATION. Depreciation amounted to $2.3 million, $3.6 million and $5.5
million, respectively, for 1994, 1995 and 1996, of which depreciation of dupes
amounted to $1.3 million, $2.2 million and $3.3 million in each respective year.
The increase in depreciation of dupes is a result of further images being
produced and duplicated in each year. Tony Stone Images produced a total of 1.9
million, 2.3 million and 1.8 million dupes in total in 1994, 1995 and 1996,
respectively, at an average cost per dupe of $1.84, $2.00 and $2.11 in each
respective year. In the medium to long term, an increasing number of images are
expected to be both selected and delivered digitally, as a result of which the
demand for and production of dupes is expected to decline. The increase in the
depreciation of other fixed assets has arisen from the expansion of the
business, the implementation of new computer systems over the three-year period
and the inclusion of depreciation on the Hulton Getty archival picture
collection.
NET INTEREST EXPENSE. Net interest expense was $218,000, $1.5 million and
$2.0 million in 1994, 1995 and 1996, respectively. Net interest expense
increased substantially in 1995 due to $1.0 million of interest arising on the
financing of the acquisition of Tony Stone Images by Getty Communications for
which loan notes of $12.7 million were issued, and a term loan of $7.6 million
was utilized.
Net interest expense in 1996 was affected by:
(i) the assumption of $19.2 million of debt, comprising a term loan of $9.5
million, a bridge loan of $7.6 million and $2.1 million of revolving credit
facilities, on the acquisition of Hulton Getty in April 1996;
(ii) the raising of $29.3 million (net of costs) from the initial public
offering in July 1996, of which $21.8 million was used to repay the $7.6 million
bridge loan, loan notes of $12.7 million and $1.5 million of overdraft
facilities; and
(iii) the raising of $44.3 million from the placement of shares to Carlton
and Getty Investments in December 1996.
In order to limit the impact of movements in interest rates on borrowings,
Getty Communications has entered into interest rate swap agreements with third
parties to exchange, at specified intervals, the difference between fixed rate
and floating rate interest amounts calculated by reference to an agreed
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principal amount. The effect of interest rate swaps on Getty Communications'
results for 1995 and 1996 was to increase net interest expense by $66,000 and
$131,000 respectively.
NET EXCHANGE GAINS/(LOSSES). Getty Communications' results of operations
are affected by exchange rate fluctuations to the extent that it or a subsidiary
has receivables or payables that are denominated in a currency other than the
local currency, as the exchange gains or losses arising on the translation of
these balances into sterling or on the settlement of these transactions are
recognized in the income statement of the relevant company.
Getty Communications' policy is to hedge a substantial majority of its
contracted net receivables and payables using a combination of forward exchange
contracts and foreign currency term loans. Exchange gains and (losses) were
$247,000, $89,000 and ($306,000) in 1994, 1995 and 1996, respectively.
INCOME TAXES. Getty Communications' effective tax rate was 47.9 percent,
61.3 percent and 52.2 percent in 1994, 1995 and 1996 respectively. Getty
Communications' effective tax rate was higher than the statutory tax rate in its
primary geographic markets in 1994, 1995 and 1996 due to the high levels of non-
deductible amortization in those years.
Excluding the effect of amortization, Getty Communications would have had
effective tax rates of 35.5 percent, 35.6 percent and 37.9 percent in 1994, 1995
and 1996, respectively. The increase in the effective rate of tax in 1996 is
primarily due to increased profitability of the United States operations.
NET INCOME. Getty Communications' net income was $1.7 million, $1.3 million
and $2.7 million in 1994, 1995 and 1996, respectively.
Net income fell in 1995 despite a 60.9 percent increase in EBITDA due to
increased interest charges, amortization of intangibles and the higher effective
tax rate, principally arising as a result of the acquisition of Tony Stone
Images, and increased depreciation as a result of the expansion of the Dupe
Master Collection.
In 1996, net income rose by $1.5 million (114.6 percent) over the prior
year, compared to a $5.0 million (46.3 percent) increase in EBITDA. The absolute
growth in EBITDA was offset by the higher depreciation charge, exchange losses,
increased interest (principally on acquisition related debt) and tax charges.
EBITDA. EBITDA was $6.6 million, $10.7 million and $15.6 million in 1994,
1995 and 1996, respectively, representing increases of 60.9 percent in 1995 and
46.5 percent in 1996 over the respective previous year. As a percentage of
sales, EBITDA represented 15.7 percent, 16.9 percent and 18.4 percent in 1994,
1995 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $5.2 million, $7.0 million and
$13.5 million in 1994, 1995 and 1996, respectively. Increased operating cash
flow in 1995 and 1996 was primarily due to higher EBITDA in those years.
Getty Communications made investments in fixed assets of $4.9 million, $7.3
million and $7.2 million in 1994, 1995 and 1996, respectively, of which $3.5
million, $4.6 million and $3.9 million related to investment in dupes.
A number of significant investment and financing activities took place in
1995 and 1996:
(i) In March 1995, Getty Communications raised $19.6 million from a
placing in conjunction with the acquisition of Tony Stone Images.
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(ii) In March 1995, Getty Communications purchased Tony Stone Images for
a cost of $36.9 million and a pre-acquisition dividend of $6.1 million. This
was financed by $12.7 million of loan notes, $7.6 million of debt, $6.4
million of equity and cash.
(iii) In April 1996, Getty Communications purchased Hulton Getty for a
cost of $13.1 million and assumed $6.1 million of that company's debt. This
was financed by a $9.5 million loan, $7.6 million of bridge finance and a
$2.1 million increase in the group's overdraft facility.
(iv) In July 1996, Getty Communications completed an initial public
offering and raised $29.3 million, $21.8 million of which was applied
against the above debt.
(v) In December 1996, Getty Communications completed a placement of
shares which raised $44.3 million.
An element of Getty Communications' strategy is to seek to make acquisitions
of visual content businesses and collections. Getty Communications will consider
acquisition opportunities in the light of the availability of financing, in
addition to other factors. Acquisition financing could include cash provided by
operations, public or private debt financing or equity financing.
MANAGEMENT OF GETTY COMMUNICATIONS
The officers and directors of Getty Communications, and their ages as of
September 30, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
DIRECTORS
Mark H. Getty(1)..................................... 37 Executive Chairman of the Board
Jonathan D. Klein(1)................................. 37 Chief Executive Officer and Director
Lawrence J. Gould.................................... 38 Chief Financial Officer and Director
James N. Bailey(1)(2)................................ 50 Director
Manny Fernandez...................................... 51 Director
Andrew S. Garb(1)(2)(3).............................. 55 Director
Christopher H. Sporborg(1)(2)........................ 58 Director
Anthony M. Stone..................................... 65 Director
OFFICERS
Michel Bernard....................................... 61 Managing Director, Gamma Liaison
Andrew Duncomb....................................... 31 President, Tony Stone Images/North America
Nick Evans-Lombe..................................... 31 Director of Strategy and Corporate Development
Stephen T. Mayes..................................... 39 Group Creative Director
Jan Ross............................................. 45 President, Energy Film Library
Don P. Smith......................................... 37 Group Services Director
Michele Vitucci...................................... 35 Managing Director, Tony Stone Images Europe
Stephen Warshaw...................................... 49 Managing Director, Tony Stone Images and Hulton Getty
Warwick Woodhouse.................................... 45 Group Planning Director
</TABLE>
- ------------------------
(1) Member of the Compensation Committee. Mr. Getty and Mr. Klein will absent
themselves from a Compensation Committee meeting when their own compensation
is being discussed and, in the event of a tie vote, the chairman of the
committee, currently Mr. Sporborg, will have the deciding vote.
(2) Member of the Audit Committee. In the event of a tie vote, the chairman of
the committee, currently Mr. Sporborg, will have the deciding vote.
(3) Appointed by Getty Investments.
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MR. GETTY has been Executive Chairman of Getty Communications since April
1996 and before that was Joint Chairman since its inception. In 1993, Mr. Getty
was the co-founder of Getty Investment Holdings LLC (predecessor to Getty
Investments) and from 1993 to 1995, together with Mr. Klein, formulated and
implemented its strategy. From 1991 to 1993, Mr. Getty worked at Hambros Bank
Limited. Mr. Getty serves on the board of directors of several organizations and
is Chairman of Getty Investments, the principal shareholder of Getty
Communications.
MR. KLEIN has been the Chief Executive Officer and a director of Getty
Communications since April 1996 and before that was Joint Chairman since its
inception. In 1993, Mr. Klein was the co-founder of Getty Investment Holdings
LLC and from 1993 to 1995, together with Mr. Getty, formulated and implemented
its strategy. From 1983 to 1993, Mr. Klein held various positions at Hambros
Bank Limited and has been a director since 1989. Mr. Klein serves as a director
of Getty Investments, the principal shareholder of Getty Communications, and of
several other entities.
MR. GOULD has been the Chief Financial Officer of Getty Communications since
March 1995. From 1990, Mr. Gould served as the Finance Director of Tony Stone
Images. From 1981 to 1990, Mr. Gould held several positions at Coopers &
Lybrand, in both its audit and corporate finance departments.
MR. BAILEY has been a non-executive director of Getty Communications since
September 1996. He is currently President of Cambridge Associates, Inc. He also
serves on the board of The Plymouth Rock Company, SAB Company Inc., Direct
Response Corporation, Coolidge Investment Company Inc., South Eastern Capital
Corporation and a number of not-for-profit organizations: New England Medical
Center, Inc. and New England Aquarium.
MR. FERNANDEZ has been a non-executive director of Getty Communications
since February 1997. He is Chairman of the Board of Gartner Group Inc. and a
non-executive director of Brunswick Corporation. Prior to joining Gartner Group,
Mr. Fernandez was President and Chief Executive of Dataquest Inc., Gavilan
Computer Corporation and Zilog Inc.
MR. GARB has been a director of Getty Investments and its predecessor, Getty
Investment Holdings LLC, since 1993, and a non-executive director of Getty
Communications since May 1996. Mr. Garb is a partner in Loeb & Loeb, L.L.P., a
U.S. based law firm, and was the firm's Managing Partner from 1986 to 1992.
MR. SPORBORG has been a non-executive director of Getty Communications since
May 1996. From its inception in 1993 until April 1996, he served as a Chairman
of Getty Investment Holdings LLC. Mr. Sporborg has held various positions at
Hambros Bank Limited since 1962, becoming Deputy Chairman of Hambros PLC in
1990. Among other positions, Mr. Sporborg is Chairman of Hambros Countrywide
PLC, Hambros Insurance Services Group PLC and Atlas Copco PLC; Deputy Chairman
of CE Heath PLC; and a director of Trade Indemnity PLC.
MR. STONE has been a director of Getty Communications since March 1995 and
was the founder of Tony Stone Images. From 1969 until 1992, Mr. Stone served as
Chairman and Managing Director of Tony Stone Images. From 1992 until the
acquisition by Getty Communications in March 1995, he served as its Chairman.
Mr. Stone is a non-executive director of Getty Communications.
MR. BERNARD founded Liaison Agency in New York in 1966. Prior to that, he
was the U.S. correspondent for various French newspapers and broadcasting
companies. From 1966 to 1997, Mr. Bernard was President of Liaison Agency, and
was responsible for the development of Gamma Liaison into one of the leading
news and reportage agencies in North America. In 1997, following the acquisition
of Liaison Agency by Getty Communications, Mr. Bernard became Managing Director,
Gamma Liaison.
MR. DUNCOMB has been with Tony Stone Images for seven years. In 1994, he
became Vice President of Sales at Tony Stone Images/New York before returning to
London to manage Getty Communications'
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network of licensees throughout Europe, Australia and Japan. In 1996, he became
Managing Director of Getty Communications' newly acquired footage division in
North America. In 1997, he became President of Tony Stone Images/North America,
based in Chicago.
MR. EVANS-LOMBE joined Getty Communications in 1996. From 1989 to 1995 he
held various positions in the corporate finance division at Hambros Bank
Limited. At Getty Communications, he has been involved with group strategy and
development and the management of the licensee network. In 1997, he was
appointed Director of Strategy and Corporate Development.
MR. MAYES has been the Group Creative Director since 1995 when he joined
Getty Communications. From 1989 to 1994, Mr. Mayes was Managing Editor of
Network Photographers, a documentary photography agency where he was the curator
for several international photographic exhibitions and books, and, from 1987 to
1989, was Production Editor of Rex Features, an editorial photography agency.
From 1981 to 1987, Mr. Mayes was a photographer for regional and national press
in the United Kingdom.
MS. ROSS co-founded Energy Film Library in 1974 and is the Chief Executive
Officer of Energy Film Library.
MR. SMITH joined the Group in February 1997 from Wace PLC where he was
Managing Director of the Corporate Imaging Division. Prior to Wace, Mr. Smith
spent seven years with RR Donnelley and worked in a number of production roles
before being appointed Divisional Director.
MR. VITUCCI has been Managing Director of Tony Stone Bilderwelten, the
German subsidiary, since he joined Tony Stone Images in April 1990. He is
responsible for the management of the German and Austrian operations of Tony
Stone Images. Prior to joining Tony Stone Images, Mr. Vitucci was Managing
Director of Granata Press GmbH, a privately-owned press photo agency, which was
acquired by Tony Stone Images in 1990. In 1997, Mr. Vitucci was appointed
Managing Director, Tony Stone Images/Europe.
MR. WARSHAW joined Getty Communications in October 1997. From 1990 to 1996,
he held various divisional Chief Executive positions at Reed Elsevier plc before
becoming Group Director of Business Development. Prior to 1990, Mr. Warshaw held
Divisional Managing Director positions at William Collins plc and Oxford
University Press.
MR. WOODHOUSE joined Getty Communications in October 1996 as Group Planning
Director. Prior to joining Getty Communications, Mr. Woodhouse had gained
extensive international experience in organizational design and the management
of change, customer service and strategic development.
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OWNERSHIP OF GETTY ORDINARY SHARES
The following table sets out certain information regarding beneficial
ownership of the Getty Ordinary Shares as at September 30, 1997 with respect to
(i) any person known to Getty Communications to be the owner of more than five
percent of the Getty Class A Ordinary Shares or Getty Class B Ordinary Shares,
and (ii) all directors and officers named in "--Management of Getty
Communications" as a group.
<TABLE>
<CAPTION>
GETTY ORDINARY SHARES
BENEFICIALLY OWNED
------------------------------
<S> <C> <C> <C>
NUMBER OF PERCENT PERCENT OF TOTAL
BENEFICIAL OWNER SHARES OF CLASS VOTING POWER(1)
- --------------------------------------------------------------------- ----------------- ----------- -----------------
Getty Class B Ordinary Shares(2):
Getty Investments(3)............................................... 10,954,210 81.4% 69.0%
October 1993 Trust(4).............................................. 1,245,204 9.3 7.8
Crediton Limited(5)................................................ 1,245,204 9.3 7.8
Getty Class A Ordinary Shares:
Carlton Communications BV(6)....................................... 3,738,762 15.6 2.4
Getty Investments.................................................. 2,089,882 8.6 1.3
Directors and officers as a group; Getty Class A Ordinary and Getty
Class B Ordinary Shares............................................ --
</TABLE>
- ------------------------
(1) The percentage of total voting power has been calculated by aggregating the
voting rights of all Getty Class A Ordinary Shares and Getty Class B
Ordinary Shares outstanding. Pursuant to the Getty Parties Shareholders'
Agreement, Getty Investments has the power to direct the voting of all of
the Getty Class B Ordinary Shares.
(2) Each Getty Class B Ordinary Share entitles its holder on a poll to ten votes
on matters submitted to a vote of holders of Getty Ordinary Shares and is
convertible into one Getty Class A Ordinary Share in certain circumstances.
(3) For a description of the membership interests in Getty Investments and the
manner in which the shares held by Getty Investments are voted, see "Getty
Images--Certain Related Party Transactions--Getty Investments Company
Agreement".
(4) The October 1993 Trust is a trust established by Mr. Mark Getty of which he
and his immediate family are the beneficiaries. The Getty Class B Ordinary
Shares held by the October 1993 Trust are subject to the Getty Parties
Shareholders' Agreement and are voted as directed by Getty Investments (see
"Getty Images--Certain Related Party Transactions--Getty Parties
Shareholders' Agreement"). Mr. Getty also holds options with respect to
1,847,970 Getty Class A Ordinary Shares.
(5) Crediton Limited is owned by a trust established by Mr. Jonathan Klein of
which he and his immediate family are the beneficiaries. The Getty Class B
Ordinary Shares held by Crediton Limited are subject to the Getty Parties
Shareholders' Agreement and are voted as directed by Getty Investments (see
"Getty Images--Certain Related Party Transactions--Getty Parties
Shareholders' Agreement"). Mr. Klein also holds options with respect to
1,847,970 Getty Class A Ordinary Shares.
(6) Under the terms of the subscription agreement of December 10, 1996, Getty
Communications agreed to use all reasonable efforts to co-operate with
Carlton to increase the total interest of Carlton to 20 percent of the total
issued Getty Ordinary Shares. They currently have 10 percent.
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PHOTODISC
OVERVIEW
PhotoDisc is the leader in the development and marketing of digital stock
photography products and electronic delivery of images. PhotoDisc's products are
offered on a royalty-free basis, a licensing model pioneered by PhotoDisc, which
allows customers to pay a one-time fee to use an image on a non-exclusive basis
for almost any purpose.
PhotoDisc uses technology to allow customers access to the PhotoDisc Image
Collection and relative ease of use in manipulating images licensed from
PhotoDisc either through CD-ROM products or the PhotoDisc Web site. Using a
CD-ROM ordered from PhotoDisc's printed catalogs or from the PhotoDisc Web site,
customers have ready access to 100 to 336 thematically related images. Through
the PhotoDisc Web site, users have the ability, 24 hours a day, 365 days a year,
to search the PhotoDisc Image Collection using key words, textual descriptions
of desired visual features or natural language and then promptly, for a fixed
price, license and download digital images directly to their personal computers.
PhotoDisc also offers other value-added features over the Internet, such as the
Lightbox-SM- feature which enables multiple parties working on the same project
in different locations to view images simultaneously, make notes and select
additional images. Once downloaded, an image may be manipulated using
off-the-shelf software, such as Adobe PhotoShop, and used in documents produced
with software applications such as Quark Xpress, PageMaker, Microsoft Word or
Powerpoint. This self-service, royalty-free model enables PhotoDisc to offer a
low-cost, fast method of providing visual content to customers who do not desire
rights-protected licensing and who want to use digital technology.
PhotoDisc markets its products to professional users of images such as
graphic designers and advertising agencies; corporate users, such as managerial
and sales professionals within an organization; and small office/home office
("SOHO") users, such as owners and employees of small businesses. PhotoDisc has
coupled the benefits of advanced technologies with its royalty-free licensing
model to make stock photography more widely usable by professional users, while
at the same time making stock photography more accessible to users in emerging
markets, such as corporate users and SOHO users, and, potentially, consumers.
PHOTODISC IMAGE COLLECTION
The PhotoDisc Image Collection, currently consisting of more than 50,000
feature-enhanced photographic images digitized at a variety of resolutions, has
been developed specifically to support the digital royalty-free licensing model.
The standard license agreement employed by PhotoDisc permits multiple uses for
almost any purpose, except for use in products for resale in quantities greater
than 100,000, packaging for music, video or software products, book jackets or
unlawful use.
CD-ROM PRODUCTS
As of September 30, 1997, PhotoDisc offered approximately 20,000 images via
six product lines consisting of more than 120 thematically related CD-ROM
products, each containing between 100 and 336 images. PhotoDisc's CD-ROM product
lines include: Volumes (images organized by themes such as "Business and
Industry" and "Weekend Living"); Object Series (images of individual objects
isolated against a transparent background); Background Series (images to be used
as a palette on which other design elements may be placed); Fine Art Series
(historic and contemporary paintings and illustrations); Signature Series
(photographs taken by renowned photographers and unique interpretations of
popular themes); and Animation Series (images from the Object Series
incorporating motion and sound for electronic uses).
Each CD-ROM includes customized searching and browsing software utilities
that allow users to conduct a search using keywords and to locate a particular
image with ease. In addition, each CD-ROM
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includes various editing functions and capabilities. For example, the Clipping
Paths-Registered Trademark- feature makes it possible for the user to drag and
drop images into print and digital presentations. The images are available to
the customer in several file sizes depending upon the product and distribution
method.
PHOTODISC.COM
All 50,000 images in the PhotoDisc Image Collection are available for
immediate license and download for a fixed price through the PhotoDisc Web site.
The site offers its visitors fourteen categories of images, including "Business
& Industry", "Education", "Lifestyle & Culture", "Science and Technology" and
"Wildlife and Animals". In addition, to enhance the search process, PhotoDisc
offers a combination of browsing, promotion and spotlight sections that
merchandise new images and CD-ROM products newly available on the PhotoDisc Web
site. For example, a spotlight section may include an extensive selection of new
business images shown in a variety of ways.
A primary feature of the PhotoDisc Web site is the ability of the customer
to search the PhotoDisc library by employing the search method most comfortable
and efficient for the customer. PhotoDisc provides simple search tools to locate
images via keyword or image number, and more complex search tools that employ
natural language, boolean logic or queries based on visual image attributes such
as color, composition, structure, texture or some combination thereof. Search
results return thumbnail images that can be enlarged for viewing purposes by
users prior to purchase.
Customers can immediately download free low-resolution samples for use in
preliminary layouts or may license and download high-resolution images for use
in final projects. When an image or group of images for final use is selected,
the customer chooses an image resolution and a license option to determine a
license fee. To license an image, customers can register on-line or via the
telephone with a credit card or account information and receive or select a
password and identification number. Upon approval of the credit card or login
information, the selected image is available for immediate download from the
PhotoDisc Web site. Customers can also search for different CD-ROM products,
view their contents, and place orders on-line.
PhotoDisc also offers certain value-added features via the PhotoDisc Web
site and workflow oriented tools, such as the Lightbox-SM-, which enables
customers or multiple groups working on the same project in different locations
to view images simultaneously, make notes and add additional images to folders
for individual or group viewing or discussion for up to one week after the
Lightbox creation.
MARKETING
PhotoDisc markets its products to creative professionals in the visual
communications industry such as graphic designers, art directors and art buyers,
marketing and communications professionals, Web and multimedia designers, and
newspaper, magazine, book, music and video publishers. In addition, PhotoDisc is
also marketing its products to the emerging corporate user and SOHO markets.
Historically, PhotoDisc has used its print catalogs as the primary means of
marketing its products. These include the PhotoDisc Catalog and various smaller,
specialty catalogs which are published periodically and mailed to customers and
prospective customers worldwide, highlighting new CD-ROM products. PhotoDisc
also publishes Resource Books on a periodic basis, which serve as a reference
guide for users of PhotoDisc's CD-ROM titles by showing the images contained in
the most recent CD-ROM products released by PhotoDisc. Each Resource Book also
contains a CD-ROM "comping disc" that allows a customer to utilize a
low-resolution version of the images in preliminary layouts before licensing a
high-resolution image for use in the final product, either by purchasing the
applicable CD-ROM or downloading the images from the Web. Starter Kits, which
PhotoDisc uses as introductory products, contain two Resource Books and two
CD-ROM comping discs containing all images shown in the associated Resource
Books.
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The print catalogs and Resource Books are supplemented by Internet and print
advertising, direct mail, trade and business public relations activities, trade
shows, co-marketing activities, sampler bundling with complementary software and
hardware products, electronic merchandising initiatives and customer loyalty
programs. PhotoDisc places advertisements on various high-profile and
high-traffic Web sites such as Yahoo and HotBot (WIRED's Web site). PhotoDisc
also engages in a coordinated program of print advertising in specialized and
general circulation magazines.
In addition to its domestic marketing activities, PhotoDisc is involved in
marketing activities internationally. Catalogs and other marketing materials are
translated in up to seven languages and PhotoDisc is in the process of creating
localized Web sites for various overseas markets, including the United Kingdom,
Japan and Germany, to address anticipated growing demand in these countries.
PhotoDisc has had an office in London since 1995 and has recently opened foreign
sales offices in Hamburg, Sydney and Tokyo.
SALES AND DISTRIBUTION
PhotoDisc licenses its products by direct telephone sales, on-line sales,
third-party distributors and direct field sales to key accounts.
INBOUND TELEPHONE SALES. The majority of PhotoDisc's domestic licensing
revenues are generated by orders received through PhotoDisc's inbound call
center. Customers can order PhotoDisc CD-ROM products by reviewing PhotoDisc's
collection appearing in PhotoDisc Catalogs, PhotoDisc Resource Books or Starter
Kits or can purchase single images appearing on the PhotoDisc Web site. In the
case of CD-ROM product sales, orders are generally shipped on the day that they
are received, with most orders shipped via overnight courier.
WEB SALES. The PhotoDisc Web site gives PhotoDisc's customers the
flexibility to purchase an image immediately by downloading the image off the
PhotoDisc Web site or by reviewing the images and then making a telephone order.
From the PhotoDisc Web site, customers can access a variety of on-line services
ranging from image and CD-ROM search and purchase areas to image reviews,
promotions, on-line community features and personalized services areas.
Approximately 5% and 13% of PhotoDisc's revenues in 1996 and the first half of
1997, respectively, were derived from licensing and downloading transactions
made solely through the PhotoDisc Web site.
To license and download an image on-line, users can register via the
telephone and receive a password and identification number, or they can register
on-line and supply a credit card number with selected personal information. Upon
approval of the user's credit card or login information, the selected image is
available for immediate download from the PhotoDisc Web site. Compressed
high-resolution 10 megabyte images take approximately seven minutes to download
with a standard 28.8 kbps modem and less than 60 seconds to download with a T-1
access line. Users can also search for different CD-ROMs, view their contents
and place orders for CD-ROMs.
CHANNEL SALES. PhotoDisc also sells its products through third-party
distributors. This distribution method is more widely utilized internationally
due to PhotoDisc's desire to minimize overhead while at the same time providing
broad exposure in the local markets. As of September 30, 1997, PhotoDisc had
relationships with approximately 200 domestic third parties to sell or bundle
PhotoDisc's products with their offerings in the United States and Canada. In
addition, as of September 30, 1997, PhotoDisc had more than 50 international
distributors covering most major world markets. PhotoDisc also promotes its
products through three U.S.-based catalog resellers: MacWarehouse, PC Connection
and Publishers Toolbox, all of which have nationwide distribution to PhotoDisc's
target market. Catalog-based resellers overseas are in some cases serviced by
local third-party distribution companies, and in other cases purchase directly
from PhotoDisc.
KEY ACCOUNTS. PhotoDisc's key accounts sales force targets leading
advertising and publishing companies, and other high volume users of images,
such as communications companies. The key accounts sales
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force is focused on reaching art directors and enterprise-wide image purchasers
who are generally responsible for large order purchases. PhotoDisc maintains
domestic direct sales offices in Seattle and New York. The key accounts sales
force also includes technical support staff and trainers who assist with both
pre- and post-sales support.
CUSTOMER SERVICE AND TECHNICAL SUPPORT. PhotoDisc believes that its ability
to establish and maintain long-term relationships with its customers and
encourage repeat visits and purchases depends, in part, on the strength of its
customer service and technical support teams. PhotoDisc also believes that a
consistent and high level of support is central to the adoption and successful
utilization of its products and services because it requires digitally enabled
customers who can effectively use digital images in their applications.
PhotoDisc's customer service and technical support center is based out of its
Seattle headquarters and consists of a team of consultants with broad knowledge
of the PhotoDisc Image Collection, as well as expertise in digital image
applications, design tools and photo manipulation methodologies. PhotoDisc's
customer service and technical support group provides assistance in six
languages--English, Spanish, French, German, Japanese and Chinese--and offers
support via telephone, electronic mail, facsimile and the Internet. The
technical support group also provides software downloads, document updates, and
assistance with problem identification and resolution.
INTELLECTUAL PROPERTY
PhotoDisc licenses approximately 90% of the images in its collection from
independent photographers or other stock agencies on an exclusive basis. In most
cases, copyright to an image remains with the contributing photographer, while
PhotoDisc obtains the exclusive right to market the image on behalf of the
photographer for a specified period of time (generally seven years).
The remaining images in PhotoDisc's collection were produced by contracted
photographers specifically for PhotoDisc. The copyrights to these images are
held by PhotoDisc.
TECHNOLOGY
The principal technologies utilized by PhotoDisc are those related to the
digitization of images, the enhancement and compression of digitized images, the
organization and management of PhotoDisc's database of digitized images and
customer profiles and technologies associated with customer interaction with the
PhotoDisc Web site including search functions, transaction-processing and
downloading of images. PhotoDisc's on-line commerce systems can manage a large
number of concurrent customer searches, as well as the process of accepting,
authorizing and charging customer credit cards. PhotoDisc uses a combination of
its own proprietary technologies and commercially available equipment and
licensed technologies. PhotoDisc's current strategy is to license commercially
available technology whenever possible rather than seek internally developed
solutions. PhotoDisc has focused its internal development efforts on creating
and enhancing the specialized software and processes related to enhancement and
delivery of digitized images.
The PhotoDisc Web site on-line commerce system is supported by a combination
of software provided by Connect, Allaire and others, as well as user interface
software and other technologies developed by PhotoDisc. PhotoDisc's library of
images is managed in an Oracle database environment. Image search tools employed
by customers include technologies supplied by Fulcrum Technologies, Virage and
Erli.
A group of system administrators and network managers monitor and operate
PhotoDisc's Web site, network operations and transaction-processing systems. The
reliable operation of PhotoDisc's Web site and transaction-processing systems is
essential to sales over the Internet, and it is the job of the site operation
staff to ensure, to the greatest extent possible, the uninterrupted operation of
PhotoDisc's Web site and transaction-processing systems. PhotoDisc uses the
services of two Internet service providers, Verio and WorldCom, to obtain
connectivity to the Internet. The main site is hosted by a 45 megabit dedicated
T-3 connection and several T-1 connections.
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Each image added to the PhotoDisc Image Collection is scanned using state of
the art drumscanners. Images are scanned with a true optical resolution of up to
19,500 pixels per inch which eliminates the need for interpolation of image data
even for larger images. After an image is scanned, it is processed in a color
managed environment, which includes control of scanners, displays, proofing and
printing profiles. PhotoDisc has developed special techniques to mount the
photographic images on the drumscanners which in turn increases productivity and
maintains the integrity of the digital image. PhotoDisc is currently scanning
approximately 250 images per day and has the capacity to increase production.
EMPLOYEES
As of September 30, 1997, PhotoDisc had 214 full-time employees, 92 of whom
were in sales and marketing, 50 of whom were involved in product and content
development and 72 of whom were in operations and administration. None of
PhotoDisc's employees is represented by a labor union and PhotoDisc considers
its relationship with its employees to be good.
PROPERTY
PhotoDisc leases two facilities in Seattle, Washington covering
approximately 79,700 square feet of office space. PhotoDisc leases from Mark
Torrance, a founder, principal shareholder, director and officer of PhotoDisc,
PhotoDisc's 38,500 square feet executive offices in Seattle under a lease that
expires in June 2001. See "--Certain Related Party Transactions". PhotoDisc also
leases offices in New York, London, Hamburg, Sydney and Tokyo.
LEGAL PROCEEDINGS
PhotoDisc has been and may continue to be subject to claims from time to
time in the ordinary course of its business, including claims of alleged
infringement by PhotoDisc of the trademarks and other rights of third parties,
such as failure to secure model releases. There are no pending legal proceedings
to which PhotoDisc or any of its subsidiaries is a party or to which any of
their properties is subject which, either individually or in the aggregate, are
expected by PhotoDisc to have a material adverse effect on its consolidated
financial position or results of operations.
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SELECTED CONSOLIDATED FINANCIAL DATA OF PHOTODISC
The following selected consolidated financial data should be read in
conjunction with "--PhotoDisc's Management's Discussion and Analysis of
Financial Condition and Results of Operations of PhotoDisc" and the consolidated
financial statements of PhotoDisc and the notes thereto included elsewhere in
this Prospectus.
The selected consolidated financial data as of and for the years ended
December 31, 1992 and 1993 have been derived from unaudited consolidated
financial statements of PhotoDisc. The selected consolidated financial data as
of and for the years ended December 31, 1994, 1995 and 1996 have been derived
from the consolidated financial statements of PhotoDisc included elsewhere in
this Prospectus, which have been audited by Deloitte & Touche LLP as stated in
their report appearing herein, and have been prepared in accordance with U.S.
GAAP.
The selected consolidated financial data as of and for the six month periods
ended June 30, 1996 and 1997 have been derived from the unaudited consolidated
financial statements of PhotoDisc for those periods. In the opinion of the
management of PhotoDisc, the selected consolidated financial data as of and for
the six month periods ended June 30, 1996 and 1997 have been prepared on a basis
consistent with the audited consolidated financial statements of PhotoDisc
included in this Prospectus. In addition, they reflect all adjustments (which
are of a normal recurring nature) necessary to present fairly in all material
respects the results of operations for such periods and the financial position
at the end of each such period. The selected consolidated financial data for
interim periods are not necessarily indicative of full year results.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996 1996
--------- --------- --------- --------- --------- ---------
<CAPTION>
$ $ $ $ $ $
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales.................................................... 387 1,480 4,709 12,512 28,231 12,102
Cost of sales............................................ 106 429 1,390 3,042 6,102 2,487
--------- --------- --------- --------- --------- ---------
Gross profit............................................. 281 1,051 3,319 9,470 22,129 9,615
Operating expenses....................................... 499 1,109 2,813 7,138 17,913 7,653
--------- --------- --------- --------- --------- ---------
Operating income/(loss).................................. (218) (58) 506 2,332 4,216 1,962
Other income/(expense)................................... 51 26 79 (40) 96 (24)
--------- --------- --------- --------- --------- ---------
Income before income tax expense......................... (167) (32) 585 2,292 4,312 1,938
Income tax expense....................................... -- -- -- 817 1,600 719
--------- --------- --------- --------- --------- ---------
Net income/(loss)........................................ (167) (32) 585 1,475 2,712 1,219
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Net income/(loss) per share.............................. (0.02) 0.00 0.06 0.13 0.23 0.11
Shares used in computing per share amounts............... 6,964 9,050 9,550 11,083 12,051 11,272
OPERATING DATA:
EBITDA(1)................................................ (161) 35 673 2,668 5,386 2,424
Net Cash provided by/used in:
Operating activities................................... 215 (62) 298 939 4,743 1,408
Investing activities................................... (340) (104) (283) (1,000) (3,865) (1,259)
Financing activities................................... 186 105 85 200 5,198 6,763
Net increase/(decrease) in cash and cash equivalents..... 61 (61) 100 139 6,076 6,912
<CAPTION>
<S> <C>
1997
---------
$
<S> <C>
STATEMENT OF INCOME DATA:
Sales.................................................... 19,811
Cost of sales............................................ 3,874
---------
Gross profit............................................. 15,937
Operating expenses....................................... 14,123
---------
Operating income/(loss).................................. 1,814
Other income/(expense)................................... 108
---------
Income before income tax expense......................... 1,922
Income tax expense....................................... 714
---------
Net income/(loss)........................................ 1,208
---------
---------
Net income/(loss) per share.............................. 0.09
Shares used in computing per share amounts............... 13,124
OPERATING DATA:
EBITDA(1)................................................ 2,917
Net Cash provided by/used in:
Operating activities................................... 2,161
Investing activities................................... (2,957)
Financing activities................................... --
Net increase/(decrease) in cash and cash equivalents..... (796)
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------- AT
1992 1993 1994 1995 1996 JUNE 30, 1997
--------- --------- --------- --------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C>
$ $ $ $ $ $
BALANCE SHEET DATA:
Cash and cash equivalents................................ 61 -- 100 239 6,315 5,519
Total assets............................................. 506 641 1,500 3,843 14,705 18,716
Long-term debt, net of current maturities................ 487 114 84 95 -- --
Total shareholders' equity............................... 19 (43) 514 1,598 10,437 11,665
</TABLE>
- ------------------------------
(1) "EBITDA" is defined as earnings before interest, taxes, exchange
gains/(losses), depreciation and amortization. PhotoDisc believes that
EBITDA provides investors and analysts with a measure of operating income
unaffected by the financing and accounting effects of acquisitions and
assists in explaining trends in the operating performance of PhotoDisc.
EBITDA should not be considered as an alternative to operating income as an
indicator of PhotoDisc's operating performance or to cash flows as a measure
of PhotoDisc's liquidity.
104
<PAGE>
PHOTODISC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF PHOTODISC
THE FOLLOWING SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL
STATEMENTS OF PHOTODISC AND THE NOTES THERETO, "--SELECTED CONSOLIDATED
FINANCIAL DATA OF PHOTODISC" AND OTHER FINANCIAL INFORMATION CONTAINED ELSEWHERE
IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE HEREIN. ALL FINANCIAL DATA
REFERRED TO IN THE FOLLOWING MANAGEMENT'S DISCUSSION HAS BEEN PREPARED IN
ACCORDANCE WITH U.S. GAAP.
THE STATEMENTS IN THIS SECTION THAT ARE NOT HISTORICAL FACTS ARE
FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. PHOTODISC'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF A VARIETY OF FACTORS, INCLUDING THOSE
SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
PhotoDisc was formed in 1991 to develop and commercialize digital stock
photographic images. In 1992, PhotoDisc introduced its first CD-ROM-based
product. As of September 30, 1997, PhotoDisc offered more than 120 different
CD-ROM products, each of which included between 100 and 336 thematically related
images. As the sales of new personal computers containing CD-ROM drives as a
basic component increased software became available to manipulate and edit
digital images and third party service bureaus began to handle digital files,
the volume of PhotoDisc's CD-ROM-based products increased significantly. In
1995, PhotoDisc began development of the PhotoDisc Web site on the World Wide
Web where customers could search, select and purchase individual images from
PhotoDisc's collection of images. As of September 30, 1997, more than 50,000
images were available from this site.
PhotoDisc's revenues and operating results are subject to quarterly
fluctuations resulting from a variety of factors, including seasonality, timing
of introduction of new products, timing and success of various marketing
initiatives and other factors. Based upon its operating history, PhotoDisc
believes that its revenue is affected by seasonality with sales being generally
higher in the months of March, April, September and October. PhotoDisc believes
that this seasonality is attributable to generally higher promotional activities
by its customers in anticipation of the summer and holiday buying seasons. There
can be no assurance that these seasonal trends will continue.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------------------------
<S> <C> <C> <C> <C>
PERCENT OF PERCENT OF
1996 NET REVENUES 1997 NET REVENUES
--------- ------------- --------- -------------
<CAPTION>
$ $
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales.............................................................. 12,102 100.0% 19,811 100.0%
Gross profit....................................................... 9,615 79.4 15,937 80.5
Operating expenses................................................. 7,653 63.2 14,123 71.3
Operating income................................................... 1,962 16.2 1,814 9.2
Net income......................................................... 1,219 10.1 1,208 6.1
OPERATING DATA:
EBITDA(1).......................................................... 2,424 20.0% 2,917 14.7%
--------- ----- --------- -----
--------- ----- --------- -----
</TABLE>
- ------------------------
(1) "EBITDA" is defined as earnings before interest, taxes, exchange
gains/(losses), depreciation and amortization. EBITDA should not be
considered as an alternative to operating income as an indicator of
PhotoDisc's operating performance or to cash flows as a measure of
PhotoDisc's liquidity.
105
<PAGE>
SALES. PhotoDisc's sales for the six months ended June 30, 1997 were $19.8
million, an increase of $7.7 million or 64 percent over the six months ended
June 30, 1996. This increase was due to continued expansion of international
sales, which increased 91 percent to $6.3 million, an increase of $2.3 million
or 790 percent in sales of single images from PhotoDisc's Web site and to a
lesser extent introduction of new CD-ROM products.
GROSS PROFIT. PhotoDisc's cost of sales consists of royalties paid to
photographers, direct costs of manufactured products, amortization of costs to
acquire or produce photographic images and other costs such as credit card fees
and freight. Cost of sales increased from $2.5 million in the six months ended
June 30, 1996 to $3.9 million in the six months ended June 30, 1997. This
increase was due to increases in the volume of products sold. As a percentage of
sales, gross profit increased from 79.4 percent to 80.5 percent. This increase
was due to lower royalty costs due to the mix of products sold and lower
manufacturing costs due to higher volumes of images sold on-line.
OPERATING EXPENSES. Operating expenses consist primarily of advertising and
promotion costs associated with marketing products, payroll and related expenses
for sales and marketing, customer service, administrative personnel and other
costs. Operating expenses increased to $14.1 million or 71.3 percent of sales
for the six months ended June 30, 1997 compared to $7.7 million or 63.2 percent
of sales for the six months ended June 30, 1996. This increase was due primarily
to increases in payroll and related expenses due to hiring of additional
personnel to meet actual and expected increased sales, continued expansion of
international operations and expansion of information systems and Web
development departments. PhotoDisc employed 135 and 214 persons on a full-time
basis as of June 30, 1996 and 1997, respectively.
Due to the investment in these departments, overall expenses increased at a
faster rate than revenue during the first six months of 1997. Management
believes that these investments will result in increased sales and that
operating expenses will decrease as a percentage of sales in future periods.
OTHER INCOME (EXPENSE). Other income increased to $108,000 in the six
months ended June 30, 1997 compared to other expense of $(24,000) for the six
months ended June 30, 1996. The increase was due to interest earned on the
proceeds of an equity investment completed in June 1996.
EBITDA. EBITDA increased 20.3 percent to $2,917 from $2,424 for the six
months ended June 30, 1997, compared to the same period in the prior year. As a
percentage of sales, EBITDA declined from 20.0 percent for the six months ended
June 30, 1996 to 14.7 percent for the six months ended June 30, 1997. This
decline was due to the increases in overall operating costs.
106
<PAGE>
THREE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
RESULTS OF OPERATIONS
The following table sets forth selected income statement and operating data
of PhotoDisc and such data as a percentage of net revenues for the three years
ended December 31, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PERCENT OF PERCENT OF PERCENT OF
1994 NET REVENUES 1995 NET REVENUES 1996 NET REVENUES
--------- ------------- --------- ------------- --------- -------------
<CAPTION>
$ $ $
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales................................................ 4,709 100.0% 12,512 100.0% 28,231 100.0%
Gross profit......................................... 3,319 70.5 9,470 75.7 22,129 78.4
Operating expenses................................... 2,813 59.7 7,138 57.1 17,913 63.5
Operating income..................................... 506 10.8 2,332 18.6 4,216 14.9
Net income........................................... 585 12.4 1,475 11.8% 2,712 9.6%
--------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- -----
OPERATING DATA:
EBITDA(1)............................................ 673 14.3% 2,668 21.3% 5,386 19.1%
--------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- -----
</TABLE>
- ------------------------
(1) "EBITDA" is defined as earnings before interest, taxes, exchange
gains/(losses), depreciation and amortization. EBITDA should not be
considered as an alternative to operating income as an indicator of
PhotoDisc's operating performance or to cash flows as a measure of
PhotoDisc's liquidity.
SALES. PhotoDisc's sales for 1994, 1995 and 1996 were $4.7 million, $12.5
million and $28.2 million, respectively, representing increases of 166 percent
in 1995 and 126 percent in 1996 over the respective previous year. These
increases were due primarily to the introduction of 35 and 36 new CD-ROM
products in 1995 and 1996, respectively, expansion of product lines from two to
five and additional sales of existing products. In addition, international sales
increased by 340% and 178% in 1995 and 1996, respectively, due to the opening of
direct sales offices in Europe and implementation of other international
distribution channels.
GROSS PROFIT. PhotoDisc's cost of sales consists of royalties paid to
photographers, direct costs of manufactured products, amortization of costs to
acquire or produce photographic images and other costs such as credit card fees
and freight. Gross profit was 70.5 percent, 75.7 percent and 78.4 percent of
total revenue for the years 1994, 1995 and 1996, respectively. The increase in
gross profit as a percentage of sales in 1995 and 1996 resulted primarily from a
higher percentage of sales coming from the direct channel where direct costs and
royalties are lower than through distribution. Other factors contributing to
this increase include lower royalty rates payable by PhotoDisc on a large
portion of its library, increased sales of owned images which have no royalties
and lower direct costs due to higher volumes of products sold and more efficient
management of inventory.
OPERATING EXPENSES. Operating expenses consist primarily of advertising and
promotion costs associated with marketing products, payroll and related expenses
for sales and marketing, customer service, research and development and
administrative personnel and other costs. Operating expenses for 1994, 1995 and
1996 were $2.8 million, $7.1 million and $17.9 million, respectively,
representing increases of 154 percent in 1995 and 151 percent in 1996 over the
respective previous year. The increases are due to several factors, including an
increase in payroll and related expenses due to the hiring of additional
personnel, primarily to expand the sales and marketing, customer service, and
product development departments, increased advertising and promotion expenses
and increases in travel and entertainment and professional fees. In addition,
overall operating expenses increased at a faster rate than revenues in 1996 due
to the expansion of international operations, investment in new information
systems and development
107
<PAGE>
of internet operations. PhotoDisc employed 34, 77 and 178 persons on a full-time
basis as of December 31, 1994, 1995 and 1996, respectively.
OTHER INCOME/(EXPENSE). Other income and expense was $79,000, ($40,000),
and $96,000 for 1994, 1995 and 1996, respectively. In 1994, PhotoDisc had a
one-time non-recurring payment for development work performed for a third-party
which offset interest expense on outstanding borrowings. The change from 1995 to
1996 was due primarily to a reduction in outstanding borrowings as well as
interest earned on the proceeds of an equity financing completed in June 1996.
INCOME TAXES. Prior to January 1, 1995, PhotoDisc was an S Corporation for
income tax purposes and all income taxes were the responsibility of PhotoDisc's
shareholders. The increase in income taxes in 1996 is due to the increase in net
income.
EBITDA. EBITDA was $673,000, $2.7 million and $5.4 million in 1994, 1995
and 1996, respectively. As a percentage of sales, EBITDA was 14.3 percent, 21.3
percent and 19.1 percent in 1994, 1995 and 1996, respectively. The increase in
EBITDA in 1995 compared to 1994 was due to increased revenues combined with
increased gross profit margins. The increase in EBITDA in 1996 compared to 1995
was due to continued increases in revenues and gross profit, offset in part by
higher operating expenses as a percentage of sales.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $298,000, $939,000 and $4.7
million for the years ended December 31, 1994, 1995 and 1996, respectively. The
increase in cash provided by operating activities is due primarily to increases
in net income. Cash provided by operating activities for the six-month period
ended June 30, 1997 was $2.2 million compared to $1.4 million for the six months
ended June 30, 1996. This increase was due primarily to increases in non-cash
expenses included in the computation of net income.
PhotoDisc's investing activities used cash of $283,000, $1.0 million, $3.9
million, $1.3 million and $3.0 million for the years ended December 31, 1994,
1995 and 1996, and the six-month periods ended June 30, 1996 and 1997,
respectively. The increases for the year ended 1996 compared to the year ended
1995 were due to increases in the number of personnel, investments in new
information systems, including development of PhotoDisc's Web site, and
expansion of facilities. The increase in the six months ended June 30, 1997
compared to the six months ended June 30, 1996 is due to the continued
investment in new information systems.
PhotoDisc's financing activities provided cash of $85,000, $200,000, $5.2
million, $6.8 million and $0 for the years ended December 31, 1994, 1995 and
1996, and the six-month periods ended June 30, 1996 and 1997, respectively. The
increase in cash provided from financing activities for the year ended December
31, 1996 compared to the year ended December 31, 1995 was due to the issuance of
approximately $7.1 million in preferred stock in June 1996. There was no
financing activity during the six months ended June 30, 1997.
As of September 30, 1997, PhotoDisc's principal sources of liquidity were
cash generated by operations and cash and short-term investments of
approximately $3.5 million. PhotoDisc plans to expend approximately $1.0 million
during the remainder of 1997, principally on hardware to expand the capacity of
the PhotoDisc Web site and information systems and for leasehold improvements,
although it currently has binding commitments for only a portion of this amount.
In August 1997, PhotoDisc repurchased 333,334 shares of its common stock from a
principal shareholder for $2,000,004. See "--Certain Related Party
Transactions".
PhotoDisc currently expects that existing funds, together with anticipated
cash flow from operations, will be sufficient to finance its operations and
planned capital expenditure for the foreseeable future.
108
<PAGE>
MANAGEMENT OF PHOTODISC
The officers and directors of PhotoDisc, and their ages as of September 30,
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Mark Torrance(1)..................................... 51 Chairman of the Board and Chief Executive Officer
Robert Chamberlain................................... 44 Chief Financial Officer and Senior Vice President,
Finance
William Heston....................................... 38 Senior Vice President, Business Development
Sally von Bargen..................................... 48 Senior Vice President, Sales and Service
Christian Birkeland.................................. 28 Vice President, Operations
Katherine James Schuitemaker......................... 40 Vice President, Marketing
Natalie Angelillo.................................... 29 Vice President, Content Development
Michel Perrin........................................ 38 Executive Vice President, Europe
Kurt Haug............................................ 37 Vice President, Pacific Rim
Heather Redman....................................... 33 Vice President, General Counsel and Secretary
Michael Child(1)..................................... 41 Director
Thomas Hughes........................................ 38 Director
Paul S. Shipman(1)................................... 44 Director
</TABLE>
- ------------------------
(1) Member of the Compensation Committee
MARK TORRANCE co-founded PhotoDisc in 1992 and has served as Chairman of the
Board of Directors and Chief Executive Officer since its founding. Prior to
founding PhotoDisc, Mr. Torrance served as President of Muzak, Inc. from 1985 to
1987, and as President of Yesco from 1972 to 1985, both of which are foreground
music distribution companies.
ROBERT J. CHAMBERLAIN has served as PhotoDisc's Chief Financial Officer
since May 1997. Prior to joining PhotoDisc, he was Executive Vice President and
Chief Financial Officer of Midcom Communications, Inc., a telecommunications
reseller, from January 1996 to May 1997. From January 1992 to December 1995, Mr.
Chamberlain was Vice President of Finance and Operations and Chief Financial
Officer for ElseWare Corporation, a font technology software developer. Mr.
Chamberlain received his B.S. in Business Administration and Accounting from
California State University--Northridge.
WILLIAM HESTON has served as PhotoDisc's Senior Vice President, Business
Development since June 1997. Prior to that, he served as a director of PhotoDisc
from February 1994 to August 1996, and as PhotoDisc's Vice President, Business
Development from April 1994 to June 1997. From September 1985 to December 1992,
Mr. Heston was a general partner of The Phoenix Partners, a venture capital
firm. Mr. Heston holds a B.S. in Management from Purdue University and an M.B.A.
in International Business from George Washington University.
SALLY VON BARGEN has served as PhotoDisc's Vice President of Sales and
Service since March 1997. Prior to that, she served as a Director from
PhotoDisc's inception in 1992 to August 1996, and as an advisor and consultant
to the Chief Executive Officer and President from November 1996 to March 1997.
She was also a senior management consultant with Satellite Market Resources from
September 1995 to November 1996 and a Seattle public school teacher from
September 1994 to June 1996. Ms. von Bargen holds a B.A. in Art and Psychology
from the University of California, Santa Cruz and an M.A. in Education from
Seattle University.
CHRISTIAN BIRKELAND has served as PhotoDisc's Vice President, Operations
since June 1997. He joined PhotoDisc in April 1992 as Vice President of Finance
and Operations, and served as a director of
109
<PAGE>
PhotoDisc from June 1992 to August 1996. Mr. Birkeland received his B.S. in
Business from the University of Southern California.
KATHERINE JAMES SCHUITEMAKER has served as PhotoDisc's Vice President,
Marketing since May 1996. From April 1995 to April 1996, she was an independent
marketing consultant. She also served as Director of Product Marketing at Adobe
Systems, Inc. from September 1994 to November 1994, as Director of Corporate
Marketing at Aldus Corporation from January 1994 to September 1994 and as Senior
Vice President and General Manager of Floathe Johnson from December 1983 to
December 1993. Ms. Schuitemaker received her B.A. in Graphic Design from the
University of Washington.
NATALIE ANGELILLO has served as PhotoDisc's Vice President of Content
Development since March 1997. She joined PhotoDisc in December 1993 as
Acquisitions Coordinator and served as Director of Acquisitions from June 1994
to March 1996. Ms. Angelillo holds a B.A. in Art History from the University of
California, Berkeley and an M.A. in Art History from the University of
Washington.
MICHEL PERRIN has served as Executive Vice President, Europe since July
1997. Prior to joining PhotoDisc, Mr. Perrin was deputy and general manager for
Infonie Finance, a French multimedia on-line service company, from 1995 to 1997.
Prior to his position at Infonie Finance, Mr. Perrin served as General Manager
for Microsoft Corporation in Europe from 1984 to 1995.
KURT HAUG has served as PhotoDisc's Vice President, Pacific Rim since
February 1997. Prior to joining PhotoDisc, Mr. Haug served as Vice President of
Asia Pacific and Vice President of International Micrografx, Inc. from January
1996 to January 1997. Mr. Haug studied mechanical engineering at Stanford
University and holds an A.A. in Japanese from Foothill College and a B.A. in
Entrepreneurial Business from Metropolitan State University.
HEATHER REDMAN has served as PhotoDisc's General Counsel since June 1996,
its Vice President since July 1996 and its Secretary since August 1996. Prior to
joining PhotoDisc, Ms. Redman was associated with the law firm of Heller Ehrman
White & McAuliffe from November 1991 until June 1996. Ms. Redman holds a B.A. in
English from Reed College and a J.D. from Stanford Law School.
MICHAEL C. CHILD has served as a director of PhotoDisc since June 1996 and
is a member of PhotoDisc's Compensation Committee. Since 1982, he has served as
a General Partner and Managing Director of TA Associates, Inc., a venture
capital firm, and has been a partner of affiliated venture funds since January
1986. Mr. Child holds a B.S. in Electrical Engineering from the University of
California at Davis and an M.B.A. from Stanford University.
THOMAS HUGHES has served as Vice Chairman of the PhotoDisc Board since June
1997. Prior to June 1997, Mr. Hughes served as PhotoDisc's President and as a
director since its founding. Mr. Hughes received his B.A. in History from the
University of Washington.
PAUL S. SHIPMAN has served as a Director of PhotoDisc since June 1996 and is
a member of PhotoDisc's Compensation Committee. Mr. Shipman co-founded Redhook
Ale Brewery, Inc. in 1981, and has served as its President since September 1981,
Chairman of the Board since November 1992 and Chief Executive Officer since June
1993. Mr. Shipman holds a B.A. in English from Bucknell University and an M.B.A.
from the University of Virginia--Darden.
110
<PAGE>
OWNERSHIP OF PHOTODISC CAPITAL STOCK
The following table sets forth certain information regarding the beneficial
ownership of PhotoDisc Common Stock as of September 30, 1997, by (i) each person
who is known by PhotoDisc to own beneficially more than five percent of the
PhotoDisc Common Stock, (ii) each director of PhotoDisc, (iii) each of the
executive officers of PhotoDisc named in "--Management of PhotoDisc", and (iv)
by all of PhotoDisc's directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
-------------------------
<S> <C> <C>
NUMBER PERCENT
OF SHARES OF CLASS(2)
------------ -----------
PDI, L.L.C.(3).......................................................................... 7,616,748 71.0%
Mark Torrance(4)........................................................................ 7,662,902 71.4
Wade Torrance(5)........................................................................ 3,397,537 32.6
Entities affiliated with TA Associates(6)............................................... 1,181,861 11.7
Geocapital IV, L.P.(7).................................................................. 450,290 4.4
Michael C. Child(8)..................................................................... 1,183,111 11.7
Thomas D. Hughes(9)..................................................................... 967,200 8.9
Mark B. Callaghan(10)................................................................... 922,600 9.0
Paul S. Shipman(11)..................................................................... 13,068 *
William Heston(12)...................................................................... 280,000 2.7
Christian Birkeland(13)................................................................. 433,600 4.1
Katherine James Schuitemaker(14)........................................................ 14,875 *
Natalie Angelillo(15)................................................................... 33,000 *
Robert Chamberlain...................................................................... 0 *
Sally von Bargen(16).................................................................... 94,400 *
Michel Perrin........................................................................... 0 *
Heather Redman(17)...................................................................... 14,875 *
Kurt Haug............................................................................... 0 *
All directors and executive officers as a group(18) (13 persons)........................ 10,697,031 87.8
</TABLE>
- ------------------------
* Less than one percent of the outstanding shares of PhotoDisc Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission. In computing the number of shares beneficially owned by a person
and the percentage of ownership of that person, shares subject to options
held by that person that are currently exercisable or exercisable within 60
days of September 30, 1997 are deemed outstanding. Such shares, however, are
not deemed outstanding for the purpose of computing the percentage ownership
of each other person. Except pursuant to applicable community property laws
or as indicated in the footnotes to this table, to PhotoDisc's knowledge,
each shareholder identified in the table possesses sole voting and
investment power with respect to all shares of PhotoDisc Common Stock shown
as beneficially owned by such shareholder.
(2) Applicable percentage of ownership for each shareholder is based on
10,138,459 shares of PhotoDisc Common Stock and Series A Preferred Stock
outstanding as of September 30, 1997.
(3) Includes 592,472 shares of PhotoDisc Common Stock issuable upon exercise of
outstanding warrants. Mr. Mark Torrance, PhotoDisc's Chief Executive
Officer, is manager of PDI, L.L.C. and has sole voting power with respect to
the shares held by PDI and disclaims beneficial ownership of 3,721,537
shares held by PDI in which he has no pecuniary interest. Mr. Torrance, Ms.
Wade Torrance and three trusts established for the benefit of their children
are the sole members of PDI. The address for PDI is 2013 Fourth Avenue,
Fourth Floor, Seattle, Washington 98121.
(4) Includes 592,472 shares of PhotoDisc Common Stock issuable upon exercise of
warrants to purchase PhotoDisc Common Stock held by PDI. Mr. Torrance has
sole voting power with respect to the shares held by PDI. and disclaims
beneficial ownership of 3,721,537 shares held by PDI in which he has no
pecuniary interest. See Note 3. Mr. Torrance's address is 2013 Fourth
Avenue, Seattle, Washington 98121.
111
<PAGE>
(5) Includes 3,105,864 shares of PhotoDisc Common Stock held by PDI and 291,673
shares of PhotoDisc Common Stock issuable upon exercise of warrants to
purchase PhotoDisc Common Stock held by PDI. Ms. Torrance's address is The
Highlands, Seattle, WA 98117.
(6) Includes 787,828 shares held by Advent VII, L.P. ("Advent VII"), 303,502
shares held by Advent Atlantic and Pacific III L.P. ("Advent Atlantic"),
78,712 shares held by Advent New York L.P. ("Advent New York"), and 11,819
shares held by TA Venture Investors Limited Partnership ("TA Ventures"). The
address for TA Associates is 435 Tasso Street, Palo Alto, California 94301.
(7) Includes 128,654 shares held by Geocapital III, L.P. and 321,636 shares held
by Geocapital IV, L.P.
(8) Includes 1,250 shares issuable upon exercise of outstanding options under
the PhotoDisc Stock Option Plan, 787,828 shares held by Advent VII, 303,502
shares held by Advent Atlantic, 78,712 shares held by Advent New York and
11,819 shares held by TA Ventures. Mr. Child, a director of PhotoDisc, is a
general partner of the general partner of each of these partnerships, shares
voting and dispositive power with respect to the shares held by each such
entity, and disclaims beneficial ownership of such shares in which he has no
pecuniary interest. See Note 6.
(9) Includes 687,200 shares issuable upon exercise of options under the
PhotoDisc Stock Option Plan. Mr. Hughes' address is 2013 Fourth Avenue,
Seattle, Washington 98121.
(10) Includes 76,000 shares issuable upon exercise of outstanding warrants. Mr.
Callaghan's address is 155 108th Avenue, NE, #810 Bellevue, WA 98004.
(11) Includes 1,250 shares issuable upon exercise of options under the PhotoDisc
Stock Option Plan.
(12) Represents 280,000 shares issuable upon exercise of options under the
PhotoDisc Stock Option Plan.
(13) Includes 412,000 shares issuable upon exercise of options under the
PhotoDisc Stock Option Plan.
(14) Represents 14,875 shares issuable upon exercise of options under the
PhotoDisc Stock Option Plan.
(15) Represents 33,000 shares issuable upon exercise of options under the
PhotoDisc Stock Option Plan.
(16) Includes 11,200 shares issuable upon exercise of options under the
PhotoDisc Stock Option Plan.
(17) Represents 14,875 shares issuable upon exercise of options under the
PhotoDisc Stock Option Plan.
(18) Includes 1,455,650 shares of PhotoDisc Common Stock issuable upon exercise
of options under the PhotoDisc Stock Option Plan and 592,472 shares of
PhotoDisc Common Stock issuable upon exercise of outstanding warrants.
CERTAIN RELATED PARTY TRANSACTIONS
On June 28, 1996, PhotoDisc entered into a Stock Redemption Agreement with
Mr. Mark Torrance and Ms. Wade Torrance pursuant to which PhotoDisc redeemed
236,372 shares of PhotoDisc Common Stock for a purchase price of approximately
$4.23 per share, totaling $1,000,000. The price per share of PhotoDisc Common
Stock was determined based on a valuation conducted by the firm of Brueggeman &
Johnson. Mr. Torrance is a founder, director and chief executive officer of
PhotoDisc and, after the Merger, will become a director and executive officer of
Getty Images. Ms. Wade Torrance is Mr. Torrance's former wife.
On August 12, 1997, PhotoDisc repurchased 333,334 shares of PhotoDisc Common
Stock from Ms. Wade Torrance for a purchase price of $6.00 per share, totaling
$2,000,004. The price per share of PhotoDisc Common Stock was determined based
on arm's-length negotiations between PhotoDisc and Ms. Torrance and is a member
of PDI.
In 1995, PhotoDisc issued warrants to purchase 500,880 shares of PhotoDisc
Common Stock for $0.1250 per share and warrants to purchase 91,592 shares of
PhotoDisc Common Stock for $0.1575 per share to Mr. Torrance in consideration
for loans to PhotoDisc by Mr. Torrance, aggregating $174,000 and for Mr.
Torrance's guarantee of certain obligations of PhotoDisc. These warrants were
contributed by Mr. Torrance to PDI, L.L.C. in October 1996. The loans were
repaid by PhotoDisc in 1996. The warrants expire in February 2000. PDI, L.L.C.
has agreed to exercise these warrants immediately prior to the Effective Time of
the Merger.
PhotoDisc leases its executive offices in Seattle, Washington from Mr.
Torrance at the current rate of $43,059.97 per month. A portion of this office
space, amounting to 14,435 square feet, is subject to a lease
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dated October 1, 1995 between PhotoDisc and Mr. Torrance, which expires in June
2001 and provides for monthly lease payments of $14,435 per month ($12 per
square foot). The remaining office space in the building, amounting to a total
of 32,521 square feet, is occupied pursuant to several oral agreements between
PhotoDisc and Mr. Torrance, which establish tenancies on a month-to-month basis.
PhotoDisc, in turn, subleases 8,430 square feet of its office space in the
Marshall Building to subtenants. PhotoDisc and Mr. Torrance are currently in the
process of negotiating a master lease that would cover all the space leased by
PhotoDisc and is expected to have a term of five years at market rates,
currently anticipated to be $12 to $13 per square foot. See "The
Transactions--Interests of Certain Persons in the Merger".
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DESCRIPTION OF GETTY IMAGES CAPITAL STOCK
Upon completion of the Transactions, Getty Images' authorized capital stock
will consist of shares of Getty Images Common Stock, and shares of
preferred stock, par value $0.01 per share ("Getty Images Preferred Stock").
GETTY IMAGES COMMON STOCK
On September 30, 1997, there were 100 shares of Getty Images Common Stock
outstanding. It is anticipated that, after giving effect to the Merger,
approximately 27,025,000 shares of Getty Images Common Stock will be outstanding
and approximately 6,140,000 additional shares of Getty Images Common Stock will
be reserved for issuance upon the exercise of options.
The holders of shares of Getty Images Common Stock are entitled to cast one
vote for each share held of record on all matters submitted to a vote of
stockholders. Subject to preferences that may be applicable to any outstanding
Getty Images Preferred Stock, holders of shares of Getty Images Common Stock are
entitled to receive ratably such dividends as may be declared by the Getty
Images Board out of funds legally available therefor. See "Getty
Images--Dividend Policy Following the Merger". In the event of a liquidation,
dissolution or winding up of Getty Images, holders of shares of Getty Images
Common Stock are entitled to share ratably in all assets of Getty Images
remaining after payment of liabilities and the liquidation preference of any
outstanding Getty Images Preferred Stock. Holders of shares of Getty Images
Common Stock have no preemptive rights and have no rights to convert their
shares of Getty Images Common Stock into any other securities. All outstanding
shares of Getty Images Common Stock are, and all shares of Getty Images Common
Stock to be outstanding upon completion of the Transactions will be, fully paid
and nonassessable.
GETTY IMAGES PREFERRED STOCK
Upon completion of the Transactions, the Getty Images Board will have the
authority to issue up to shares of Preferred Stock in one or more series
and to fix the designation, powers, preferences and rights of the shares of each
such series, including dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption, redemption prices, liquidation preferences
and the number of shares constituting any series or the designation of such
series, without any further vote or action by the stockholders of Getty Images.
The issuance of Preferred Stock in certain circumstances may have the effect of
delaying, deferring or preventing a change in control of Getty Images, may
discourage bids for shares of Getty Images Common Stock at a premium over the
market price of the common stock and may adversely affect the market price of,
and the voting and other rights of the holders of, shares of Getty Images Common
Stock. There are no shares of Preferred Stock outstanding and Getty Images
currently has no plans to issue any Preferred Stock.
DELAWARE ANTI-TAKEOVER STATUTE
Getty Images is a Delaware corporation and subject to Section 203 of the
Delaware General Corporation Law, an antitakeover law. In general, Section 203
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date the person became an interested stockholder, unless (with
certain exceptions) the "business combination" or the transaction in which the
person became an interested stockholder is approved in a prescribed manner.
Generally, a "business combination" includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the stockholder.
Generally, an "interested stockholder" is a person who, together with affiliates
and associates, owns (or within three years prior, did own) 15 percent or more
of a corporation's voting stock. The existence of this provision would be
expected to have an antitakeover effect with respect to transactions not
approved in advance by the Getty Images
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Board, including discouraging attempts that might result in a premium over the
market price for the shares of Getty Images Common Stock held by stockholders.
LIMITATIONS ON DIRECTORS' LIABILITIES AND INDEMNIFICATION
Getty Images has adopted provisions in its Certificate of Incorporation that
eliminate the personal liability of its directors for monetary damages arising
from a breach of their fiduciary duties in certain circumstances to the fullest
extent permitted by law. Such limitation of liability does not apply to
liabilities arising under the federal securities laws, and does not affect the
availability of equitable remedies such as injunctive relief or rescission.
Getty Images' Bylaws (the "Getty Images Bylaws") provide that Getty Images
will indemnify its directors and officers to the fullest extent permitted by
Delaware law, including circumstances in which indemnification is otherwise
discretionary under Delaware law. Getty Images will enter into indemnification
agreements providing for the foregoing with its directors and officers. The
indemnification agreements may require Getty Images, among other things, to
indemnify such officers and directors against certain liabilities that may arise
by reason of their status or service as officers or directors (other than
liabilities arising from willful misconduct of a culpable nature) and to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified. Getty Images has been advised that, in the opinion of
the Commission, indemnification of officers and directors for liabilities
arising under the Securities Act is against public policy and is therefore
unenforceable.
STATUS OF GETTY IMAGES SHARES UNDER THE FEDERAL SECURITIES LAWS; AFFILIATES
The shares of Getty Images Common Stock to be issued in the Transactions
will be registered under the Securities Act by the Registration Statement. Such
shares of Getty Images Common Stock will be freely saleable without statutory
restriction by any holder of Getty Ordinary Shares or shares of PhotoDisc Common
Stock who is not deemed to be an "affiliate" of Getty Communications (a "Getty
Communications Affiliate") or of PhotoDisc (a "PhotoDisc Affiliate") at the time
of the Getty EGM or the PhotoDisc Special Meeting, as the case may be, (for
purposes of Rule 145 under the Securities Act) or an affiliate of Getty Images
(a "Getty Images Affiliate") at the time of such sale (for purposes of Rule 144
under the Securities Act). PhotoDisc Affiliates, Getty Communications Affiliates
and Getty Images Affiliates may not sell shares of Getty Images Common Stock,
except pursuant to an effective registration statement under the Securities Act
or an exemption from the registration requirements of the Securities Act.
"Affiliates" are generally defined as persons who control, are controlled by, or
are under common control with, PhotoDisc, Getty Communications or Getty Images,
as the case may be (generally, certain executive officers and directors and
principal shareholders). The Merger Agreement and the Stockholders' Transaction
Agreement provide that each of the holders of shares of PhotoDisc Common Stock
who may be deemed to be PhotoDisc Affiliates will execute and deliver to Getty
Communications an agreement acknowledging that such person may be deemed to be a
PhotoDisc Affiliate and agreeing that such person will not sell, pledge,
transfer or otherwise dispose of any Getty Images Common Stock obtained as a
result of the Merger except in compliance with the Securities Act and the rules
and regulations of the Commission thereunder.
Rule 145 (for PhotoDisc Affiliates and Getty Communications Affiliates) and
Rule 144 (for Getty Images Affiliates) provide exemptions from the registration
requirements of the Securities Act. In general, pursuant to Rule 145 as
currently in force and effect, for one year following the Closing a Getty
Communications Affiliate or PhotoDisc Affiliate (together with certain related
persons) would be entitled to sell shares of Getty Images Common Stock acquired
at the Closing if: (i) Getty Images remained current with its informational
filings with the Commission under the Exchange Act; (ii) the number of shares to
be sold by such Getty Communications Affiliate or PhotoDisc Affiliate (together
with certain related persons and certain persons acting in concert) within any
three-month period does not exceed the greater of 1% of the then outstanding
shares of Getty Images Common Stock or the average weekly trading volume of such
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stock during the four calendar weeks preceding such sale; (iii) the shares are
sold only through unsolicited "broker transactions" or in transactions directly
with a "market maker," as such terms are defined in Rule 144; (iv) except in
certain circumstances, a Form 144 is filed with the Commission and the principal
exchange on which such securities are admitted to trading; and (v) such Getty
Communications Affiliate or PhotoDisc Affiliate filing a Form 144 has a bona
fide intention of selling the securities referred to therein within a reasonable
time. Two years after the Closing, a Getty Communications Affiliate or PhotoDisc
Affiliate would be able to sell shares of Getty Images Common Stock received at
the Closing without manner of sale or volume limitations provided that Getty
Images was current with its Exchange Act informational filings and such Getty
Communications Affiliate or PhotoDisc Affiliate was not then an affiliate of
Getty Images. Two years after the Closing, a Getty Communications Affiliate or
PhotoDisc Affiliate would be able to sell shares of Getty Images Common Stock
received at the Closing without any restrictions so long as such Getty
Communications Affiliate or PhotoDisc Affiliate had not been a Getty Images
Affiliate for at least three months prior thereto.
Pursuant to the Registration Rights Agreements, Getty Images will grant
certain registration rights with respect to the shares of Getty Images Common
Stock issued pursuant to the Transactions. See "Related Agreements--The
Registration Rights Agreements".
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Getty Images Common Stock is
.
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COMPARISON OF RIGHTS OF SHAREHOLDERS OF
GETTY COMMUNICATIONS AND STOCKHOLDERS OF GETTY IMAGES
As a result of the Scheme of Arrangement, shareholders of Getty
Communications, a public limited company incorporated under the laws of England
and Wales, will receive one share of Getty Images Common Stock for every two
Getty Ordinary Shares held of record by such holders. The following is a summary
of certain material differences between the rights of shareholders of Getty
Communications and the rights of stockholders of Getty Images arising from the
differences between the corporate laws of England and the Delaware General
Corporation Law (the "DGCL"), respectively, and the requirements of the
governing instruments of the two companies. The following summary does not
purport to be a complete description of the rights of shareholders of Getty
Communications and rights of the stockholders of Getty Images, and is qualified
in its entirety by reference to, the corporate laws of England, the DGCL, the
governing instruments of Getty Communications, the Getty Images Certificate of
Incorporation and the Getty Images Bylaws. Copies of the Getty Images
Certificate of Incorporation and the Getty Images Bylaws have been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
In addition to the laws of England and the governing documents of Getty
Communications, the rights of holders of Getty Communications ADSs, which each
represent the right to receive two Getty Class A Ordinary Shares, are also
governed by the Deposit Agreement (the "Deposit Agreement"), among Getty
Communications, The Bank of New York, as Depositary (the "Depositary"), and the
registered holders of Getty Communications ADSs, pursuant to which the Getty
Communications ADSs have been issued. Copies of the Deposit Agreement are
available for inspection at the Corporate Trust Office of the Depositary,
currently located at 101 Barclay Street, New York, New York 10286, and at the
principal office of the agent of the Depositary (the "Custodian"), currently
located in the London office of The Bank of New York located at 46 Berkeley
Street, London, W1Z 6AD. The Depositary's principal executive office is located
at 48 Wall Street, New York, New York 10286. Appropriate arrangements will be
made with the Depositary for Getty Communications ADSs to permit holders of
Getty Communications ADSs to vote on and participate in the Scheme of
Arrangement on the same basis as holders of Getty Class A Ordinary Shares.
Pursuant to Section 14 of the Exchange Act and the rules promulgated
thereunder (the "Proxy Rules"), Getty Images is required to comply with certain
notice and disclosure requirements relating to the solicitation of proxies in
respect of stockholder meetings. As a foreign private issuer, Getty
Communications is not subject to the Proxy Rules. However, Getty Communications
is subject to the Companies Act regulating notices of shareholder meetings and
solicitation of proxies. Under the applicable Companies Act requirements, notice
of a shareholder meeting is normally accompanied by a shareholder circular (or,
in the case of an annual general meeting, by an annual report and accounts)
containing an explanation of the purpose of the meeting and the board's
recommendations with respect to actions to be taken. All such communications are
sent by Getty Communications to the Depositary for distribution to holders of
Getty Communications ADSs at the same time as they are sent to holders of Getty
Ordinary Shares. As a foreign private issuer with securities listed on the
Nasdaq National Market and registered under Section 12 of the Exchange Act,
Getty Communications is required under the Exchange Act to publicly file with
the Commission and the Nasdaq National Market annual reports and other
information.
VOTING RIGHTS
Under English law, the voting rights of shareholders are governed by a
company's articles of association. Cumulative voting is essentially unknown
under English law. Under English law, two shareholders present in person
constitute a quorum for purposes of a general meeting, unless the company's
articles of association specify otherwise. The articles of association of Getty
Communications (the "Getty Communications Articles of Association") specify that
two shareholders present in person or by proxy and entitled to vote constitute a
quorum. Any Getty Ordinary Shareholder on the register may vote in person or,
assuming the proxy is received by Getty Communications at least 48 hours prior
to the time set for the meeting, by proxy. There is no record date for
shareholder meetings under English law.
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Subject to disenfranchisement in the event of non-compliance with a
statutory notice requiring disclosure as to beneficial ownership, each
registered Getty Ordinary Shareholder present in person (or, if a corporation,
present by a duly authorized representative or proxy) is entitled to one vote at
any Getty Communications meeting for each resolution (ordinary or special)
considered on a show of hands. Voting occurs by show of hands unless a poll is
demanded. If a poll is taken, every Getty Ordinary Shareholder, or his proxy, is
entitled to cast one vote for each ordinary share held. At Shareholder meetings
a poll may be demanded by: (1) the chairman of the meeting; (2) at least five
shareholders present in person or by proxy and entitled to vote at the meeting;
(3) a shareholder or shareholders present in person or by proxy representing in
aggregate not less than one-tenth of the total voting rights of all the
shareholders having the right to vote at the meeting; or (4) a shareholder or
shareholders present in person or by proxy holding shares conferring a right to
vote at the meeting, being shares in which an aggregate sum has been paid up
equal to not less than one-tenth of the total sum paid up on all the shares
conferring that right. If a poll is demanded, one may be taken at the meeting
(and must be on a poll demanded on the election of a chairman or on a question
of adjournment) or within thirty days following the meeting. The Getty
Communications Articles of Association provide that the giving of a proxy will
be deemed also to confer authority to demand or concur in demanding a poll.
Under the DGCL, each stockholder is entitled to one vote per share unless
the certificate of incorporation provides otherwise. In addition, the
certificate of incorporation may provide for cumulative voting in the election
of directors of the corporation. Under the Getty Images Certificate of
Incorporation and the Getty Images Bylaws, holders of Getty Images Common Stock
are entitled to one vote per share on all matters, and cumulative voting is not
permitted. A quorum consists of a majority of the shares entitled to vote,
unless otherwise required by law.
ACTION BY WRITTEN CONSENT
Under English law, a company's articles of association may provide that a
resolution in writing executed by or on behalf of each shareholder who would
have been entitled to vote upon it if it had been proposed at a general meeting
at which he was present will be as valid and effectual as if it had been passed
at a general meeting properly convened and held. Such a written resolution
requires the unanimous consent of all such shareholders entitled to attend and
vote. The Getty Communications Articles of Association do contain such a
provision.
Under the DGCL, unless otherwise provided in the certificate of
incorporation, an action required or permitted to be taken at any meeting of
stockholders may instead be taken without a meeting, without prior notice or a
vote if a written consent to the action is signed by holders of outstanding
shares of stock having at least the number of votes that would be required to
authorize such action at a meeting of stockholders entitled to vote thereon were
present and voting. Under the Getty Images Certificate of Incorporation, Getty
Images Stockholders may not take any action required to be taken at a meeting of
stockholders, or any other action which may be taken at a meeting of the
stockholders, without a meeting and the power of stockholders to consent in
writing to the taking of any action without a meeting is specifically denied.
SOURCES AND PAYMENT OF DIVIDENDS
Under English law, a company may pay dividends on its ordinary shares,
subject to the prior rights of holders of its preferred shares, only out of its
distributable profits (accumulated, realized profits (not previously utilized by
distribution or capitalization) less accumulated, realized losses) and not out
of share capital, which includes share premiums (paid-in surplus). Amounts
credited to the share premium account (representing the excess of the
consideration for the issue of shares over the aggregate par value of such
shares) may not be paid out as cash dividends but may be used, among other
things, to pay up unissued shares which may then be distributed to shareholders
in proportion to their holdings and for other limited purposes. In addition, a
public company such as Getty Communications may make a distribution at any time
only if, at that time and immediately after such distribution, the amount of its
net assets is not less
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than the aggregate of its called-up (i.e., issued and paid-up) share capital and
undistributable reserves. Under English law, a dividend must be declared by
reference to relevant accounts showing the availability of distributable
reserves for such dividends. As a public company, the relevant accounts for
Getty Communications are its last audited accounts or, where such accounts do
not show sufficient distributable reserves, interim accounts (which need not be
audited) prepared and filed with the Registrar of Companies.
Under the Getty Communications Articles of Association, the directors may
pay to Getty Ordinary Shareholders such interim dividends (i.e., dividends
resolved to be paid by directors without the approval of shareholders in a
general meeting), as appear to the directors to be justified by the
distributable profits of Getty Communications. Any dividend unclaimed after the
period of 12 years from the date of its declaration may be forfeited and shall
revert to Getty Communications. Each dividend on ordinary shares will be paid to
such ordinary shares on the register of members on the record date for such
dividend who have not waived their entitlement thereto. Such record date is
generally six weeks before the date of payment.
The DGCL permits the payment of dividends on common stock, subject to any
restrictions contained in the certificate of incorporation, either (i) out of
its "surplus" (as defined below) or (ii) if there is no "surplus", out of its
net profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year; except that no dividends may be paid out of such net
profits if the net assets of the corporation are less than the aggregate amount
of capital represented by the issued and outstanding stock having a preference
upon the distribution of assets. "Surplus" is defined in the DGCL as the amount
by which net assets (total assets less total liabilities) exceeds the capital of
the corporation. In accordance with the DGCL, "capital" is determined by the
board of directors and will not be less than the aggregate par value of the
outstanding capital stock of the corporation having par value. In addition, the
DGCL generally provides that a corporation may redeem or repurchase its own
shares only if such redemption or repurchase would not "impair the capital" of
the corporation. The ability of a Delaware corporation to pay dividends on, or
redeem or to make repurchases or redemptions of, its shares is dependent on the
financial status of the corporation standing alone and not on a consolidated
basis. The Getty Images Certificate of Incorporation and the Getty Images Bylaws
do not restrict the payment of dividends on the Getty Images Common Stock.
RIGHTS OF PURCHASE AND REDEMPTION
Under English law, a company may issue redeemable shares if authorized by
its articles of association and subject to the conditions stated therein. The
Getty Communications Articles of Association permit the issue of redeemable
shares. Such shares may be redeemed only if fully paid and, in the case of
public companies, only, subject as provided below, out of distributable profits
or the proceeds of a new issue of shares issued for the purpose of the
redemption. When redeemable shares are redeemed wholly out of profits, the
amount by which the par value of the company's issued share capital is
diminished on cancellation of the shares so redeemed must be transferred to the
capital redemption reserve, which is generally treated as paid-up share capital.
In addition, any amount payable on redemption of any redeemable shares in excess
of the par value thereof may be paid out of the proceeds of a fresh issue of
shares up to an amount equal to whichever is the lesser of the aggregate of the
premiums received by the company on the issue of those shares or the amount of
the company's share premium account as at the time of the redemption including
any sum transferred to that account in respect of premiums on the new issue. A
company may purchase its own shares, including any redeemable shares, if
authorized by its articles of association and provided that such purchase has
been previously approved by an ordinary resolution of its shareholders in the
case of an on-market purchase or a special resolution in other cases. The above
provisions that apply to redemption of redeemable shares apply also to purchases
by a company of its own shares.
Under the DGCL, a corporation may purchase or redeem shares of any class of
its capital stock, but subject generally to the availability of sufficient
lawful funds therefor and provided that at all times that, at
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the time of any such redemption, the corporation shall have outstanding shares
of one or more classes or series of capital stock, which have full voting rights
that are not subject to redemption. The Getty Images Certificate of
Incorporation does not restrict this right. Certain agreements of Getty Images
also restrict Getty Images' ability to purchase or redeem shares of its capital
stock.
MEETINGS OF SHAREHOLDERS
Under English law, an annual general meeting (an "AGM") of a public company
must be held each year and at least once every fifteen months, and an
extraordinary general meeting (an "EGM") of shareholders may be called by the
board of directors or (notwithstanding any provision to the contrary in a
company's articles of association) by a request from shareholders holding not
less than one-tenth of the paid-up capital of the company carrying voting rights
at general meetings. An EGM at which an ordinary resolution is proposed requires
14 clear days' notice (other than an ordinary resolution to remove a director
which requires 28 clear days' notice). Such ordinary resolution requires a
majority vote of those present (in person or by proxy) and voting. An EGM at
which a special resolution is proposed requires 21 clear days' notice and such
resolution requires a three-quarters majority vote of those present (in person
of by proxy) and voting. An AGM requires 21 clear days' notice regardless of the
types of resolution to be proposed. The term "clear days' notice" means calendar
days and excludes the date of mailing, the deemed date of receipt of such notice
(which is provided for in the articles of association when first-class mail is
employed), and the date of the meeting itself. "Extraordinary resolutions" are
relatively unusual and are confined to certain matters out of the ordinary
course of business such as a proposal to wind up the affairs of the company.
Proposals that are the normal subject of "special resolutions" generally involve
proposals to change the name of the company, to alter its capital structure, to
change or amend the rights of shareholders, to permit the company to issue new
shares for cash without applying the shareholders' preemptive rights and to
amend the company's objects (purpose) clause in its memorandum of association
and articles of association and to carry out certain other matters where either
the company's articles of association or the Companies Act prescribe that a
"special resolution" is required. All other proposals relating to the ordinary
course of the company's business such as the election of directors would be the
subject of an "ordinary resolution".
Under the DGCL, Getty Images is required to hold annual meetings of its
stockholders. Special meetings of stockholders may be called by the board of
directors or by such person or persons as may be authorized by the certificate
of incorporation or bylaws. The Getty Images Bylaws provide that a special
meeting of stockholders may be called by either of the Co-Chairmen of the Getty
Images Board, the Chief Financial Officer or by the Secretary at the request in
writing of at least two-thirds of the entire Getty Images Board. Under the DGCL,
Getty Images Stockholders must receive notice of any annual or special meeting
not less than ten nor more than 60 days prior to such meeting. The record date
for the meetings of the stockholders shall not be less than ten days nor more
than 60 days before the date of such meeting. The Getty Images Certificate of
Incorporation does not provide otherwise.
RIGHTS OF APPRAISAL
While English law does not generally provide for appraisal rights, if a
shareholder applies to a court as described under "--Shareholders' Votes on
Certain Reorganizations" below, the court may specify such terms for the
acquisition as it considers appropriate. English law provides shareholders with
rights to dissent in respect of a reorganization of a company under Section 110
of the Insolvency Act of 1986 of Great Britain (the "Insolvency Act"). In
addition, dissenters' rights exist where an offeror who, pursuant to a takeover
offer for a company, has acquired or contracted to acquire not less than
nine-tenths in value of the shares to which the offer relates, seeks to acquire
compulsory outstanding minority shareholdings.
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Under the DGCL, stockholders who follow prescribed statutory procedures are
entitled, in the event of certain mergers or consolidations, to surrender their
shares to the corporation in exchange for the judicially determined "fair value"
of such shares. Such stockholders are entitled to such appraisal rights unless
the shares of stock (or depositary receipts in respect thereof) held by the
stockholder are either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held of
record by more than 2,000 holders. No appraisal rights are available for any
shares of stock of the constituent corporation surviving a merger if the merger
did not require for its approval the vote of the stockholders of the surviving
corporation as provided in the DGCL. Regardless of the foregoing, appraisal
rights are available for the shares of any class or series of stock of a
constituent corporation if the holders thereof are required by the terms of an
agreement of merger or consolidation to accept for such stock anything except
(i) shares of stock of the corporation surviving or resulting from such merger
or consolidation, or depositary receipts in respect thereof; (ii) shares of
stock of any other corporation or depositary receipts in respect thereof, which
shares of stock or depositary receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or held of record by more than
2,000 holders; (iii) cash in lieu of fractional shares or fractional depositary
receipts described in the foregoing clauses (i) and (ii); or (iv) any
combination of the shares of stock, depositary receipts and cash in lieu of
fractional shares, or fractional depositary receipts described in the foregoing
clauses (i), (ii) and (iii).
PREEMPTIVE RIGHTS
Under English law, the issue for cash of equity securities (securities that
with respect to dividends or capital carry a right to participate beyond a
specified amount) or rights to subscribe for or convert into equity securities
must be offered in the first instance to the existing equity shareholders in
proportion to the respective nominal values of their holdings, unless a special
resolution has been passed in a general meeting of shareholders to the contrary.
The usual practice of an English public company (such as Getty Communications)
is, pursuant to the Companies Act, to seek general disapplication by special
resolution of statutory preemption rights on an annual basis (i) in respect of
its entire unissued ordinary share capital, where the equity securities are to
be issued by way of rights to existing shareholders and (ii) to disapply the
statutory preemption rights on the issue for cash of equity securities
representing not more than five percent of the company's then issued ordinary
share capital.
Unless the certificate of incorporation expressly provides otherwise,
stockholders of a Delaware corporation do not have preemptive rights. The Getty
Images Certificate of Incorporation does not provide for preemptive rights.
AMENDMENT OF GOVERNING INSTRUMENTS
Under English law, the shareholders have the authority to alter, delete,
substitute or add to the objects clause in a company's memorandum and all
provisions of its articles of association by a vote of not less than
three-quarters of the shareholders entitled to vote and who do vote, either in
person or by proxy, at a general meeting subject, in the case of certain
alterations to the memorandum of association, to the right of dissenting
shareholders to apply to the courts to cancel the alterations. Under English
law, the board of directors is not authorized to change the memorandum or the
articles of association. Amendments affecting the rights of the holders of any
class of shares may, depending on the rights attached to such class and the
nature of the amendments, also require approval of the classes affected in
separate class meetings.
Under the DGCL, all amendments to a corporation's certificate of
incorporation require the approval of stockholders holding a majority of the
voting power of the corporation unless a different proportion is specified in
the certificate of incorporation. The Getty Images Certificate of Incorporation
does not specify
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a different proportion, except that the following provisions of the Getty Images
Certificate of Incorporation may be amended only by the favorable vote of the
holders of shares representing at least 80% of the Getty Images Common Stock
entitled to vote in the election of directors, voting as one class, (i) the
provision restricting stockholder action by written consent, (ii) the provision
setting the number and classification of the Getty Images Board, granting such
board the right to fill any vacancies and providing for the removal of Getty
Images directors only for cause, (iii) the provision expressly authorizing the
Getty Images Board to amend the Getty Images Bylaws, (iv) the provision
regarding the limitation on liability and indemnification of Getty Images
directors, and (v) the provision requiring the 80% vote of the Getty Images
stockholders to amend or repeal certain provisions of the Getty Images
Certificate of Incorporation.
Under the DGCL, the bylaws of a corporation generally may be amended or
repealed by the affirmative vote of the holders of a majority of the issued and
outstanding stock of the corporation entitled to vote thereon as a class. The
Getty Images Certificate of Incorporation provides that the Getty Images Bylaws
may be amended, repealed or new bylaws adopted only by the affirmative vote of
at least two-thirds of the entire Board.
SHAREHOLDERS' VOTES ON CERTAIN TRANSACTIONS
Under the Companies Act, fundamental corporate changes, such as the passing
of a resolution for winding up, non pro rata issuances of shares for cash,
reductions of capital (subject to sanction by the court) and certain repurchases
of shares may be authorized by a special resolution passed at a general meeting
of shareholders. Subject to the provisions of the Companies Act, if at such
time, the capital of Getty Communications is divided into different classes of
shares and the amendment or other resolution would cause any of the special
rights attached to any class of shares to be varied or abrogated, the amendment
must also be sanctioned in writing by the holders of at least three-quarters in
nominal value of the issued shares of the class concerned.
The Companies Act provides for schemes of arrangement, which are
arrangements or compromises between a company and any class of its shareholders
(or any class of its creditors) and are used for certain types of
reconstructions, amalgamations, capital reorganizations or takeovers. They
require the approval at an extraordinary general meeting of the company convened
by order of the court of a majority in number of the shareholders representing
75% in value of the capital or class of creditors or shareholders or class of
shareholders present and voting, either in person or by proxy, and the sanction
of the English High Court. Once so approved and sanctioned, all creditors or
shareholders (of the relevant class) are bound by the terms of the scheme; a
dissenting shareholder would have no rights comparable to dissenter's rights
described below. A scheme of reconstruction under Section 110 of the Insolvency
Act may be made when a company is being wound up voluntarily under which, with
the sanction of a special resolution of shareholders in a general meeting the
whole or part of the company's business or property is transferred to a second
company in consideration for the issue or transfer to them of shares in the
second company. Any dissenting shareholder can require the liquidator to abstain
from carrying the resolution into effect or to purchase his interest at a price
agreed or determined by arbitration. The Companies Act also provides that where
a takeover offer (as defined therein) is made for the shares of a company
incorporated in the U.K. and, within four months of the date of the offer the
offeror has, by virtue of acceptances of the offer, acquired or contracted to
acquire not less than nine-tenths in value of the shares of any class to which
the offer relates, the offeror may, within two months of reaching the
nine-tenths level, by notice require shareholders who do not accept the offer to
transfer their shares on the terms of the offer. A dissenting shareholder may
apply to the court within six weeks of the date on which such notice was given
objecting to the transfer or its proposed terms. The court is unlikely (absent
fraud or oppression) to exercise its discretion to order that the acquisition
not take effect, but it may specify such terms of the transfer as it finds
appropriate. A minority shareholder is also entitled in these circumstances to
require the offeror to acquire his shares on the terms of the offer. In the
United Kingdom, takeovers of public companies, such
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as Getty Communications, are regulated by the City Code of Takeovers and Mergers
(the "City Code"). The City Code is administered by the Panel, a body comprising
representatives of certain City of London financial and professional
institutions which oversees the conduct of such takeovers. One of the provisions
of the City Code is to the effect that: (i) when any person acquires, whether by
a series of transactions over a period of time or not, shares which (taken
together with shares held or acquired by persons acting in concert with him)
carry 30% or more of the voting rights of a public company; or (ii) when any
person, together with a person acting in concert with him, holds not less than
30% but not more than 50% of the voting rights and such person acting in concert
with him, acquires in any period of 12 months additional shares carrying more
than 1% of the voting rights such person must generally make an offer for all of
the equity shares of the company (whether voting or non-voting) for cash, or
accompanied by a cash alternative, at not less than the highest price paid for
the relevant shares during the 12 months preceding the date of the offer.
Section 203 of the DGCL prohibits a corporation that has securities traded
on a national securities exchange, designated on the Nasdaq National Market or
held of record by more than 2,000 stockholders from engaging in certain business
combinations, including a merger, sale of substantial assets, loan or
substantial issuance of stock, with an interested stockholder, or an interested
stockholder's affiliates or associates, for a three-year period beginning on the
date the interested stockholder acquires 15% or more of the outstanding voting
stock of the corporation. The restrictions on business combinations do not apply
if (i) the board of directors gives prior approval to the transaction in which
the 15% ownership level is exceeded, (ii) the interested stockholder acquires,
in the transaction pursuant to which the interested stockholder becomes the
owner of 15% or more of the outstanding stock, 85% of the corporation's stock
(excluding those shares owned by persons who are directors and also officers, as
well as employee stock plans in which employees do not have a confidential right
to determine whether shares held subject to the plan will be tendered in a
tender or exchange offer) or (iii) the business combination is approved by the
board of directors and authorized at a meeting of stockholders by the holders of
at least two-thirds of the outstanding voting stock, excluding shares owned by
the interested stockholder. Although a Delaware corporation may elect, pursuant
to its certificate of incorporation or by-laws, not to be governed by this
provision, the Getty Images Certificate of Incorporation and the Getty Images
Bylaws contain no such election.
RIGHTS OF INSPECTION
Except when closed in accordance with the provisions of the Companies Act,
the register and index of names of shareholders of a company, together with
certain other registers required to be maintained by such a company, may be
inspected during business hours by its shareholders, including, in the case of
Getty Communications, holders of Getty Communications ADSs, without charge and
by other persons upon payment of a fee, and copies may be obtained on payment of
a fee. The shareholders of an English public company may, without charge, also
inspect the minutes of meetings of the shareholders during business hours and
obtain copies upon payment of a fee. The published directors' report an audited
annual accounts of a public company are required to be laid before the
shareholders in a general meeting and a shareholder is entitled to a copy of
such reports and accounts further copies are filed with the Registrar of
Companies in England and Wales from whom copies are publicly available upon
payment of the appropriate fee. The shareholders of Getty Communications,
including holders of Getty Communication ADSs, have no rights to inspect its
accounting records or minutes of meetings of its directors. Certain registers
required to be kept by the company are open to public inspection and service
contracts of directors of the company (which have more than 12 months unexpired
or require more than 12 months' notice to terminate) must be available for
inspection during business hours. Rights of inspection during business hours
means that the company must make the register, index or document available for
inspection for not less than two hours during the period between 9:00 a.m. and
5:00 p.m. on each business day.
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The DGCL allows any stockholder, upon written demand under oath stating the
purpose thereof, to have the right, during the usual hours of business, to
inspect, for any proper purpose, the corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies or extracts
therefrom. A proper purpose means a purpose reasonably related to such person's
interest as a stockholder.
CLASSIFICATION OF THE BOARD OF DIRECTORS
English law permits a company to provide for the classification of the board
of directors with respect to the time for which directors severally hold office.
The Getty Communications Articles of Association provide that unless otherwise
resolved by the Board, there shall be not less than two nor more than twelve
directors. They further provide that at each AGM of Getty Communications
one-third (or if their number is not three or a multiple of three, the number
nearest to one-third) of the directors who are subject to retirement by rotation
shall retire from office by rotation. The directors to retire by rotation in
every year include first, a director who wishes to retire and not offer himself
for reappointment, and second, those directors who have been longest in office
since their last appointment or reappointment, but, as between persons who
became directors on the same day, those to retire (unless they otherwise agree
among themselves) are determined by lot. A retiring director is eligible for
re-election. No retirement of a director is required on his attaining the age of
70.
Under the DGCL, the certificate of incorporation of a Delaware corporation
may provide for the classification of the board of directors in order to stagger
the terms of directors. The term "classified board" generally means the
specification of selected board seats for a term of more than one year (but not
more than three years), with different classes of board seats coming up for
election each year. The Getty Images Bylaws provide for a classified Board of
Directors consisting of three classes of directors, with each class elected for
a term of three years.
REMOVAL OF DIRECTORS
Under the Companies Act, shareholders have the right to remove a director
without cause by ordinary resolution of which special notice (28 clear days) has
been given to the company, irrespective of the provisions of the articles of
association of the company.
Under the DGCL, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at the election of directors, unless the certificate of
incorporation provides otherwise. If the shareholders are entitled to cumulative
voting and less than the entire board is to be removed, no individual director
may be removed without cause if the number of votes cast against the resolution
for his removal would be sufficient if cumulatively voted to elect such director
to the board. The Getty Images Certificate of Incorporation provides that
directors may be removed only for cause and only by a vote of the holders of at
least four-fifths of the outstanding shares entitled to vote thereon.
VACANCIES ON THE BOARD OF DIRECTORS
Under English law, shareholders of an English public company may, by
ordinary resolution at a meeting at which any director retires by rotation,
appoint a person who is willing to be a director either to fill a vacancy or as
an additional director. The board of directors also has the power to appoint a
director to fill a vacancy or as an additional director, subject to such
conditions as may be set out in the company's articles of association, provided
that such appointment will only last until the next following annual general
meeting of the company, at which the director concerned may be re-elected.
Under the DGCL, the board of directors of a corporation may fill any vacancy
on the board, including vacancies resulting from an increase in the number of
directors. Under the Getty Images Bylaws, in case of
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vacancy among the directors, the remaining directors, although less than a
quorum, by an affirmative vote of a majority thereof, may fill such vacancy.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
English law does not permit a company to indemnify a director or an officer
of the company or any person employed by the company as an auditor against any
liability that, by virtue of any rule of law, would otherwise attach to him in
respect of negligence, default, breach of duty or breach of trust in relation to
the company, except liability incurred by such director, officer or auditor in
defending any legal proceedings (whether civil or criminal) in which judgment is
given in his favor or in which he is acquitted or in certain instances in which,
although he is liable, a court finds that such director, officer or auditor
acted honestly and reasonably and that, with regard to all the circumstances, he
ought fairly to be excused and relief is granted by the court. Section 310 of
the Companies Act enables companies to purchase and maintain insurance for
directors, officers and auditors against any liability that would otherwise
attach to them in respect of any negligence, default, breach of duty or breach
of trust in relation to the company. Getty Communications has purchased and
maintains in force such insurance.
The DGCL provides that a corporation may, and in certain circumstances must,
indemnify its directors, officers, employees and agents for expenses, judgments
or settlements actually and reasonably incurred by them in connection with suits
and other legal actions or proceedings if they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. In any such suit or
action brought by or on behalf of the corporation, such indemnification is
limited to expenses reasonably incurred in defense or settlement of the suit or
action. The DGCL also permits a corporation to adopt procedures for advancing
expenses to directors, officers and others without the need for a case-by-case
determination of eligibility, so long as, in the case of officers and directors,
they undertake to repay the amounts advanced if it is ultimately determined that
the officer or director was not entitled to be indemnified. The Getty Images
Certificate of Incorporation and the Getty Images Bylaws contain provisions for
indemnification of directors and officers and for the advancement of expenses to
any director or officer to the fullest extent of the law. The DGCL permits
corporations to purchase and maintain insurance for directors and officers
against liability for expenses, judgments or settlements, whether or not the
corporation would have the power to indemnify such persons therefor. The Getty
Images Bylaws permit Getty Images to purchase such insurance.
The DGCL permits a Delaware corporation to include in its certificate of
incorporation a provision eliminating the personal liability of directors for
monetary damages for certain breaches of fiduciary duty in a lawsuit by or on
behalf of the corporation or in an action by stockholders of the corporation.
The Getty Images Certificate of Incorporation eliminates a director's monetary
liability in a lawsuit by or on behalf of the corporation or in an action by
stockholders of the corporation to the full extent permitted by the DGCL.
SHAREHOLDERS' SUITS
In addition to having the right to institute a lawsuit on behalf of the
company in certain limited circumstances under English law, Section 459 of the
Companies Act permits a shareholder whose name is on the register of members of
the company (including U.S. persons) to apply for a court order as the
representative of shareholders when the company's affairs are being or have been
conducted in a manner unfairly prejudicial to the interests of the shareholders
generally or some part of the shareholders, including at least the petitioning
shareholder, or where any actual or proposed act or omission of the company is
or would be so prejudicial. A court, when granting relief in an action
complaining of unfair prejudice, has wide discretion, including authorizing
civil proceedings to be brought in the name of the company by a shareholder on
such terms as the court may direct. Except in these limited respects, English
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law does not permit class-action lawsuits by shareholders on behalf of the
company or on behalf of other shareholders.
Under Delaware law, a shareholder may institute a lawsuit against one or
more directors, either on his own behalf, or derivatively on behalf of the
corporation. An individual stockholder may also commence a lawsuit on behalf of
himself and other similarly situated stockholders when the requirements for
maintaining a class action under Delaware law have been met. Section 102(b)(7)
of the DGCL enables a corporation in its certificate of incorporation to
eliminate or limit the personal liability of a director for monetary damages for
violations of the director's fiduciary duty, except (i) for any breach of a
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for liability pursuant to Section 174 of the
DGCL (providing for liability of directors for unlawful payment of dividends or
unlawful stock purchases or redemptions) or (iv) for any transaction from which
a director derived an improper personal benefit.
DISCLOSURE OF INTERESTS
Section 198 of the Companies Act provides that a person (including a company
and other legal entities) who acquires an interest or becomes aware that he has
acquired an interest of 3% or more of any class of shares comprised in a public
company's "relevant share capital" (which, for these purposes, means that
company's issued share capital carrying rights to vote in all circumstances at
general meetings of the company) is obliged to notify that company of his
interest within two business days following the day on which the obligation
arises. Thereafter, any changes in respect of whole percentage figure increases
or decreases, rounded down to the next whole number or which reduce such
interest below 3%, must be notified to the company. The Getty Communications
Ordinary Shares are "relevant share capital" for this purpose.
In addition, the Companies Act provides that a public company may, by notice
in writing (a "Section 212 Notice"), require a person whom the company knows or
has reasonable cause to believe to be, or to have been at any time during the
three years immediately preceding the date on which the notice is issued,
interested in shares comprised in the company's "relevant share capital" to
confirm that fact or (as the case may be) to indicate whether or not that is the
case, and when he holds or has, during relevant time held an interest in such
shares, to give such further information as may be required relating to his
interest and any other interest in the shares of which he is aware. The
disclosure must be made within such reasonable period as may be specified in the
relevant notice (which may, depending on the circumstances, be as short as one
or two days).
For the purpose of the above obligations, the interest of a person in shares
means any kind of interest in shares, including interests in any shares (i) in
which his spouse, or his child or stepchild under the age of 18, is interested,
(ii) if a corporate body is interested in them and either (a) that corporate
body is or its directors are accustomed to act in accordance with that person's
directions or instructions or (b) that person is entitled to control or controls
one-third or more of the voting power of that corporate body or (iii) if another
party is interested in shares and the person and that other party are parties to
a "concert party" agreement under Section 204 of the Companies Act (being an
agreement that provides for one or more parties to it to acquire interests in
shares of a particular public company, which imposes obligations or restrictions
on any one or more of the parties as to the use, retention or disposal of such
interests acquired pursuant to such agreement and any interest in the company's
shares is in fact acquired by any of the parties pursuant to the agreement).
Such a concert party need not be in writing. The holding of a Getty
Communications ADS would generally constitute an interest in the underlying
Getty Communications Ordinary Shares.
When a Section 212 Notice is served by a company on a person who is or was
interested in shares of the company and that person fails to give the company
any information required by the notice within the
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time specified in the notice, the company may apply to the court for an order
directing that the shares in question be subject to restrictions prohibiting,
INTER ALIA, any transfer of those shares, the exercise of voting rights in
respect of such shares, the issue of further shares in respect of such shares
and, other than in a liquidation, payments, including dividends, in respect of
such shares. Such restrictions may also void any agreement to transfer such
shares. In addition, a person who fails to fulfill the obligations described
above is subject to criminal penalties in the U.K.
Acquirors of Getty Images Common Stock are subject to disclosure
requirements under Section 13(d)(1) of the Exchange Act and Rule 13d-1
thereunder, which provide that any person who becomes the beneficial owner of
more than 5% of the issued and outstanding Getty Images Common Stock shall,
within 10 days after such acquisition, file a Schedule 13D with the Commission
disclosing certain specified information, and send a copy of the Schedule 13D to
Getty Images and to the securities exchange on which the security is traded.
After the Merger, acquirors of Getty Images Common Stock will be required to
comply with, among other things, the provisions of Section 13(d) of the Exchange
Act and Rule 13d-1 thereunder.
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COMPARISON OF RIGHTS OF SHAREHOLDERS OF
PHOTODISC AND STOCKHOLDERS OF GETTY IMAGES
Upon consummation of the Merger, shareholders of PhotoDisc will become
stockholders of Getty Images, and the rights of all stockholders of Getty Images
will be governed by applicable laws of the State of Delaware (rather than the
WBCA), including the DGCL, and by the Getty Images Certificate of Incorporation
and the Getty Images Bylaws.
The following is a summary of certain material differences between the
current rights of PhotoDisc Shareholders and Getty Images Stockholders under the
WBCA and the DGCL, respectively, and under the respective article/certificate of
incorporation and bylaws of PhotoDisc and Getty Images.
The following summary does not propose to be a complete description of the
rights of shareholders of PhotoDisc and stockholders of Getty Images under, and
is qualified in its entirety by reference to, the WBCA, the DGCL, the PhotoDisc
Articles of Incorporation, the PhotoDisc Bylaws, the Getty Images Certificate of
Incorporation and the Getty Images Bylaws.
AUTHORIZED CAPITAL STOCK
The authorized capital stock of PhotoDisc currently consists of 25,000,000
shares of capital stock, including (i) 20,000,000 shares of PhotoDisc Common
Stock and (ii) 5,000,000 shares of preferred stock, par value $0.01 per share,
of which (A) 1,701,879 shares have been designated as Series A Preferred Stock
and (B) 1,701,879 shares have been designated as Series A-1 Preferred Stock.
The authorized capital stock of Getty Images currently consists of
shares of capital stock, consisting of (i) shares of Getty Images Common
Stock and (ii) shares of Getty Images Preferred Stock.
CHANGES PRINCIPALLY ATTRIBUTABLE TO DIFFERENCES BETWEEN THE DGCL AND THE WBCA
AMENDMENT OF ARTICLES/CERTIFICATE OF INCORPORATION. The WBCA authorizes a
corporation's board of directors to make various changes of an administrative
nature to the corporation's articles of incorporation, including changes of
corporate name, changes to the number of outstanding shares in order to
effectuate a stock split or stock dividend in the corporation's own shares, and
changes to or elimination of provisions with respect to the corporation's
stock's par value. Other amendments to a corporation's articles of incorporation
must be recommended to the shareholders by the board of directors, unless the
board determines that because of a conflict of interest or other special
circumstances, it should make no recommendation, and must be approved by
two-thirds (if the corporation is not a public company), or a majority (if the
corporation is a public company), of all votes entitled to be cast by each
voting group that has a right to vote on the amendment. The articles of
incorporation of a corporation other than a public company may provide for a
lower percentage of shareholder approval (but not less than a majority of the
votes entitled to be cast). The PhotoDisc Articles of Incorporation do not
specify a different proportion.
Under the DGCL, all amendments to a corporation's certificate of
incorporation require the approval of stockholders holding a majority of the
voting power of the corporation unless a different proportion is specified in
the certificate of incorporation. The Getty Images Certificate of Incorporation
does not specify a different proportion, except that the following provisions of
the Getty Images Certificate of Incorporation may be amended only by the
favorable vote of the holders of shares representing at least 80% of the Getty
Images Common Stock entitled to vote in the election of directors, voting as one
class, (i) the provision restricting stockholder action by written consent, (ii)
the provision setting the number and classification of the Getty Images Board,
granting such board the right to fill any vacancies and providing for the
removal of Getty Images directors only for cause, (iii) the provision expressly
authorizing the Getty Images Board to amend the Getty Images Bylaws, (iv) the
provision regarding the limitation on liability and indemnification of Getty
Images directors and (v) the provision requiring the 80% vote of the Getty
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Images stockholders to amend or repeal certain provisions of the Getty Images
Certificate of Incorporation.
PROVISIONS AFFECTING ACQUISITIONS AND BUSINESS COMBINATIONS. The WBCA
imposes restrictions on certain transactions between a corporation and certain
significant shareholders. Chapter 23B.19 of the WBCA prohibits a corporation
which has a class of voting shares registered with the Commission pursuant to
Section 12 or 15 of the Exchange Act or which has amended its articles of
incorporation to provide that such corporation will be subject to Chapter 23B.19
of the WBCA from engaging in certain significant business transactions with an
acquiring person, or an acquiring person's affiliates or associates, for a
period of five years from the date that the acquiring person first acquired 10%
or more of the outstanding voting shares of the corporation, unless the
significant business transaction or the purchase of the shares by the acquiring
person is approved prior to the time the acquiring person first became an
acquiring person by a majority of the board of directors. The prohibited
significant business transactions include, among others, mergers, share
exchanges, or consolidations with, dispositions of assets to, or issuances or
redemptions of stock to or from, the acquiring person, termination of 5% or more
of the employees of the corporation as a result of the acquiring person's
acquisition of 10% or more of the shares of the corporation, or allowing the
acquiring person to receive any disproportionate benefit as a shareholder. A
corporation may not "opt out" of this statute.
Section 203 of the DGCL prohibits a corporation which has securities traded
on a national securities exchange, designated on the NASDAQ or held of record by
more than 2,000 stockholders from engaging in certain business combinations,
including a merger, sale of substantial assets, or loan or substantial issuance
of stock, with an interested stockholder, or an interested stockholder's
affiliates or associates, for a three-year period beginning on the date the
interested stockholder acquires 15% or more of the outstanding voting stock of
the corporation. The restrictions on business combinations do not apply if (i)
the board of directors gives prior approval to the transaction in which the 15%
ownership level is exceeded, (ii) the interested stockholder acquires, in the
transaction pursuant to which the interested stockholder becomes the owner of
15% or more of the outstanding stock, 85% of the corporation's stock (excluding
those shares owned by persons who are directors and also officers, as well as
employee stock plans in which employees do not have a confidential right, to
determine whether shares held subject to the plan will be tendered in a tender
or exchange offer) or (iii) the business combination is approved by the board of
directors and authorized at a meeting of stockholders by the holders of at least
two-thirds of the outstanding voting stock, excluding shares owned by the
interested stockholder. Although a Delaware corporation may elect, pursuant to
its certificate of incorporation or bylaws, not to be governed by this
provision, the Getty Images Certificate of Incorporation and the Getty Images
Bylaws contain no such election.
MERGERS, ACQUISITIONS AND OTHER TRANSACTIONS. Under the WBCA, a merger,
consolidation, sale of substantially all of a corporation's assets other than in
the regular course of business, or dissolution of a public corporation must be
approved by the affirmative vote of a majority of directors when a quorum is
present, and by two-thirds of all votes entitled to be cast by each voting group
entitled to vote as a separate group, unless another proportion (but not less
than a majority of all votes entitled to be cast) is specified in the articles
of incorporation. Section 23B.11.030(5) of the WBCA requires separate voting by
voting groups on a plan of merger if the plan includes a provision that, if
included in a proposal to amend the articles of incorporation, would require
action by a least one separate voting group under Section 23B.10.040 of the
WBCA. Section 23B.10.040(1)(d) of the WBCA entitles holders of an outstanding
class of stock to vote as a separate voting group on a proposed amendment that
would change the designation, rights, preferences or limitations of the shares
of the class. The PhotoDisc Articles of Incorporation does not specify a
different proportion.
Under the DGCL, the vote of a majority of the outstanding shares of capital
stock entitled to vote thereon generally is necessary to approve a merger or
other reorganization or a sale of all or substantially all of the assets of the
corporation. After approval by the board of directors, the merger agreement must
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be submitted to the stockholders for adoption. Pursuant to the DGCL, a merger
must be approved by the affirmative vote of the holders of at least a majority
of the outstanding shares entitled to vote thereon.
ACTION WITHOUT A MEETING. Under the WBCA, shareholder action may be taken
without a meeting if written consents setting forth such action are signed by
all holders of outstanding shares entitled to vote thereon.
Under the DGCL, unless otherwise provided in the certificate of
incorporation, any action required or permitted to be taken at any meeting of
stockholders may instead be taken without a meeting, without prior notice or a
vote if a written consent to the action is signed by holders of outstanding
shares of stock having at least the number of votes that would be required to
authorize such action at a meeting of stockholders entitled to vote thereon were
present and voting. Under the Getty Images Certificate of Incorporation, Getty
Images stockholders may not take any action required to be taken at a meeting of
stockholders, or any other action which may be taken at a meeting of
stockholders, without a meeting and the power of stockholders to consent in
writing to the taking of any action without a meeting is specifically denied.
CLASS VOTING. Under the WBCA, the articles of incorporation may authorize
one or more classes of shares that have special, conditional or limited voting
rights, including the right to vote on certain matters as a group. The articles
of incorporation may not limit the rights of holders of a class to vote as a
group with respect to certain amendments to the articles of incorporation and
certain mergers that adversely affect the rights of holders of that class.
PhotoDisc has three authorized classes of stock.
The DGCL requires voting by separate classes only with respect to amendments
to the certificate of incorporation that adversely affect the holders of those
classes or that increase or decrease the aggregate number of authorized shares
or the par value of the share of any of those classes. Getty Images has two
authorized classes of stock.
TRANSACTIONS WITH OFFICERS OR DIRECTORS. The WBCA sets forth a safe harbor
for transactions between a corporation and one or more of its directors. A
conflicting interest transaction may not be enjoined, set aside or give rise to
damages if: (i) it is approved by a majority of qualified directors; (ii) it is
approved by the affirmative vote of a majority of all qualified shares; or (iii)
at the time of commitment, the transaction was fair to the corporation. For
purposes of this provision, a "qualified director" is one who does not have (i)
a conflicting interest respecting the transaction or (ii) a familial, financial,
professional or employment relationship with a second director, which
relationship would reasonably be expected to exert an influence on the first
director's judgment when voting on the transactions. "Qualified shares" are
defined generally as shares other than those beneficially owned, or the voting
of which is controlled, by a director who has a conflicting interest respecting
the transaction.
The DGCL provides that contracts or transactions between a corporation and
one or more of its officers or directors or an entity in which they have an
interest is not void or voidable solely because of such interest or the
participation of the director or officer in a meeting of the board or a
committee that authorizes the contract or transaction if: (i) the material facts
as to the relationship or interest and as to the contract or transaction are
disclosed or are known to the board or the committee, and the board or the
committee in good faith authorizes the contract or transaction by the
affirmative vote of a majority of disinterested directors; (ii) the material
facts as to the relationship or interest and as to the contract or transaction
are disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by a vote of the
stockholders; or (iii) the contract or transaction is fair to the corporation as
of the time it is authorized, approved or ratified by the board of directors, a
committee thereof or the stockholders.
APPRAISAL OR DISSENTERS' RIGHTS. Under the WBCA, a shareholder is entitled
to dissent from and, upon perfection of his or her appraisal rights, to obtain
fair value of his or her shares in the event of certain corporate actions,
including certain mergers, consolidations, share exchanges, sales of
substantially all the
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<PAGE>
assets of the corporation, and amendments to the corporation's articles of
incorporation that materially and adversely affect shareholder rights. PhotoDisc
shareholders are entitled to exercise their dissenters' rights in connection
with the Merger due to the fact that the Merger is conditioned on the vote of
the PhotoDisc Shareholders. See "The Transactions--Rights of Dissenting
PhotoDisc Shareholders".
Under the DGCL, stockholders who follow prescribed statutory procedures are
entitled, in the event of certain mergers or consolidations, to surrender their
shares to the corporation in exchange for the judicially determined "fair value"
of such shares. Such stockholders are entitled to such appraisal rights unless
the shares of stock (or depositary receipts in respect thereof) held by the
stockholder are either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held of
record by more than 2,000 holders. No appraisal rights are available for any
shares of stock of the constituent corporation surviving a merger if the merger
did not require for its approval the vote of the stockholders of the surviving
corporation as provided in the DGCL. Regardless of the foregoing, appraisal
rights are available for the shares of any class or series of stock of a
constituent corporation if the holders thereof are required by the terms of an
agreement of merger or consolidation to accept for such stock anything except
(i) shares of stock of the corporation surviving or resulting from such merger
or consolidation, or depositary receipts in respect thereof; (ii) shares of
stock of any other corporation or depositary receipts in respect thereof, which
shares of stock or depositary receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or held of record by more than
2,000 holders; (iii) cash in lieu of fractional shares or fractional depositary
receipts described in the foregoing clauses (i) and (ii); or (iv) any
combination of the shares of stock, depositary receipts and cash in lieu of
fractional shares, or fractional depositary receipts described in the foregoing
clauses (i), (ii) and (iii).
INDEMNIFICATION OF DIRECTORS AND OFFICERS. Under the WBCA, if authorized by
the articles of incorporation, a bylaw adopted or ratified by shareholders, or a
resolution adopted or ratified, before or after the event, by the shareholders,
a corporation has the power to indemnify a director or officer made a party to a
proceeding, or advance or reimburse expenses incurred in a proceeding, under any
circumstances, except that no such indemnification shall be allowed on account
of: (i) acts or omissions of a director or officer finally adjudged to be
intentional misconduct or a knowing violation of the law; (ii) conduct of a
director or officer finally adjudged to be an unlawful distribution; or (iii)
any transaction with respect to which it was finally adjudged that such director
or officer personally received a benefit in money, property or services to which
the director or officer was not legally entitled. Unless limited by the
corporation's articles of incorporation, Washington law requires indemnification
if the director or officer is wholly successful on the merits of the action or
otherwise. Any indemnification of a director in a derivative action must be
reported to the shareholders in writing. Written commentary by the drafters of
the WBCA, which has the status of legislative history, specifically indicates
that a corporation may indemnify its directors and officers for amounts paid in
settlement of derivative actions, provided that the director's or officer's
conduct does not fall within one of the categories set forth above. The
PhotoDisc Articles of Incorporation and the PhotoDisc Bylaws require PhotoDisc
to indemnify such persons to the fullest extent permitted by the WBCA.
The DGCL provides that a corporation may, and in certain circumstances,
must, indemnify its directors, officer, employees and agents for expenses,
judgments or settlements actually and reasonably incurred by them in connection
with suits and other legal actions or proceedings if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful. In
any such suit or action brought by or on behalf of the corporation, such
indemnification is limited to expenses reasonably incurred in defense or
settlement of the suit or action. The DGCL also permits a corporation to adopt
procedures for advancing expenses to directors, officers and others without
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<PAGE>
the need for a case-by-case determination of eligibility, so long as, in the
case of officers and directors, they
undertake to repay the amounts advanced if it is ultimately determined that the
officer or director was not entitled to be indemnified. The Getty Images
Certificate of Incorporation and the Getty Images Bylaws contain provisions for
indemnification of directors and officers and for the advancement of expenses to
any director or officer to the fullest extent of the law. The DGCL also permits
corporations to purchase and maintain insurance for directors and officers
against liability for expenses, judgment or settlements, whether or not the
corporation would have the power to indemnify such persons therefor. The Getty
Images Bylaws permit Getty Images to purchase such insurance.
DIVIDENDS. Under the WBCA, a corporation may make a distribution in cash or
in property to its shareholders upon the authorization of its board of directors
unless, after giving effect to such distribution, (i) the corporation would be
unable to pay its debts as they become due in the usual course of business or
(ii) the corporation's total assets would be less than the sum of its total
liabilities plus the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution, to satisfy the preferential rights of
shareholders whose preferential rights are superior to those receiving the
distribution.
The DGCL permits the payment of dividends on common stock, subject to any
restrictions contained in the certificate of incorporation, either (i) out of
its "surplus" (as defined below) or (ii) if there is no "surplus", out of its
net profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year; except that no dividends may be paid out of such net
profits if the net assets of the corporation are less than the aggregate amount
of capital represented by the issued and outstanding stock having a preference
upon the distribution of assets. "Surplus" is defined in the DGCL as the amount
by which net assets (total assets less total liabilities) exceeds the capital of
the corporation. In accordance with the DGCL, "capital" is determined by the
board of directors and will not be less than the aggregate par value of the
outstanding capital stock of the corporation having par value. The Getty Images
Certificate of Incorporation and the Getty Images Bylaws do not restrict the
payment of dividends on the Getty Images Shares.
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UNAUDITED CONDENSED PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION
INTRODUCTORY NOTE
The following unaudited condensed pro forma consolidated financial
information (the "Pro Forma Consolidated Financial Information") gives pro forma
effect to the Transactions, after giving effect to the pro forma adjustments
described in the accompanying notes. The Pro Forma Consolidated Financial
Information has been prepared from, and should be read in conjunction with, (i)
the historical consolidated financial statements and notes thereto of Getty
Communications, which are elsewhere contained in this Prospectus, and (ii) the
historical consolidated financial statements and notes thereto of PhotoDisc,
which are contained elsewhere in this Prospectus. See "Index to Consolidated
Financial Statements".
The Pro Forma Consolidated Financial Information is provided for
illustrative purposes only and does not purport to represent what the actual
results of operations or financial position of Getty Images would have been had
the Transactions occurred on the respective dates assumed, nor is it necessarily
indicative of Getty Images' future operating results or consolidated financial
position.
Getty Images will account for the Merger by the purchase method of
accounting in accordance with U.S. GAAP. Accordingly, the purchase consideration
for acquiring the shares of PhotoDisc Common Stock will be allocated to the
assets acquired and liabilities assumed with the excess cost being allocated to
goodwill and presented as an intangible asset. The Pro Forma Consolidated
Financial Information reflects a preliminary allocation of the purchase
consideration, which may be subject to amendment.
As a consequence of the Scheme of Arrangement, each issued and outstanding
Getty Ordinary Share will be cancelled. The shares of Getty Images Common Stock
issued to replace the cancelled stock will be recorded at par value.
The historical consolidated financial statements of Getty Communications
have been published in pounds sterling and in accordance with U.S. GAAP. Getty
Images will adopt U.S. dollars as its reporting currency. For purposes of the
Pro Forma Consolidated Financial Information, the financial condition and
results of operations of Getty Communications as of and for the year ended
December 31, 1996 and as of and for the six months ended June 30, 1997 have been
translated into U.S. dollars as described in "Getty Communications--Getty
Communications' Management's Discussion and Analysis of Financial Condition and
Results of Operations of Getty Communications--Overview".
At the Effective Time of the Merger, each share of PhotoDisc Common Stock
issued and outstanding immediately prior to the Effective Time, other than any
shares owned by PhotoDisc, Getty Images, Getty Communications or any of their
subsidiaries, will be cancelled and converted into the right to receive the
Merger Consideration.
The Stock Consideration per share of PhotoDisc Common Stock will be the
number of shares of Getty Images Common Stock equal to the number obtained by
applying the following formula: (i) 12.4 million; (ii) subtracting from 12.4
million the result obtained by dividing (A) the amount of the cash payment
payable to the holders of shares of Series A Preferred Stock immediately prior
to the Effective Time pursuant to PhotoDisc Articles of Incorporation by (B)
Average Trading Price of Getty Communications ADSs at Closing; (iii) subtracting
from the result obtained in (ii) above the result obtained by dividing (A) 50%
of the transaction expenses as determined in accordance with the Merger
Agreement, by (B) Average Trading Price of Getty Communications ADSs at Closing;
(iv) dividing the result obtained in (iii) above by the fully diluted number of
shares of PhotoDisc Common Stock outstanding immediately prior to the Effective
Time (such result being the "PhotoDisc Exchange Ratio"); and (v) multiplying the
result obtained in (iv) above by 0.8.
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<PAGE>
If the Average Trading Price of Getty Communications ADSs at Closing is
greater than or equal to $12.00, the Cash Consideration per share of PhotoDisc
Common Stock will be the amount in cash, without interest, equal to the Average
Trading Price of Getty Communications ADSs at Closing less 10 percent,
multiplied by the PhotoDisc Exchange Ratio and multiplied by 0.2. If the Average
Trading Price of Getty Communications ADSs at Closing is less than $12.00, the
Cash Consideration per share of PhotoDisc Common Stock will be the amount in
cash, without interest, equal to the Average Trading Price of Getty
Communications ADSs at Closing, multiplied by the PhotoDisc Exchange Ratio and
multiplied by 0.2.
The Pro Forma Consolidated Financial Information is based upon the following
assumptions and estimates: (i) the Average Trading Price of Getty Communications
ADSs at Closing will be $16.68 (which was the average closing price of the Getty
Communications ADSs on the Nasdaq National Market during the ten trading days
prior to October 21, 1997); (ii) the closing trading price of Getty
Communications ADSs on the Nasdaq National Market on the date immediately
preceding the Closing will be $15.625 (which was the closing trading price on
October 20, 1997); (iii) the aggregate transaction expenses to be shared between
PhotoDisc and the holders of shares of PhotoDisc Common Stock in accordance with
the Merger Agreement will be $3,120,000; (iv) the aggregate transaction expenses
incurred by Getty Images will be $6,000,000; (v) no additional options will be
granted by either Getty Communications or PhotoDisc prior to Closing; (vi) no
outstanding options to purchase shares of PhotoDisc Common Stock or Getty
Ordinary Shares will be exercised prior to Closing; (vii) the Merger and the
Scheme of Arrangement will qualify as tax-free reorganizations; and (viii) none
of the holders of shares of PhotoDisc Common Stock or Series A Preferred Stock
exercise dissenters' rights in connection with the Merger. Assuming that the
Average Trading Price of Getty Communications ADSs at Closing is $16.68, and the
other assumptions described above the Merger Consideration will be 0.7279 shares
of Getty Images Common Stock and $2.73 in cash for each outstanding share of
PhotoDisc Common Stock.
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UNAUDITED CONDENSED PRO FORMA CONSOLIDATED INCOME STATEMENT
SIX MONTHS ENDED JUNE 30, 1997
The following unaudited condensed pro forma income statement for the six
months ended June 30, 1997 is derived from the unaudited historical condensed
consolidated income statement of Getty Communications for the six months then
ended and the unaudited historical condensed consolidated income statement of
PhotoDisc for the six months then ended, both of which are included elsewhere in
this Prospectus, after giving effect to the pro forma adjustments described in
the Notes to the Pro Forma Consolidated Financial Information. Such adjustments
have been determined as if the Merger took place on January 1, 1996, the first
day of the earliest financial period presented in the Pro Forma Consolidated
Financial Information.
<TABLE>
<CAPTION>
GETTY ADJUSTMENTS TO PRO FORMA PRO FORMA
COMMUNICATIONS PHOTODISC PHOTODISC(1A) ADJUSTMENTS(2) CONSOLIDATED
--------------- ----------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
$ $ $ $ $
<CAPTION>
(IN THOUSANDS, EXCEPT LOSS PER SHARE)
<S> <C> <C> <C> <C> <C>
Sales................................... 48,718 19,811 68,529
Cost of sales........................... (18,340) (3,874) 599 (21,615)
------- ----------- -----------
Gross profit............................ 30,378 15,937 46,914
Selling, general and administrative
expenses............................... (21,363) (14,123) 370 (35,116)
------- ----------- -----------
Operating income before amortization and
depreciation........................... 9,015 1,814 11,798
Amortization of intangibles............. (1,349) -- (4,636)(a) (5,985)
Depreciation............................ (3,623) -- (969) (4,592)
------- ----------- -----------
Operating income........................ 4,043 1,814 1,221
Net interest income/(expense)........... 781 116 (1,573)(b) (676)
Other expense........................... -- (8) (8)
Exchange losses......................... (312) -- (312)
------- ----------- -----------
Income before income taxes.............. 4,512 1,922 225
Income taxes............................ (2,070) (714) -- 598(c) (2,186)
------- ----------- --- -----------
Net income/(loss)....................... 2,442 1,208 -- (5,611) (1,961)
------- ----------- --- ------ -----------
------- ----------- --- ------ -----------
EBITDA.................................. 9,015 2,917 11,798
------- ----------- -----------
------- ----------- -----------
Loss per share--primary................. (0.07)
-----------
-----------
--fully diluted............. (0.07)
-----------
-----------
Average number of shares
outstanding--primary................... 27,025
-----------
-----------
--fully diluted.............. 29,149
-----------
-----------
</TABLE>
SEE ACCOMPANYING NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL INFORMATION ON
PAGES 141 TO 145
135
<PAGE>
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1996
The following unaudited condensed pro forma income statement for the year
ended December 31, 1996 is derived from the audited historical consolidated
income statement of Getty Communications for the year then ended and the audited
historical consolidated income statement of PhotoDisc for the year then ended,
both of which are included elsewhere in this Prospectus, after giving effect to
the pro forma adjustments described in the Notes to the Pro Forma Consolidated
Financial Information. Such adjustments have been determined as if the Merger
took place on January 1, 1996, the first day of the earliest financial period
presented in the Pro Forma Consolidated Financial Information.
<TABLE>
<CAPTION>
GETTY ADJUSTMENTS TO PRO FORMA PRO FORMA
COMMUNICATIONS PHOTODISC PHOTODISC(1) ADJUSTMENTS(2) CONSOLIDATED
--------------- ----------- --------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
$ $ $ $ $
<CAPTION>
(IN THOUSANDS, EXCEPT LOSS PER SHARE)
<S> <C> <C> <C> <C> <C>
Sales.................................... 85,014 28,231 113,245
Cost of sales............................ (32,156) (6,102) 724 (37,534)
------- ----------- -----------
Gross profit............................. 52,858 22,129 75,711
Selling, general and administrative
expenses................................ (37,250) (17,913) 273 (54,890)
------- ----------- -----------
Operating income before amortization and
depreciation............................ 15,608 4,216 20,821
Amortization of intangibles.............. (2,155) -- (9,272)(a) (11,427)
Depreciation............................. (5,486) -- (997) (6,483)
------- ----------- -----------
Operating income......................... 7,967 4,216 2,911
Net interest income/(expense)............ (1,951) 94 (3,146)(b) (5,003)
Other income............................. -- 2 2
Exchange losses.......................... (306) -- (306)
------- ----------- -----------
Income before income taxes............... 5,710 4,312 (2,396)
Income taxes............................. (2,982) (1,600) 1,195(c) (3,387)
------- ----------- --- ------- -----------
Net income/(loss)........................ 2,728 2,712 -- (11,223) (5,783)
------- ----------- --- ------- -----------
------- ----------- --- ------- -----------
EBITDA................................... 15,608 5,386 20,821
------- ----------- -----------
------- ----------- -----------
Loss per share--primary.................. (0.21)
-----------
-----------
--fully diluted.............. (0.20)
-----------
-----------
Average number of shares
outstanding--primary.................... 27,025
-----------
-----------
--fully diluted............... 29,149
-----------
-----------
</TABLE>
SEE ACCOMPANYING NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL INFORMATION ON
PAGES 141 TO 145
136
<PAGE>
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET
AT JUNE 30, 1997
The following unaudited condensed pro forma balance sheet at June 30, 1997
is derived from the unaudited historical condensed consolidated balance sheet of
Getty Communications at June 30, 1997 and the unaudited historical condensed
consolidated balance sheet of PhotoDisc at June 30, 1997, both of which are
included elsewhere in this document, after giving effect to the pro forma
adjustments described in the Notes to the Pro Forma Consolidated Financial
Information. Such adjustments have been determined as if the Transactions took
place on June 30, 1997.
<TABLE>
<CAPTION>
GETTY ADJUSTMENTS TO PRO FORMA PRO FORMA
COMMUNICATIONS PHOTODISC PHOTODISC(1B) ADJUSTMENTS(3) CONSOLIDATED
----------------- ----------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
$ $ $ $ $
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.................... 48,697 5,519 91 (429)(b) 53,878
Accounts receivable.......................... 22,470 2,622 25,092
Inventories.................................. -- 2,109 2,109
Income taxes receivable...................... -- 445 445
Prepaid expenses and other assets............ 5,372 1,416 6,788
------- ----------- ------ ------- -------------
Total current assets....................... 76,539 12,111 91 (429) 88,312
Fixed assets, net............................ 35,841 5,622 41,463
Intangible assets............................ 50,179 263 185,429(a) 235,871
Other long-term assets....................... -- 720 720
Deferred assets.............................. 4,455 -- 4,455
------- ----------- ------ ------- -------------
Total assets............................... 167,014 18,716 91 185,000 370,821
------- ----------- ------ ------- -------------
------- ----------- ------ ------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable............................. 20,471 4,237 24,708
Accrued expenses............................. 10,392 2,065 12,457
Income taxes payable......................... 2,293 721 3,014
Short-term borrowing, including current
portion of long-term debt.................. 2,498 -- 8,589(b) 11,087
------- ----------- ------- -------------
Total current liabilities.................. 35,654 7,023 8,589 51,266
Long-term debt................................. 15,603 -- 33,928(b) 49,531
Deferred Taxes............................. -- 28 28
------- ----------- ------- -------------
Total liabilities.......................... 51,257 7,051 42,517 100,825
------- ----------- ------- -------------
Shareholders' equity
Common stock................................. 598 88 7 (425)(c) 268
Preferred stock.............................. -- 17 (17) --
Additional paid-in capital................... 104,093 6,246 84 12,417(c) 122,840
Note receivable from shareholder............. -- (18) 18 --
Retained earnings............................ 7,069 5,334 (2,214)(c) 10,189
Cumulative translation adjustments........... 3,997 (2) 2(c) 3,997
Equity restructuring adjustments............. -- -- 132,702(c) 132,702
------- ----------- ------ ------- -------------
Total shareholders' equity................. 115,757 11,665 91 142,483 269,996
------- ----------- ------ ------- -------------
Total liabilities and shareholders'
equity................................... 167,014 18,716 91 185,000 370,821
------- ----------- ------ ------- -------------
------- ----------- ------ ------- -------------
</TABLE>
SEE ACCOMPANYING NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL INFORMATION ON
PAGES 141 TO 145
137
<PAGE>
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
NOTE 1--ADJUSTMENTS TO PHOTODISC HISTORICAL FINANCIAL STATEMENTS
The historical financial statements of PhotoDisc included elsewhere in this
Prospectus are presented in U.S. dollars and prepared in accordance with U.S.
GAAP. Certain reclassifications have been made to reflect the differences
arising from the adoption of Getty Images' classification of income, expenses,
assets and liabilities. In addition, adjustments have been made to recognize the
effect of certain costs arising from the combination and the exercise of
warrants over shares of PhotoDisc Common Stock. These adjustments to PhotoDisc
financial statements are detailed below.
(A) PHOTODISC INCOME STATEMENT ADJUSTMENTS:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
------------------- -------------------
$ (IN THOUSANDS) $
<S> <C> <C>
COST OF SALES
Reclassification of credit card costs to selling, general and administrative
expenses.................................................................. 278 395
Reclassification of depreciation in respect of images to depreciation....... 321 329
--- ---
599 724
--- ---
--- ---
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Reclassification of credit card costs from cost of sales.................... (278) (395)
Reclassification of depreciation in respect of assets other than images to
depreciation.............................................................. 648 668
--- ---
370 273
--- ---
--- ---
DEPRECIATION
Reclassification of depreciation, as above.................................. (969) (997)
--- ---
--- ---
</TABLE>
(B) PHOTODISC BALANCE SHEET ADJUSTMENTS:
<TABLE>
<CAPTION>
AS AT JUNE 30, 1997
-------------------
$
(IN THOUSANDS)
<S> <C>
ASSETS
CASH AND CASH EQUIVALENTS
Receipt of cash as a result of exercise of warrants over shares of PhotoDisc Common Stock..... 91
------
------
COMMON STOCK
Par value of new shares issued as a result of exercise of warrants over shares and PhotoDisc
Common Stock................................................................................ 7
------
------
ADDITIONAL PAID-IN CAPITAL
Premium on new shares issued as a result of exercise of warrants over shares of PhotoDisc
Common Stock................................................................................ 84
------
------
</TABLE>
138
<PAGE>
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NOTE 2--PRO FORMA ADJUSTMENTS TO INCOME STATEMENTS
The pro forma adjustments comprise the following:
(a) The acquisition of PhotoDisc generates goodwill of $185,430,000 (see
Note 3a). This balance will be capitalized and amortized. Getty Images'
management considers twenty years to be a suitable period of amortization for
this goodwill. Accordingly, the resulting charge to the income statement that
would have occurred had the combination taken place on January 1, 1996 is
$4,636,000 for the six-month period ended June 30, 1997 and $9,272,000 for the
year ended December 31, 1996.
(b) Getty Images' management intends to fund the cash requirements of the
Merger Agreement via long-term debt amounting to $42,947,000 (see Note 3a).
Interest on this debt is assumed at 1.5% above 1 month U.S. dollar LIBOR, which
is assumed to be 5.63% for the purposes of this Pro Forma Financial Information.
The resulting interest charge to the income statements, had the combination
taken place on January 1, 1996, would have been as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED DECEMBER
JUNE 30, 1997 31, 1996
------------------- -------------------
$ (IN THOUSANDS) $
<S> <C> <C>
Interest at 7.13% per annum............................. 1,530 3,060
Amortization of arrangement fee over a five-year
period................................................ 43 86
----- -----
1,573 3,146
----- -----
----- -----
</TABLE>
(c) The pro forma interest charge qualifies for tax relief at 38%. The
resulting credit to the income statement which would have occurred had the
combination taken place on January 1, 1997 is $598,000 for the period ended June
30, 1997 and $1,195,000 for the year ended December 31, 1996.
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<PAGE>
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NOTE 3--PRO FORMA ADJUSTMENTS TO BALANCE SHEET
(a) Under the Merger Agreement, holders of shares of PhotoDisc Common Stock
will be entitled to receive at the effective time of the Merger the Stock
Consideration and the Cash Consideration. This, together with other associated
costs, is summarized below.
<TABLE>
<CAPTION>
(IN
THOUSANDS)
$
<S> <C>
PURCHASE PRICE OF PHOTODISC
Cash Consideration to holders of shares of PhotoDisc Common Stock and Series A Preferred Stock at
Closing.......................................................................................... 31,004
Cash paid to holders of options over shares of PhotoDisc Common Stock at Closing................... 5,943
Getty Images' transaction expenses................................................................. 6,000
-------------
LONG-TERM DEBT REQUIRED............................................................................ 42,947
Stock Consideration--New Getty Images shares issued (7,866,775 @ $15.63)
(see Note 3d).................................................................................... 122,918
Fair value of options over shares of PhotoDisc Common Stock converted to options over shares of
Getty Images Common Stock (see Note 3e).......................................................... 28,200
-------------
TOTAL PURCHASE PRICE............................................................................... 194,065
Estimated fair value of PhotoDisc.................................................................. (8,636)
-------------
GOODWILL ARISING ON THE MERGER..................................................................... 185,429
-------------
-------------
</TABLE>
(b) The long-term debt required totalling $42,947,000, together with the
associated costs, are reflected in the pro forma balance sheet as follows:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
$
<S> <C>
Short-term borrowing, being installments due to be repaid within one year.......................... 8,589
-------------
-------------
Long-term debt, being the balance.................................................................. 34,358
Arrangement fee, paid from cash and cash equivalents............................................... (430)
-------------
33,928
-------------
-------------
</TABLE>
(c) Under the Scheme of Arrangement, Getty Images will issue one share for
every two shares held by Getty Ordinary Shareholders. Getty Images will issue
shares to holders of shares of PhotoDisc Common
140
<PAGE>
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NOTE 3--PRO FORMA ADJUSTMENTS TO BALANCE SHEET (CONTINUED)
Stock in accordance with the Merger Agreement. The following consolidation
adjustments are required in respect of shareholders' equity as a result of these
Transactions.
<TABLE>
<CAPTION>
(IN
THOUSANDS)
$
<S> <C>
COMMON STOCK
Elimination of shares of PhotoDisc Common Stock at par, following the exercise of warrants over
shares of PhotoDisc Common Stock................................................................. (95)
Elimination of Getty Ordinary Shares at par and issue of shares of Getty Images Common Stock at a
ratio of 1:2..................................................................................... (409)
Shares of Getty Images Common Stock issued at par to PhotoDisc Shareholders........................ 79
-------------
(425)
-------------
-------------
PREFERRED STOCK
Conversion and elimination of PhotoDisc Series A Preferred Stock................................... (17)
-------------
-------------
ADDITIONAL PAID-IN CAPITAL
Elimination of additional paid-in capital of PhotoDisc, following the exercise of warrants over
shares of PhotoDisc Common Stock................................................................. (6,330)
Elimination of additional paid-in capital of Getty Communications.................................. (104,093)
Premium on shares of Getty Images Common Stock issued to holders of shares of PhotoDisc Common
Stock............................................................................................ 122,840
-------------
12,417
-------------
-------------
NOTE RECEIVABLE FROM SHAREHOLDER
Elimination of note receivable from shareholder.................................................... 18
-------------
-------------
RETAINED EARNINGS
Elimination of PhotoDisc preacquisition reserves................................................... (2,214)
-------------
-------------
CUMULATIVE TRANSLATION ADJUSTMENTS
Elimination of PhotoDisc preacquisition translation adjustments.................................... 2
-------------
-------------
EQUITY RESTRUCTURING ADJUSTMENTS
Elimination of Getty Ordinary Shares at par, net of the conversion to shares of Getty Images Common
Stock............................................................................................ 409
Elimination of additional paid-in capital of Getty Communications.................................. 104,093
Fair value of options over shares of PhotoDisc Common Stock converted to options over shares of
Getty Images' Common Stock (see Note 3e)......................................................... 28,200
-------------
132,702
-------------
-------------
</TABLE>
(d) The number of shares of Getty Images Common Stock issued by way of Stock
Consideration will be valued at the closing trading price of Getty
Communications ADSs on the Nasdaq National Market on the date immediately
preceding the Closing Date.
(e) Options over shares of PhotoDisc Common Stock which convert into options
over shares of Getty Images Common Stock have been valued by reference to the
Black-Scholes option pricing model.
141
<PAGE>
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NOTE 4--GENERAL
(a) The Pro Forma Consolidated Financial Information does not include
adjustments to eliminate amounts relating to transactions between Getty
Communications and PhotoDisc because such amounts are not considered material.
(b) Potential cost savings and efficiencies resulting from the Merger have
not been reflected in the Pro Forma Consolidated Financial Information.
142
<PAGE>
EXCHANGE RATES
The following table sets forth, for the periods indicated, certain
information concerning the exchange rates in U.S. dollars per pound sterling
based on the Noon Buying Rate:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, HIGH LOW AVERAGE(1) PERIOD END
- ----------------------------------------------------------------------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
1992................................................................... 2.00 1.51 1.75 1.51
1993................................................................... 1.59 1.42 1.49 1.48
1994................................................................... 1.64 1.46 1.53 1.56
1995................................................................... 1.64 1.53 1.58 1.55
1996................................................................... 1.71 1.49 1.56 1.71
1997 (until October 21)................................................ 1.70 1.58 1.63 1.63
</TABLE>
- --------------------------
(1) The average of the Noon Buying Rates in effect on each day during the
relevant period. On October 23, 1997, the Noon Buying Rate was $1.6347 to
L1.00.
VALIDITY OF SECURITIES
The validity of the Getty Images Common Stock to be issued in the Merger
will be passed upon for Getty Images by Shearman & Sterling.
EXPERTS
The consolidated balance sheets of Getty Communications as of December 31,
1995 and December 31, 1996 and the consolidated statements of operations and
cash flows of Getty Communications for the period March 14, 1995 through
December 31, 1995 and the year ended December 31, 1996, and the consolidated
balance sheets of Tony Stone Images as of December 31, 1994 and March 13, 1995
and the consolidated statements of operations and cash flows of Tony Stone
Images for the year ended December 31, 1994 and the period January 1, 1995
through March 13, 1995, included and incorporated by reference in this
Prospectus have been included and incorporated herein in reliance on the report
of Coopers & Lybrand, independent accountants, given on the authority of that
firm as experts in accounting and auditing.
The consolidated balance sheets of PhotoDisc, Inc. and Subsidiaries as of
December 31, 1995 and 1996 and the related consolidated statements of income,
shareholders' equity and cash flows for the years ended December 31, 1994, 1995
and 1996 included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and is
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
143
<PAGE>
LIST OF DEFINED TERMS
<TABLE>
<CAPTION>
LOCATION OF
DEFINED TERM DEFINED TERM
- ---------------------------------------------------------------------------------------------------- ------------
<S> <C>
Advent Atlantic..................................................................................... Page 114
Advent VII.......................................................................................... Page 114
Advent New York..................................................................................... Page 114
Affiliates.......................................................................................... Page 117
AGM................................................................................................. Page 125
Articles of Merger.................................................................................. Page 7
Average Trading Price of Getty Communications ADSs at Closing....................................... Page 3
BARS................................................................................................ Page 6
briefs.............................................................................................. Page 83
BT Alex. Brown...................................................................................... Page 5
BT Alex. Brown Opinion.............................................................................. Page 5
Business Services Firms............................................................................. Page 31
capital............................................................................................. Page 120
Carlton Agreement................................................................................... Page 79
Carlton............................................................................................. Cover
Cause............................................................................................... Page 65
clear days' notice.................................................................................. Page 121
Closing Estimate.................................................................................... Page 59
Closing............................................................................................. Cover
Closing Date........................................................................................ Page 54
Code................................................................................................ Page 40
Commission.......................................................................................... Page (i)
Companies Act....................................................................................... Cover
Corbis.............................................................................................. Page 16
Custodian........................................................................................... Page 122
Deposit Agreement................................................................................... Page 122
Depositary.......................................................................................... Cover
DGCL................................................................................................ Page 119
Digital Stock....................................................................................... Page 84
Dupe Master Collection.............................................................................. Page 80
dupes............................................................................................... Page 89
E&P................................................................................................. Page 45
EBITDA.............................................................................................. Page 13
Effective Time...................................................................................... Cover
Employment Agreements............................................................................... Page 9
English High Court.................................................................................. Cover
Escrow Agreement.................................................................................... Page 9
Escrow Fund......................................................................................... Page 62
Escrow Shares....................................................................................... Page 9
Exchange Act........................................................................................ Page (i)
Executive........................................................................................... Page 40
Extraordinary resolutions........................................................................... Page 121
Extraordinary Corporate Event Third Party........................................................... Page 58
Final Expense Amount................................................................................ Page 59
Financing Term Sheet................................................................................ Page 39
FTC................................................................................................. Page 6
Gamma Liaison....................................................................................... Page 81
</TABLE>
144
<PAGE>
<TABLE>
<CAPTION>
LOCATION OF
DEFINED TERM DEFINED TERM
- ---------------------------------------------------------------------------------------------------- ------------
<S> <C>
Gamma Presse........................................................................................ Page 81
Getty Affiliate..................................................................................... Page 117
Getty Class A Ordinary Shares....................................................................... Cover
Getty Class A Shareholders.......................................................................... Cover
Getty Class B Ordinary Shares....................................................................... Cover
Getty Communications................................................................................ Cover
Getty Communications ADSs........................................................................... Cover
Getty Communications Board.......................................................................... Cover
Getty Communications Option Scheme.................................................................. Page 4
Getty Court Meeting................................................................................. Cover
Getty Demand Right.................................................................................. Page 64
Getty EGM........................................................................................... Cover
Getty Group......................................................................................... Page 18
Getty Images........................................................................................ Cover
Getty Images Board.................................................................................. Cover
Getty Images Bylaws................................................................................. Page 117
Getty Images Certificate of Incorporation........................................................... Page 21
Getty Images Common Stock........................................................................... Cover
Getty Images Preferred Stock........................................................................ Page 116
Getty Images Shares................................................................................. Cover
Getty Investments................................................................................... Cover
Getty Investments Board............................................................................. Page 77
Getty Investments Company Agreement................................................................. Page 78
Getty Investments Registration Rights Agreement..................................................... Page 64
Getty Ordinary Shares............................................................................... Cover
Getty Parties Shareholders' Agreement............................................................... Page 77
Getty Piggy-Back Right.............................................................................. Page 64
Getty Shareholders.................................................................................. Cover
Getty Shareholder Meetings.......................................................................... Cover
Getty Trusts........................................................................................ Page 78
Getty Voting Agreements............................................................................. Page 66
Getty Voting Shareholders........................................................................... Page 66
Good Reason......................................................................................... Page 65
HSR Act............................................................................................. Page 6
Insolvency Act...................................................................................... Page 125
in-territory sales.................................................................................. Page 88
Investors........................................................................................... Page 61
Justice Department.................................................................................. Page 6
Loss................................................................................................ Page 56
Material Adverse Effect............................................................................. Page 58
Merger Sub.......................................................................................... Cover
Merger.............................................................................................. Cover
Merger Agreement.................................................................................... Cover
Merger Consideration................................................................................ Page 3
Merger Proposal..................................................................................... Cover
Nasdaq National Market.............................................................................. Cover
Net Purchase Price.................................................................................. Page 6
Non-U.S. Shareholder................................................................................ Page 42
Noon Buying Rate.................................................................................... Page (iii)
</TABLE>
145
<PAGE>
<TABLE>
<CAPTION>
LOCATION OF
DEFINED TERM DEFINED TERM
- ---------------------------------------------------------------------------------------------------- ------------
<S> <C>
Offer Notice........................................................................................ Page 63
Offered Stock....................................................................................... Page 63
On-line Commerce Firms.............................................................................. Page 31
Option Plan......................................................................................... Page F-15
ordinary resolutions................................................................................ Page 121
out-of-territory sales.............................................................................. Page 88
PDI Demand Right.................................................................................... Page 64
PDI Piggy-Back Right................................................................................ Page 64
PDI Registration Rights Agreement................................................................... Page 64
PDI Shareholders.................................................................................... Page 9
Permitted Transferee................................................................................ Page 63
PhotoDisc........................................................................................... Cover
PhotoDisc Affiliate................................................................................. Page 117
PhotoDisc Articles of Incorporation................................................................. Page 3
PhotoDisc Common Stock.............................................................................. Cover
PhotoDisc Common Stock Warrants..................................................................... Page 24
PhotoDisc Common Shareholders....................................................................... Cover
PhotoDisc Exchange Ratio............................................................................ Page 4
PhotoDisc Image Collection.......................................................................... Page 2
PhotoDisc Options................................................................................... Page 4
PhotoDisc Record Date............................................................................... Page 10
PhotoDisc Share Certificates........................................................................ Page 51
PhotoDisc Shareholders.............................................................................. Cover
PhotoDisc Special Meeting........................................................................... Cover
PhotoDisc Stock Option Plan......................................................................... Page 4
PhotoDisc Voting Shareholders....................................................................... Page 67
PhotoDisc Voting Agreement.......................................................................... Page 67
Precedent Acquisitions.............................................................................. Page 37
Principal Shareholders.............................................................................. Page 8
Prospective Seller.................................................................................. Page 63
Proxy Rules......................................................................................... Page 119
Registration Rights Agreements...................................................................... Page 9
Registration Statement.............................................................................. Page (i)
rights-protected licensing.......................................................................... Page 68
royalty-free licensing.............................................................................. Page 68
Scheme of Arrangement............................................................................... Cover
Section 212 Notice.................................................................................. Page 126
Securities Act...................................................................................... Page (i)
Series A Preferred Stock............................................................................ Cover
Shared Expenses..................................................................................... Page 59
SOHO................................................................................................ Page 2
special resolutions................................................................................. Page 121
Stockholders........................................................................................ Page 63
Stockholders' Agreement............................................................................. Page 9
Stockholders' Agreement Third Party................................................................. Page 63
Stockholders Transaction Agreement.................................................................. Page 8
Surplus............................................................................................. Page 120
Surviving Corporation............................................................................... Page 22
TA Ventures......................................................................................... Page 114
</TABLE>
146
<PAGE>
<TABLE>
<CAPTION>
LOCATION OF
DEFINED TERM DEFINED TERM
- ---------------------------------------------------------------------------------------------------- ------------
<S> <C>
Ten Percent Shareholder............................................................................. Page 43
The Image Bank...................................................................................... Page 16
Tony Stone Images................................................................................... Page 12
Torrance Group...................................................................................... Page 18
Transaction Documents............................................................................... Page 57
Transactions........................................................................................ Cover
Treaty.............................................................................................. Page 42
U.K. GAAP........................................................................................... Page 12
U.S. GAAP........................................................................................... Page 6
U.S. Shareholder.................................................................................... Page 42
Visual Communications............................................................................... Page 16
WBCA................................................................................................ Page 7
Web................................................................................................. Page 1
</TABLE>
147
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
GETTY COMMUNICATIONS PLC AND TONY STONE ASSOCIATES LIMITED (PREDECESSOR)
<TABLE>
<S> <C>
Audited Annual Consolidated Financial Statements
Report of Independent Accountants.................................................. F-2
Consolidated Statements of Operations for the year ended December 31, 1994, the
period January 1 through March 13, 1995, the period March 14, 1995 through
December 31, 1995 and the year ended December 31, 1996........................... F-3
Consolidated Balance Sheets at December 31, 1994, March 13, 1995, December 31, 1995
and December 31, 1996............................................................ F-4
Consolidated Statements of Cash Flows for the year ended December 31, 1994, the
period January 1 through March 13, 1995, the period March 14, 1995 through
December 31, 1995 and the year ended December 31, 1996........................... F-5
Notes to Consolidated Financial Statements......................................... F-6
Unaudited Interim Consolidated Financial Statements
Consolidated Statements of Operations for the six months ended June 30, 1996 and
1997............................................................................. F-29
Consolidated Balance Sheets at June 30, 1996 and 1997.............................. F-30
Consolidated Statements of Cash Flows for the six months ended June 30, 1996 and
1997............................................................................. F-31
Notes to Consolidated Financial Statements......................................... F-32
PHOTODISC, INC.
Report of Independent Auditors....................................................... F-35
Consolidated Balance Sheets at December 31, 1995 and 1996 and June 30, 1997.......... F-36
Consolidated Statements of Income for the years ended December 31, 1994, 1995 and
1996 and for the six months ended June 30, 1996 and 1997........................... F-37
Consolidated Statements of Shareholders' Equity for the years ended December 31,
1994, 1995 and 1996 and for the six months ended June 30, 1997..................... F-38
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and
1996 and for the six months ended June 30, 1996 and 1997........................... F-39
Notes to Consolidated Financial Statements........................................... F-40
</TABLE>
F-1
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Getty Communications plc:
We have audited the consolidated financial statements of Getty
Communications plc and subsidiaries (the "Company") and the consolidated
financial statements of its predecessor, Tony Stone Associates Limited and
subsidiaries, as set out on pages F-3 to F-27. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United Kingdom which are substantially the same as auditing
standards generally accepted in the United States. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company at
December 31, 1995 and at December 31, 1996 and the results of their consolidated
operations and cash flows for the period March 14, 1995 through December 31,
1995 and for the year ended December 31, 1996 and the consolidated financial
position of Tony Stone Associates Limited and subsidiaries at December 31, 1994
and at March 13, 1995 and the results of their consolidated operations and cash
flows for the year ended December 31, 1994 and for the period January 1, 1995
through March 13, 1995 in conformity with generally accepted accounting
principles in the United States.
Coopers & Lybrand
Chartered Accountants
London
England
March 13, 1997
F-2
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES;
TONY STONE ASSOCIATES LIMITED AND SUBSIDIARIES (PREDECESSOR)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TONY STONE ASSOCIATES
LIMITED GETTY COMMUNICATIONS PLC
CONSOLIDATED CONSOLIDATED
------------------------ ------------------------
JANUARY 1, MARCH 14, YEAR ENDED
YEAR ENDED THROUGH THROUGH DECEMBER
DECEMBER MARCH 13, DECEMBER 31, 1996
31, 1994 1995 31, 1995 -----------
----------- ----------- -----------
L000
L000 L000 L000
Sales...................................... 27,451 6,011 33,918 54,475
<S> <C> <C> <C> <C>
Cost of sales.............................. 10,634 2,290 13,369 20,605
----------- ----------- ----------- -----------
Gross profit............................... 16,817 3,721 20,549 33,870
----------- ----------- ----------- -----------
Selling, general and administrative
expenses................................. 12,494 3,112 14,409 23,869
Amortization of intangibles................ 740 247 1,261 1,381
Depreciation............................... 1,480 372 1,912 3,515
----------- ----------- ----------- -----------
14,714 3,731 17,582 28,765
----------- ----------- ----------- -----------
Operating income/(loss).................... 2,103 (10) 2,967 5,105
Net interest expense....................... (142) (39) (891) (1,250)
Exchange gains/(losses).................... 161 75 (19) (196)
----------- ----------- ----------- -----------
Income before income taxes................. 2,122 26 2,057 3,659
Income taxes............................... (1,016) (91) (1,187) (1,911)
----------- ----------- ----------- -----------
Net income/(loss).......................... 1,106 (65) 870 1,748
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per share(L).................... 0.04 0.06
----------- -----------
----------- -----------
Net income per ADS(L)...................... 0.07 0.13
----------- -----------
----------- -----------
</TABLE>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these Statements.
F-3
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES;
TONY STONE ASSOCIATES LIMITED AND SUBSIDIARIES (PREDECESSOR)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
TONY STONE ASSOCIATES
LIMITED GETTY COMMUNICATIONS PLC
CONSOLIDATED CONSOLIDATED
------------------------ ------------------------
MARCH 13, DECEMBER DECEMBER
DECEMBER 1995 31, 1995 31, 1996
31, 1994 ----------- ----------- -----------
-----------
L000 L000 L000
L000
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............... 772 370 1,223 34,441
Accounts receivable..................... 6,848 6,488 10,317 12,059
Income taxes receivable................. -- -- 973 --
Prepaid expenses and other assets....... 2,111 2,210 2,411 2,184
----------- ----------- ----------- -----------
Total current assets...................... 9,731 9,068 14,924 48,684
Fixed assets, net......................... 5,087 5,382 7,789 19,692
Income taxes receivable................... 173 973 -- --
Intangible assets......................... 929 682 22,618 24,187
Deferred assets........................... 273 273 414 2,981
----------- ----------- ----------- -----------
TOTAL ASSETS.............................. 16,193 16,378 45,745 95,544
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable........................ 6,464 6,153 9,279 10,708
Accrued expenses........................ 2,121 1,481 2,947 5,229
Income taxes payable.................... 1,095 2,261 1,722 1,104
Short-term borrowings, including current
portion of long-term debt............. 1,015 911 8,793 1,700
Dividends payable....................... -- 3,824 -- --
----------- ----------- ----------- -----------
Total current liabilities................. 10,695 14,630 22,741 18,741
Long-term debt............................ 1,673 1,714 5,606 10,466
----------- ----------- ----------- -----------
Total liabilities......................... 12,368 16,344 28,347 29,207
----------- ----------- ----------- -----------
Shareholders' equity
Common stock............................ 150 155 230 373
Additional paid-in capital.............. 145 179 24,523 63,261
Subscription amounts receivable......... -- -- (8,217) --
Retained earnings/(deficit)............. 3,442 (447) 870 2,618
Cumulative translation adjustments...... 88 147 (8) 85
----------- ----------- ----------- -----------
Total shareholders' equity................ 3,825 34 17,398 66,337
----------- ----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY.................................. 16,193 16,378 45,745 95,544
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these Statements.
F-4
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES;
TONY STONE ASSOCIATES LIMITED AND SUBSIDIARIES (PREDECESSOR)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TONY STONE ASSOCIATES
LIMITED GETTY COMMUNICATIONS PLC
CONSOLIDATED CONSOLIDATED
-------------------------- ---------------------------
JANUARY 1, MARCH 14, YEAR ENDED
YEAR ENDED THROUGH THROUGH DECEMBER 31,
DECEMBER 31, MARCH 13, DECEMBER 31, 1996
1994 1995 1995 ------------
------------ ----------- ------------
L000
L000 L000 L000
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income/(loss)............................. 1,106 (65) 870 1,748
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................. 2,220 619 3,173 4,896
Bad debt expense.............................. 288 49 188 327
Other items................................... 23 92 -- 56
Change in assets and liabilities, net of effects
of business acquisitions:
Accounts receivable........................... (1,658) 311 (4,017) (817)
Accounts payable.............................. 1,645 (311) 3,126 950
Accrued expenses.............................. 1,001 (274) 927 297
Other assets.................................. (1,229) (99) (181) 1,195
------------ ----------- ------------ ------------
Net cash provided by operating activities......... 3,396 322 4,086 8,652
------------ ----------- ------------ ------------
Cash flows from investing activities
Business acquisitions, net of cash acquired... (168) -- (10,939) (12,064)
Purchase of fixed assets...................... (3,230) (700) (3,948) (4,584)
Purchase of minority interests................ (63) -- -- --
Proceeds from sale of fixed assets............ 4 -- 10 18
------------ ----------- ------------ ------------
Net cash used in investing activities............. (3,457) (700) (14,877) (16,630)
------------ ----------- ------------ ------------
Cash flow from financing activities
Proceeds of debt.............................. 228 -- 5,891 11,200
Payments on principal balance of debt......... (365) (63) (2,624) (17,102)
Capital contribution.......................... -- -- 227 81
Proceeds from issuance of ordinary shares..... -- 39 12,344 47,017
Dividends paid to shareholders of Tony Stone
Associates Limited.......................... (68) -- (3,824) --
------------ ----------- ------------ ------------
Net cash (used in)/provided by financing
activities...................................... (205) (24) 12,014 41,196
------------ ----------- ------------ ------------
Net (decrease)/increase in cash and cash
equivalents..................................... (266) (402) 1,223 33,218
Cash equivalents:
- --beginning of period............................. 1,038 772 -- 1,223
------------ ----------- ------------ ------------
- --end of period................................... 772 370 1,223 34,441
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
</TABLE>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these Statements.
F-5
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES;
TONY STONE ASSOCIATES LIMITED AND SUBSIDIARIES (PREDECESSOR)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
ACTIVITIES
The principal business of Getty Communications plc and its subsidiaries is
the marketing of reproduction rights to still and moving images.
BASIS OF PRESENTATION
The consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States,
present the consolidated financial statements of Getty Communications plc and
subsidiaries (the "Company") and the consolidated financial statements of its
predecessor, Tony Stone Associates Limited and subsidiaries ("Tony Stone
Images"). Amounts, unless otherwise indicated, have been rounded to the nearest
thousand. The Company was formed on January 4, 1995; however, the Company did
not commence operations until it acquired Tony Stone Images on March 14, 1995.
The Company's consolidated financial statements include Getty Communications plc
and its subsidiaries, all of which are 100 per cent owned. Companies acquired
during the year are consolidated from the date of acquisition. All material
intercompany amounts and transactions have been eliminated in the consolidated
financial statements.
TRANSLATION OF FOREIGN SUBSIDIARY FINANCIAL STATEMENTS
The Company and Tony Stone Images record all transactions in the currency of
the respective primary economic environments in which they operate.
The assets and liabilities of foreign subsidiaries are translated into
pounds sterling at exchange rates as of the balance sheet date and income and
expense items are translated at the average of the rates prevailing during the
period. Gains or losses from translating foreign currency financial statements
are accumulated as a separate component of shareholders' equity.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported period. Accounting estimates have been employed in these
financial statements to determine reported amounts, including realizability of
receivables and other assets, useful lives of assets, income taxes and the fair
value of financial instruments. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
The Company and Tony Stone Images consider cash and demand bank deposits to
be cash. Cash equivalents consist of all deposits with an original maturity of
three months or less.
REVENUE RECOGNITION
Sales are recognized when a license agreement has been completed with the
customer for the use of the image and pricing terms, and the image has been made
available to the customer for use. Pricing terms
F-6
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES;
TONY STONE ASSOCIATES LIMITED AND SUBSIDIARIES (PREDECESSOR)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES (CONTINUED)
do not call for additional fees beyond the fixed license amount. Additionally,
the customer is contractually obligated to pay the fixed license amount upon
agreement of the license terms and availability of the image for use by the
customer. Circumstances in which sales are refunded are rare and are taken into
account in the recognition of revenue. Sales are recorded at invoiced amounts
less sales tax.
CATALOG COSTS
The Company produces both general catalogs, which are issued annually, and
specialist catalogs which are topical in nature and distributed over a three
year period. Costs relating to the production of specialist catalogs (catalogs
which are not repeated on an annual basis) are expensed over a period of three
years from the date on which they are available for distribution to customers.
The costs of general catalogs are expensed in the year of initial distribution.
FIXED ASSETS
The cost of acquired fixed assets includes the purchase cost, together with
any incidental expenses of acquisition. All costs associated with the production
of image duplicates are capitalized. The cost of purchased software is
capitalized and amortized from the implementation date over its estimated useful
economic life. The cost of internally developed software is expensed in the
period in which the cost is incurred.
Depreciation rates have been established to expense the cost of fixed
assets, less their estimated residual values, over their expected useful lives.
Depreciation is calculated at the following annual rates:
<TABLE>
<S> <C>
Hulton Getty archival picture collection........................ 2.5%
Fixtures, fittings, office and studio equipment................. 10 to 20%
Computer hardware............................................... 33%
Computer software............................................... 25%
Image duplicates and digitization............................... 25%
</TABLE>
INTANGIBLE ASSETS
Goodwill and other intangibles are amortized over their estimated lives not
to exceed 40 years. A life of between five and 30 years is typically used for
goodwill, and other intangibles are generally amortized over a period of up to
ten years. The value of goodwill and other intangibles is reviewed annually in
relation to the operating performance and future undiscounted cash flows of the
underlying businesses and a charge to the consolidated statement of operations
is made where a permanent diminution in value is identified.
TAXES
Deferred tax assets and liabilities are provided for all temporary
differences between financial and tax reporting. As a matter of policy, deferred
tax assets are reduced by a valuation allowance if based on the weight of
available evidence it is more likely than not that some portion or all of the
deferred tax assets will
F-7
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES;
TONY STONE ASSOCIATES LIMITED AND SUBSIDIARIES (PREDECESSOR)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES (CONTINUED)
not be realized. Deferred tax assets and liabilities are classified into a net
current amount and a net non-current amount, based on the balance sheet
classification of the related asset or liability.
PENSIONS
The Company contributes to defined contribution pension schemes for certain
directors and employees. Contributions are recognized as an expense in the
period in which they are incurred.
LEASES
Under capital leasing arrangements, the present value of the future minimum
lease payments payable over the lease term is recorded as a fixed asset. The
corresponding leasing commitments are shown as amounts payable to the lessor.
Depreciation of leased assets is charged to the statement of operations over the
shorter of the lease term or the useful lives of equivalent owned assets.
Other leases are treated as operating leases. Annual rentals are charged to
the income statement on a straight-line basis over the term of the lease.
FINANCIAL INSTRUMENTS
Forward exchange contracts hedging firm commitments relating to trade and
other balances are recorded as hedges. Unrealized gains or losses are deferred
and included in the statement of operations as part of the cost of the hedged
transaction.
Interest rate swap arrangements entered into as hedges of interest rates on
long-term debt obligations are also accounted for as hedges. Accordingly,
unrealized gains or losses are deferred and included in interest related to the
respective long-term debt instruments.
NET INCOME PER SHARE
Net income per share is L0.06 for the Company in the year to December 31,
1996 and is computed based on 27,832,356 shares. This number of shares
represents a total of 23,057,472 shares outstanding at December 31, 1995
adjusted, on a weighted basis, for shares issued during the year and for the
incremental effect of shares issuable pursuant to stock options granted,
calculated under the treasury stock method. Net income per share has not been
computed for periods which relate to Tony Stone Images, the predecessor of the
Company, as such information is not considered meaningful for a period over
period comparison due to the different capital structure of Tony Stone Images,
as compared to the Company.
GENERAL
At December 31, 1996, Getty Investments LLC, a company registered in
Delaware and resident in Nevada, held a 29.3 per cent interest in the share
capital (69.2 per cent of voting rights) of Getty Communications plc.
F-8
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES;
TONY STONE ASSOCIATES LIMITED AND SUBSIDIARIES (PREDECESSOR)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. FIXED ASSETS
<TABLE>
<CAPTION>
TONY STONE ASSOCIATES GETTY COMMUNICATIONS PLC
LIMITED CONSOLIDATED
CONSOLIDATED ---------------------------
------------------------ DECEMBER 31, DECEMBER 31,
DECEMBER 31, MARCH 13, 1995 1996
1994 1995 ------------ ------------
------------ ---------
L000 L000
L000 L000
<S> <C> <C> <C> <C>
Fixtures, fittings, office and studio equipment... 973 1,007 1,471 2,796
Computer hardware and software.................... 3,474 3,690 4,863 5,684
Image duplicates and digitization................. 4,319 4,672 6,719 8,843
Archival picture collection....................... -- -- -- 9,882
Other fixed assets................................ 405 422 682 1,973
----- --------- ------ ------
Total............................................. 9,171 9,791 13,735 29,178
Less accumulated depreciation..................... 4,084 4,409 5,946 9,486
----- --------- ------ ------
Fixed assets, net................................. 5,087 5,382 7,789 19,692
----- --------- ------ ------
----- --------- ------ ------
</TABLE>
The net book value of fixed assets includes L353,000, L338,000, L528,000 and
L580,000 in respect of assets held under capital leases at December 31, 1994,
March 13, 1995 and December 31, 1995 and 1996, respectively. Depreciation
charged on such assets amounted to L130,000, L15,000, L114,000 and L131,000 for
each of the periods then ended.
The Company had authorized and contracted capital commitments amounting to
L86,000 and L350,000 at December 31, 1994 and 1995, respectively. There were no
such amounts at March 13, 1995 or December 31, 1996.
3. ACCOUNTS RECEIVABLE
Trade receivables are stated net of provision for doubtful accounts of
L106,000, L147,000, L301,000 and L526,000 at December 31, 1994, March 13, 1995
and December 31, 1995 and 1996, respectively.
4. DEFERRED CATALOG COSTS
Deferred catalog costs included in the balance sheet at December 31, 1994,
March 13, 1995 and December 31, 1995 and 1996 were L352,000, L786,000, L533,000
and L1,039,000, respectively. Catalog costs expensed in the respective periods
then ended were L1.0 million, L563,000, L393,000 and L765,000.
F-9
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES;
TONY STONE ASSOCIATES LIMITED AND SUBSIDIARIES (PREDECESSOR)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
TONY STONE ASSOCIATES GETTY COMMUNICATIONS PLC
LIMITED CONSOLIDATED CONSOLIDATED
------------------------ ---------------------------
DECEMBER 31, MARCH 13, DECEMBER 31, DECEMBER 31,
1994 1995 1995 1996
------------ --------- ------------ ------------
L000 L000 L000 L000
<S> <C> <C> <C> <C>
Revolving lines of credit......................... 320 320 -- --
Loan notes payable................................ -- -- 7,948 --
----- --- ----- -----
320 320 7,948 --
Current portion of long-term debt................. 695 591 845 1,700
----- --- ----- -----
Total short-term debt............................. 1,015 911 8,793 1,700
----- --- ----- -----
----- --- ----- -----
</TABLE>
Short-term borrowings of Tony Stone Images at December 31, 1994 and March
13, 1995 were U.S. dollar short-term bank loans equivalent to L320,000. Interest
was payable at 1.0 per cent over the prime rate (as of December 31, 1994 and
March 13, 1995 the prime rate was 8.5 per cent and 9.0 per cent, respectively).
Short-term borrowings of the Company at December 31, 1995 related to loan
notes of L8.0 million issued to Mr. A.M. Stone and his family trusts on March
14, 1995 in connection with the Company's acquisition of Tony Stone Images.
Interest was charged at 1.5 per cent below the rate quoted by Midland Bank plc
for a six month term loan of L1.0 million (as of December 29, 1995 the effective
rate was 6.375 per cent). These loan notes were repaid from the proceeds of the
initial public offering on July 11, 1996.
As of December 31, 1996 the Company had unutilized credit facilities in
sterling, U.S. dollars and French francs that were available for short-term
financing amounting to L3.8 million, $1.0 million (L584,000) and FF2.5 million
(L281,000), respectively. The sterling facility is secured on the assets of the
Company and its U.K. and U.S. subsidiaries. The U.S. dollar facility is secured
by the Company's North American accounts receivable and guarantees from the
Company's subsidiaries. The French franc facility is secured on a guarantee from
Tony Stone Associates Limited. Interest on the sterling facility is at a
variable rate comprising the aggregate of a margin and LIBOR. As of December 31,
1996 the margin was 1.75 per cent and the three month LIBOR rate for sterling
was 6.56 per cent. Interest on the U.S. dollar facility is at the prime rate,
which was 8.25 per cent as of December 31, 1996. Interest on the French franc
facility is at 1.2 per cent above PIBOR which was 3.43 per cent as of December
31, 1996.
F-10
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES;
TONY STONE ASSOCIATES LIMITED AND SUBSIDIARIES (PREDECESSOR)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
TONY STONE ASSOCIATES GETTY COMMUNICATIONS PLC
LIMITED CONSOLIDATED CONSOLIDATED
------------------------ ---------------------------
DECEMBER 31, MARCH 13, DECEMBER 31, DECEMBER 31,
1994 1995 1995 1996
------------ --------- ------------ ------------
L000 L000 L000 L000
<S> <C> <C> <C> <C>
Bank loans
- --Tony Stone Associates Limited................... 143 147 -- --
- --Getty Communications plc........................ -- -- 4,939 10,732
Other loans....................................... 1,909 1,903 1,129 893
Capital leases.................................... 316 255 383 541
----- --------- ----- ------
2,368 2,305 6,451 12,166
Less current portion.............................. (695) (591) (845) (1,700)
----- --------- ----- ------
Total long-term debt.............................. 1,673 1,714 5,606 10,466
----- --------- ----- ------
----- --------- ----- ------
</TABLE>
The amounts outstanding at December 31, 1996 are payable as follows:
<TABLE>
<CAPTION>
LOANS CAPITAL TOTAL
--------- LEASES ---------
L000 ----------- L000
L000
<S> <C> <C> <C>
1997............................................................. 1,427 273 1,700
1998............................................................. 2,156 220 2,376
1999............................................................. 2,264 48 2,312
2000............................................................. 2,725 -- 2,725
2001............................................................. 2,275 -- 2,275
After 2001....................................................... 778 -- 778
--------- --- ---------
Total............................................................ 11,625 541 12,166
--------- --- ---------
--------- --- ---------
</TABLE>
BANK LOANS--TONY STONE ASSOCIATES LIMITED
These bank loans were sterling and U.S. dollar loans payable to 3i Group
plc. These were collateralized by a life insurance policy on the life of Mr.
A.M. Stone, a fixed and floating charge over the assets of Tony Stone Images and
a charge over existing and future wholly owned copyrights in the photographs
contained in the collection. As of December 31, 1994, interest on these bank
loans was payable at rates between 6.25 per cent and 9.75 per cent and they were
repayable in installments between 1994 and 1999.
These bank loans were all repaid on March 14, 1995 on the acquisition of
Tony Stone Images by the Company and all the above collateral was released.
BANK LOANS--GETTY COMMUNICATIONS PLC
These bank loans primarily relate to loans payable to Midland Bank plc of
L4.8 million and L10.7 million as of December 31, 1995 and 1996, respectively.
Interest is charged at a variable rate comprising the aggregate of a margin,
LIBOR and the MLA cost rate certified by Midland Bank plc to compensate for
their compliance with special financial requirements of the Bank of England. As
of
F-11
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES;
TONY STONE ASSOCIATES LIMITED AND SUBSIDIARIES (PREDECESSOR)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT (CONTINUED)
December 31, 1996, the margin was 1.75 per cent, the three month LIBOR rate for
sterling equated to 6.56 per cent and the MLA cost rate was 0.02 per cent. The
principal due is repayable by March 2001 in semi-annual installments, which
commenced in September 1996. An interest rate swap arrangement was entered into
on March 16, 1995, for L3.5 million of the above debt. As of December 31, 1996,
L2.0 million remained under this swap arrangement. Under this arrangement, a
fixed rate of interest of 8.54 per cent plus the margin is payable on this
amount. A further interest rate swap arrangement was entered into on April 26,
1996 for L3.0 million of the above debt. Under this arrangement, a fixed rate of
interest of 7.79 per cent plus the margin is payable on this amount.
Under this borrowing facility, the Company is able to transfer the sterling
loan into other currencies. As of December 31, 1995 and 1996, respectively,
L675,000 and L284,000 had been converted into a Deutschmark loan as a hedge
against Deutschmark receivables. The interest rate applicable to this borrowing
was 1.75 per cent over the three month LIBOR rate for Deutschmarks of 3.25 per
cent and 3.81 per cent as of December 31, 1995 and 1996, respectively.
There are a number of financial covenants associated with the Midland Bank
plc loan. The most restrictive of these covenants is the net interest cover
which should be 400 per cent for the year ended December 31, 1996 and 500 per
cent thereafter. Net interest cover is defined as income before interest and
taxes as included in the Company's U.K. GAAP accounts, which exclude goodwill
amortization, as a percentage of net interest charges, excluding interest and
charges arising on the loan notes payable to Mr. A.M. Stone and his family
trusts of L8 million. For the year ended December 31, 1996, the actual net
interest cover was 623 per cent. The Midland Bank plc borrowings are
collateralized with fixed and floating charges on the Company's assets.
Issue costs amounting to L175,000 and L295,000 as of December 31, 1995 and
1996, respectively, were recorded as deferred assets and have been charged to
the income statement over the term of the loans. The unamortized balances at
December 31, 1995 and 1996 were, respectively, L152,000 and L227,000.
CAPITAL LEASES
Obligations under capital leases are collateralized by the respective assets
financed.
F-12
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES;
TONY STONE ASSOCIATES LIMITED AND SUBSIDIARIES (PREDECESSOR)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SHAREHOLDERS' EQUITY
TONY STONE ASSOCIATES LIMITED
Changes in shareholders' equity are represented by the following:
<TABLE>
<CAPTION>
NO. OF NO. OF
ORD. A ORD.
SHARES SHARES
------- ------
COMMON ADDITIONAL RETAINED CUMULATIVE TOTAL
STOCK PAID IN EARNINGS TRANSLATION ------
------ CAPITAL -------- ADJUSTMENTS
---------- ----------- L000
L000 L000
L000 L000
<S> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1993....................... 120,000 30,000 150 145 2,404 27 2,726
Net income.............................. -- -- -- -- 1,106 -- 1,106
Dividends declared...................... -- -- -- -- (68) -- (68)
Translation adjustments................. -- -- -- -- -- 61 61
------- ------ ------ --- -------- --- ------
DECEMBER 31, 1994....................... 120,000 30,000 150 145 3,442 88 3,825
Net loss................................ -- -- -- -- (65) -- (65)
Shares issued........................... 5,250 -- 5 34 -- -- 39
Dividends declared...................... -- -- -- -- (3,824) -- (3,824)
Translation adjustments................. -- -- -- -- -- 59 59
------- ------ ------ --- -------- --- ------
MARCH 13, 1995.......................... 125,250 30,000 155 179 (447) 147 34
------- ------ ------ --- -------- --- ------
------- ------ ------ --- -------- --- ------
</TABLE>
The holders of "A" ordinary shares issued by Tony Stone Associates Limited
were entitled to a preferential dividend, calculated at 6 per cent of net income
of Tony Stone Images after certain adjustments, before the payment of any
dividend on the ordinary shares. In addition, upon a liquidation of assets, the
"A" ordinary shares would have been repaid in preference to the ordinary shares,
with any surplus after such repayment being divided on a pro rata basis to the
number of "A" ordinary and ordinary shares outstanding. The entire share capital
of Tony Stone Associates Limited was acquired by the Company on March 14,1995.
Dividends declared on June 9, 1994 were paid on July 1, 1994. Dividends
declared on March 13, 1995 were paid on March 14, 1995.
F-13
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES;
TONY STONE ASSOCIATES LIMITED AND SUBSIDIARIES (PREDECESSOR)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SHAREHOLDERS' EQUITY (CONTINUED)
GETTY COMMUNICATIONS PLC
Changes in shareholders' equity are represented by the following:
<TABLE>
<CAPTION>
NO. OF
NO. OF REDEEMABLE NO. OF A NO. OF B
ORD. SHARES SHARES ORD. SHARES ORD. SHARES
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Subscriber shares....................... 200 -- -- --
Issue of shares for cash................ 9,545,864 9,546,064 -- --
Issue of shares to sellers of Tony Stone
Associates Limited.................... 1,982,672 1,982,672 -- --
Capital contribution.................... -- -- -- --
Net income.............................. -- -- -- --
Translation adjustments................. -- -- -- --
----------- ----------- ----------- -----------
December 31, 1995....................... 11,528,736 11,528,736 -- --
Capital contribution.................... -- -- -- --
Options exercised....................... 670,986 670,986 -- --
Reclassification of shares.............. (12,199,722) (12,199,722) 13,054,238 11,345,206
Initial public offering................. -- -- 7,150,000
Placing................................. -- -- 3,738,762 2,099,412
Net income.............................. -- -- -- --
Translation adjustments................. -- -- -- --
----------- ----------- ----------- -----------
December 31, 1996....................... -- -- 23,943,000 13,444,618
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<CAPTION>
COMMON ADDITIONAL RETAINED CUMULATIVE
STOCK PAID IN EARNINGS TRANSLATION TOTAL
------ CAPITAL -------- ADJUSTMENTS -------
---------- -----------
L000 L000 L000
L000 L000
<S> <C> <C> <C> <C> <C>
Subscriber shares....................... -- -- -- -- --
Issue of shares for cash................ 191 12,153 -- -- 12,344
Issue of shares to sellers of Tony Stone
Associates Limited.................... 39 3,926 -- -- 3,965
Capital contribution.................... -- 227 -- -- 227
Net income.............................. -- -- 870 -- 870
Translation adjustments................. -- -- -- (8) (8)
------ ---------- -------- --- -------
December 31, 1995....................... 230 16,306 870 (8) 17,398
Capital contribution.................... -- 81 -- -- 81
Options exercised....................... 13 1,481 -- -- 1,494
Reclassification of shares.............. -- -- -- -- --
Initial public offering................. 72 18,694 -- -- 18,766
Placing................................. 58 26,699 -- -- 26,757
Net income.............................. -- -- 1,748 -- 1,748
Translation adjustments................. -- -- -- 93 93
------ ---------- -------- --- -------
December 31, 1996....................... 373 63,261 2,618 85 66,337
------ ---------- -------- --- -------
------ ---------- -------- --- -------
</TABLE>
The Company was incorporated with authorized common stock of 100 ordinary
shares at L1 par. On incorporation on January 4, 1995 two L1 ordinary shares
were issued which were subsequently split into 100 1p ordinary shares.
On March 13, 1995 the authorized common stock of the Company was increased
to L300,000 by the creation of 14,999,800 ordinary shares of 1p each and
15,000,000 redeemable ordinary shares of 1p each. On March 14, 1995 a total of
9,545,864 ordinary and 9,546,064 redeemable shares were issued for cash to fund
the purchase of Tony Stone Associates Limited, of which 5,567,436 ordinary and
5,567,636 redeemable shares were fully paid at approximately L1.10 per share.
The balance of 3,978,428 ordinary shares and 3,978,428 redeemable shares were
issued at approximately L1.07 and were partially paid at 1p per share leaving
L1.06 per share as subscriptions receivable. A further L227,000 in subscription
amounts receivable was paid during September 1995 under agreements whereby
shareholders were required to pay a portion of subscription amounts receivable
to fund payment of interest on the loan notes issued to Mr. A.M. Stone and his
family trusts. As of December 31, 1995, subscription amounts receivable of L8.2
million remained relating to 3,871,875 ordinary shares and 3,871,875 redeemable
ordinary shares. Additional paid in capital at December 31, 1995 is shown above
net of subscription amounts receivable of L8.2 million. Also on March 14, 1995,
1,982,672 ordinary and 1,982,672 redeemable shares were issued to the management
shareholders of Tony Stone Associates Limited.
Options on 609,987 ordinary and 609,987 redeemable shares were granted on
March 14, 1995 at an exercise price of L1.00, equivalent to the market price at
the date of grant. Additional options were granted
F-14
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES;
TONY STONE ASSOCIATES LIMITED AND SUBSIDIARIES (PREDECESSOR)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SHAREHOLDERS' EQUITY (CONTINUED)
on the same date on 60,999 ordinary and 60,999 redeemable shares at an exercise
price of L1.40. On July 1, 1996 all options with respect to 670,986 ordinary
shares and 670,986 redeemable shares were exercised for cash amounting to L1.5
million.
On April 1, 1996, L81,000 in subscription amounts receivable was paid under
agreements whereby shareholders were required to pay a proportionate
subscription amount receivable to fund payment of interest on the loan notes
issued to Mr. A.M. Stone and his family trusts.
The Company applied to the High Court of England and Wales to cancel the
amounts of unpaid share capital totalling L8.2 million with respect to 3,844,225
ordinary shares and 3,844,225 redeemable shares. Following receipt of the Court
order on June 21, 1996, the Company re-registered as a public limited company
under the name of Getty Communications plc.
On July 2, 1996, the Company completed an equity reorganization by
converting 5,672,603 ordinary shares and 5,672,603 redeemable shares into Class
B ordinary shares of 1 pence each and converting the remaining 6,527,119
ordinary and 6,527,119 redeemable shares into Class A ordinary shares of 1 pence
each. Accordingly, following this equity reorganization, there are no
outstanding redeemable shares of the Company. The Class A and Class B Shares
rank pari passu except that the Class B shareholders are entitled to 10 votes
per share and the Class A shareholders have one vote per share.
On July 2, 1996, the Company's Class A shares commenced trading on the
Nasdaq National Market and on July 8, 1996 the Company completed the initial
public offering of 10m Class A shares, 6.4m of which were sold by the Company. A
further 750,000 Class A shares were issued on August 12, 1996 under an option
granted to the underwriters to the initial public offering to cover
over-allotments under that offering. In total, the Company raised L18.8m, net of
expenses. Of the funds raised, approximately L14 million was applied to
repayment of short-term borrowing.
On December 10, 1996 a subsidiary of Carlton Communications Plc ("Carlton")
subscribed for 3,738,762 new Class A Shares for $28.5 million (L17.2 million).
Under the terms of the subscription agreement, the Company has agreed to use all
reasonable efforts up to December 10, 1998 to allow Carlton the opportunity of
increasing its interest in the Company to 20 per cent of the total issued share
capital at market prices then prevailing.
Also on December 10, 1996, Getty Investments LLC exercised its anti-dilution
option and subscribed for 2,099,412 new Class B Shares for $16 million (L9.6
million).
No dividends have been declared or paid by Getty Communications plc in
respect of the periods ended December 31, 1995 or 1996.
SHARE OPTION PLANS
On May 30, 1996 the Board approved the establishment of the Getty
Communications Executive Share Option Plan (the "Option Plan").
Under the Option Plan, the Board has the discretion to grant market options
and premium options. Market options are those granted with an exercise price
equal to the market price of the Class A Shares at the date of grant. Premium
options are those granted with an exercise price calculated by taking the market
price of the Class A Shares at the date of grant and increasing it by a compound
rate of return over
F-15
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES;
TONY STONE ASSOCIATES LIMITED AND SUBSIDIARIES (PREDECESSOR)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SHAREHOLDERS' EQUITY (CONTINUED)
a five year period from the date of grant. The rate of return for the first
premium options granted was 10 per cent.
Both market options and premium options vest in equal proportions on each
anniversary of the date of grant over a five year period from the date of grant.
Market options become exercisable, to the extent vested, after three years from
the date of grant and lapse after seven years from the date of grant. Premium
options become exercisable when vested and remain exercisable for a period of
two years after vesting.
Executive directors and all employees of the Company are eligible to
participate in the Option Plan under which a total of 6,159,890 Class A Shares
may be issued. Options which lapse will cease to be counted toward this limit.
Generally, options awarded under the Option Plan may not be exercised prior to
vesting, except under certain limited circumstances including a change of
control.
On July 2, 1996, market options over 2,793,960 Class A Shares were granted
under the Option Plan at an exercise price of $5.00 per share. Additionally,
premium options over 1,561,980 Class A Shares were granted under the Option Plan
at an exercise price of $8.05 per share.
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for its
share option plans. Accordingly, no compensation expense has been recognized for
such plans. The proforma effect on the Company's net income and earnings per
share, had compensation costs for the Company's share option plans been
determined based upon the fair value at the grant date for awards under these
plans consistent with the methodology prescribed under Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation, is as
follows: Net income would have been reduced by approximately L794,000 to
L954,000 and earnings per share would have been reduced by L0.03 to L0.03 per
share. This assumes that no tax relief would be available in respect of the
compensation expense. If such tax relief were assumed to be available, the
impact would reduce to L532,000 or L0.02 per share.
The fair value of the options granted during 1996 is estimated as L4.7
million in respect of the market options and L2.3 million in respect of the
premium options on the date of grant using the Black Scholes option pricing
model with the following assumptions: no dividends being paid, volatility of 50
per cent, risk-free interest rate of 7.39 per cent in respect of market options
and 7.55 per cent in respect of premium options, assumed forfeiture rate of 0
per cent, and an expected life of 5 years for market options and 6 years for
premium options.
Due to the timing of the granting of options during 1996, the above
reduction in reported net income and earnings per share is not anticipated to be
representative of the effects on reported net income and earnings per share in
future years.
F-16
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES;
TONY STONE ASSOCIATES LIMITED AND SUBSIDIARIES (PREDECESSOR)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES
The components of income before taxes and income tax expense are as follows:
<TABLE>
<CAPTION>
TONY STONE ASSOCIATES GETTY COMMUNICATIONS PLC
LIMITED CONSOLIDATED
CONSOLIDATED ---------------------------
------------------------- MARCH 14, YEAR ENDED
YEAR ENDED JANUARY 1, THROUGH DECEMBER 31,
DECEMBER 31, THROUGH DECEMBER 31, 1996
1994 MARCH 13, 1995 ------------
------------ 1995 ------------
---------- L000
L000 L000
L000
<S> <C> <C> <C> <C>
Income before income taxes:
United Kingdom.................................... 2,091 16 277 626
Others............................................ 31 10 1,780 3,033
--
----- ----- -----
Income before taxes............................... 2,122 26 2,057 3,659
--
--
----- ----- -----
----- ----- -----
Current tax:......................................
United Kingdom.................................... 904 42 549 609
Others............................................ 116 54 705 1,537
--
----- ----- -----
Total current tax................................. 1,020 96 1,254 2,146
--
--
----- ----- -----
----- ----- -----
Deferred tax:
United Kingdom.................................... (21) (4) (61) (235)
Others............................................ 17 (1) (6) --
--
----- ----- -----
Total deferred tax................................ (4) (5) (67) (235)
--
----- ----- -----
Total tax provision............................... 1,016 91 1,187 1,911
--
--
----- ----- -----
----- ----- -----
</TABLE>
The reconciliation of the effective tax rate to the statutory corporate tax
rate in the United Kingdom is as follows:
<TABLE>
<CAPTION>
GETTY COMMUNICATIONS PLC
TONY STONE CONSOLIDATED
ASSOCIATES LIMITED ---------------------------
CONSOLIDATED MARCH 14,
------------------ THROUGH YEAR ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31,
DECEMBER 31, 1994 1995 1996
------------------ ------------ ------------
<S> <C> <C> <C>
Statutory tax rate................................ 33.00% 33.00% 33.00%
Amortization of intangibles....................... 12.38 24.41 14.31
Tax rate differences.............................. 0.24 1.64 7.68
Other differences................................. 2.26 (1.34) (2.77)
----- ----- -----
Effective tax rate................................ 47.88% 57.71% 52.22%
----- ----- -----
----- ----- -----
</TABLE>
The reconciliation of the effective tax rate to the statutory corporate tax
rate is not shown for the period January 1 to March 13, 1995, as management
believes it is not a meaningful presentation. The effective rate for this period
is 350 per cent. The principal difference in rates for this period is due to the
amortization of intangibles which is not deductible for tax purposes.
F-17
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES;
TONY STONE ASSOCIATES LIMITED AND SUBSIDIARIES (PREDECESSOR)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
The components of deferred tax asset and liability amounts are as follows:
<TABLE>
<CAPTION>
TONY STONE ASSOCIATES GETTY COMMUNICATIONS PLC
LIMITED CONSOLIDATED
CONSOLIDATED ---------------------------
------------------------ DECEMBER 31, DECEMBER 31,
DECEMBER 31, MARCH 13, 1995 1996
1994 1995 ------------ ------------
------------ ---------
L000 L000
L000 L000
<S> <C> <C> <C> <C>
Current deferred tax assets:
Interest.......................................... -- -- 34 --
Short-term provisions............................. 93 97 151 509
--- --- --- -----
Total net current deferred tax assets............. 93 97 185 509
--- --- --- -----
--- --- --- -----
Non-current deferred tax:
Loss carry forwards............................... 339 339 231 2,174
Intangibles....................................... -- -- 57 --
Depreciation...................................... (66) (66) (35) 71
--- --- --- -----
Net non-current deferred tax asset................ 273 273 253 2,245
--- --- --- -----
--- --- --- -----
</TABLE>
The deferred tax assets in respect of loss carry forwards as at December 31,
1996 expire as follows:
<TABLE>
<CAPTION>
YEAR OF EXPIRY L000
- ----------------------------------------------------------- ---------------
<S> <C>
2000....................................................... 65
2001....................................................... 98
Indefinite................................................. 2,011
-----
2,174
-----
-----
</TABLE>
9. DEFINED CONTRIBUTION PLANS
The costs recognized by the Company with respect to its defined contribution
plans are as follows:
<TABLE>
<CAPTION>
TONY STONE ASSOCIATES GETTY COMMUNICATIONS PLC
LIMITED CONSOLIDATED
CONSOLIDATED ---------------------------
------------------------- MARCH 14, YEAR ENDED
YEAR ENDED JANUARY 1, THROUGH DECEMBER 31,
DECEMBER 31, THROUGH DECEMBER 31, 1996
1994 MARCH 13, 1995 ------------
------------ 1995 ------------
---------- $000
L000 L000
L000
<S> <C> <C> <C> <C>
United Kingdom.................................... 104 26 101 158
United States..................................... 128 41 158 257
--
--- --- ---
232 67 259 415
--
--
--- --- ---
--- --- ---
</TABLE>
The Company runs two pension plans in the U.K. Under the terms of the
schemes all employees are entitled to join one of the plans after six months'
service with the Company. Under the first scheme, the
F-18
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES;
TONY STONE ASSOCIATES LIMITED AND SUBSIDIARIES (PREDECESSOR)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. DEFINED CONTRIBUTION PLANS (CONTINUED)
Company contributes 6 percent of each participatory employee's salary to this
plan and contributes 5 percent under the second scheme. The employees contribute
4 per cent of their salary under the first scheme and 5 percent under the
second.
The Company's U.S. subsidiary operates 401(k) pension plans for its
employees. Under the terms of these plans, employees over 21 years old who have
worked for the Company for 12 consecutive months are eligible to participate.
The Company contributes 20 percent of the first 5 percent of the employee's
contributions.
10. COMMITMENTS UNDER OPERATING LEASES
The Company's commitments under operating leases as of December 31, 1996 are
as follows:
<TABLE>
<CAPTION>
GETTY COMMUNICATIONS PLC
CONSOLIDATED
-------------------------
L000
<S> <C>
OPERATING LEASES WHICH EXPIRE:
1997................................................................ 1,585
1998................................................................ 1,443
1999................................................................ 1,252
2000................................................................ 1,124
2001................................................................ 1,004
After 2001.......................................................... 8,267
------
Total............................................................... 14,675
------
------
</TABLE>
Rent expense amounted to L788,000 in the year ended December 31, 1994,
L217,000 in the period January 1, 1995 to March 13, 1995, L828,000 in the period
March 14, 1995 to December 31, 1995 and L1.5 million in the year to December 31,
1996.
11. FINANCIAL INSTRUMENTS
The Company operates internationally, giving rise to exposure to market
risks from changes in foreign exchange rates. The Company hedges only its
contracted net receivables and payables using a variety of financial
instruments. The Company does not issue or hold financial instruments for
trading purposes.
For accounting purposes, financial instruments relating to trade and other
balances and which are specifically identified are accounted for as hedges.
Gains and losses from hedging firm commitments are deferred and are included in
the statement of operations as part of the hedged transactions. As of December
31, 1996, net losses of L14,000 related to instruments hedging anticipated
transactions were deferred.
Exchange gains and (losses) were L161,000 in the year ended December 31,
1994, L75,000 in the period January 1, 1995 through March 13, 1995, (L19,000) in
the period March 14 through December 31, 1995 and (L196,000) in the year ended
December 31, 1996.
F-19
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES;
TONY STONE ASSOCIATES LIMITED AND SUBSIDIARIES (PREDECESSOR)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. FINANCIAL INSTRUMENTS (CONTINUED)
Under interest rate swap agreements, the Company agrees with other parties
to exchange, at specified intervals, the difference between fixed rate and
floating rate interest amounts calculated by reference to an agreed principal
amount. Net interest income or (expense) from the interest rate swap is included
in the income statement over the life of the contract. As of December 31, 1996,
the Company had entered into interest rate swap agreements in order to limit the
impact of movements in interest rates on its borrowings.
The Company is exposed to credit losses in the event of non-performance by
counterparties to financial instruments, but considers this risk to be minimal.
As of December 31, 1996, the counterparty to all of the Company's interest rate
swap and forward exchange contracts was Midland Bank plc.
Outstanding off-balance sheet contracts as of December 31, 1996 were:
<TABLE>
<CAPTION>
NOTIONAL AVERAGE TERM
AMOUNT REMAINING
------------- ---------------
L000 (DAYS)
<S> <C> <C>
FORWARD EXCHANGE CONTRACTS
Currencies sold............................................... 3,518 95
INTEREST RATE SWAP CONTRACTS.................................... 5,000 2,205
</TABLE>
The table above summarizes the notional amounts and average term remaining
of the Company's forward exchange and interest rate swap contracts. The notional
amounts of off-balance sheet contracts summarized above do not represent amounts
exchanged by the parties and thus are not a measure of the exposure of the
Company. The amounts exchanged are calculated on the basis of the notional
amounts and the other terms of the contract. Foreign currency amounts are
translated at rates current at the reporting date.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
Disclosure of estimated fair value of financial instruments is based on the
requirements of Statements of Financial Accounting Standards No.105, 107 and
119, and upon the assumptions or methods described below. Different estimates
may have been obtained had other assumptions or methods been applied. The
estimates are not necessarily indicative of amounts that would be realized in a
market exchange.
CASH, RECEIVABLES, PAYABLES AND SHORT-TERM BORROWINGS
The carrying amounts of these items approximate fair value.
LONG-TERM DEBT
The fair value is the estimated net present value of future cash flows using
estimated current rates at which similar bank loans could be obtained for the
remaining maturities. As of December 31, 1996, the fair value and carrying
amount of bank debt were approximately the same.
F-20
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES;
TONY STONE ASSOCIATES LIMITED AND SUBSIDIARIES (PREDECESSOR)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
FORWARD EXCHANGE CONTRACTS
The fair value is the amount at which the forward contract would be settled,
based upon estimates obtained from external counterparties. As of December 31,
1996, the fair value and carrying amounts of forward exchange contracts sold was
L212,000 and L226,000, respectively, in unrealized gains.
INTEREST RATE SWAP AGREEMENT
The fair value of the interest swap is L208,000 in unrealized losses as of
December 31, 1996 and is based on its quoted market price.
13. SUPPLEMENTAL DISCLOSURES ON CASH FLOWS
<TABLE>
<CAPTION>
TONY STONE ASSOCIATES GETTY COMMUNICATIONS PLC
LIMITED CONSOLIDATED
CONSOLIDATED ---------------------------
------------------------- MARCH 14, YEAR ENDED
YEAR ENDED JANUARY 1, THROUGH DECEMBER 31,
DECEMBER 31, THROUGH DECEMBER 31, 1996
1994 MARCH 13, 1995 ------------
------------ 1995 ------------
---------- L000
L000 L000
L000
<S> <C> <C> <C> <C>
Interest paid..................................... 142 39 891 1,477
Income taxes paid................................. 676 269 1,793 2,176
</TABLE>
Fixed asset additions financed through capital leases amounted to L133,000,
L389,000 and L297,000 in the year ended December 31, 1994, the period from March
14, 1995 through December 31, 1995 and the year ended December 31, 1996,
respectively.
During 1994, Tony Stone Associates Limited acquired AllStock Inc. Notes
payable of L1.5 million were issued in connection with the financing of the
acquisition.
During 1995, the Company acquired Tony Stone Associates Limited. Loan notes
payable of L8.0 million and shares valued at L4.0 million were issued in
connection with the financing of the acquisition.
F-21
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES;
TONY STONE ASSOCIATES LIMITED AND SUBSIDIARIES (PREDECESSOR)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. GEOGRAPHIC INFORMATION
As a provider of visual content, the Company operates in one business
segment.
SALES
<TABLE>
<CAPTION>
The geographical analysis of sales, by origin, is:
<S> <C> <C> <C> <C>
TONY STONE ASSOCIATES
LIMITED GETTY COMMUNICATIONS PLC
CONSOLIDATED CONSOLIDATED
------------------------ ------------------------
DECEMBER MARCH 13, DECEMBER DECEMBER
31, 1994 1995 31, 1995 31, 1996
----------- ----------- ----------- -----------
<CAPTION>
L000 L000 L000 L000
<S> <C> <C> <C> <C>
North America................................ 12,008 2,523 14,025 23,112
United Kingdom............................... 5,536 1,177 6,401 11,210
Germany...................................... 3,973 896 5,576 9,369
Rest of Europe............................... 4,621 1,224 6,435 8,599
Rest of World................................ 1,313 191 1,481 2,185
------------------------ ------------------------
27,451 6,011 33,918 54,475
------------------------ ------------------------
------------------------ ------------------------
</TABLE>
OPERATING INCOME
<TABLE>
<CAPTION>
The geographical analysis of operating income/(loss), by source, is:
<S> <C> <C> <C> <C>
TONY STONE ASSOCIATES
LIMITED GETTY COMMUNICATIONS PLC
CONSOLIDATED CONSOLIDATED
------------------------ ------------------------
JANUARY 1, MARCH 14,
YEAR ENDED THROUGH THROUGH YEAR ENDED
DECEMBER MARCH 13, DECEMBER DECEMBER
31, 1994 1995 31, 1995 31, 1996
----------- ----------- ----------- -----------
<CAPTION>
L000 L000 L000 L000
<S> <C> <C> <C> <C>
North America................................ (682) (540) 414 1,086
United Kingdom............................... 2,030 587 1,210 1,633
Germany...................................... 333 (65) 723 821
Rest of Europe............................... 300 (8) 498 1,131
Rest of World................................ 122 16 122 434
------------------------ ------------------------
2,103 (10 ) 2,967 5,105
------------------------ ------------------------
------------------------ ------------------------
</TABLE>
Central costs, including central creative, systems development and support,
central marketing, accounting and administration costs, have been allocated on
the basis of sales.
F-22
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES;
TONY STONE ASSOCIATES LIMITED AND SUBSIDIARIES (PREDECESSOR)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. GEOGRAPHIC INFORMATION (CONTINUED)
IDENTIFIABLE ASSETS
The geographical analysis of identifiable assets which excludes deferred
assets, by source, is:
<TABLE>
<CAPTION>
TONY STONE ASSOCIATES
LIMITED GETTY COMMUNICATIONS PLC
CONSOLIDATED CONSOLIDATED
------------------------ ------------------------
JANUARY 1, MARCH 14,
YEAR ENDED THROUGH THROUGH YEAR ENDED
DECEMBER MARCH 13, DECEMBER DECEMBER
31, 1994 1995 31, 1995 31, 1996
----------- ----------- ----------- -----------
L000 L000 L000 L000
<S> <C> <C> <C> <C>
North America................................ 5,006 4,685 6,571 6,464
United Kingdom............................... 7,469 7,697 32,899 80,470
Germany...................................... 823 972 1,800 1,605
Rest of Europe............................... 2,017 2,295 3,233 3,321
Rest of World................................ 512 359 643 703
------------------------ ------------------------
15,827 16,008 45,146 92,563
------------------------ ------------------------
------------------------ ------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
These amounts are reconciled to total assets as follows:
Identifiable assets.......................... 15,827 16,008 45,146 92,563
Deferred assets:............................. 366 370 599 2,981
------------------------ ------------------------
Total assets:................................ 16,193 16,378 45,745 95,544
------------------------ ------------------------
------------------------ ------------------------
</TABLE>
F-23
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES;
TONY STONE ASSOCIATES LIMITED AND SUBSIDIARIES (PREDECESSOR)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. ACQUISITIONS
TONY STONE IMAGES
ALLSTOCK INC.
On March 24, 1994, a subsidiary of Tony Stone Associates Limited acquired
all of the common stock of AllStock Inc. for a total consideration of L1.8
million. The consideration was satisfied by cash of L311,000 and debt of L1.5
million. Tony Stone Images applied the purchase method of accounting for this
acquisition.
The determination of goodwill relating to the acquisition of AllStock Inc.
is as follows:
<TABLE>
<CAPTION>
BOOK AND FAIR
VALUE
---------------
<S> <C>
L000
Net assets acquired (including cash of L143,000)................................................... 105
-----
Purchase price:
Loan notes issued................................................................................ 1,463
Cash paid, including acquisition expenses........................................................ 311
-----
Total purchase price............................................................................... 1,774
-----
Excess of purchase price over net assets acquired.................................................. 1,669
Amount allocated to other intangibles (amortized over periods of one to three years)............... 1,300
-----
Amount allocated to goodwill (amortized over 10 years)............................................. 369
-----
-----
</TABLE>
GETTY COMMUNICATIONS PLC
TONY STONE IMAGES
On March 14, 1995, the Company acquired all of the common stock of Tony
Stone Associates Limited for consideration of L23.2 million. The consideration
was satisfied by the issue of 1,982,672 ordinary shares each having a value of
L1 each, 1,982,672 redeemable ordinary shares each having a value of L1 each,
loan notes of approximately L8.0 million, cash of L10.5 million and acquisition
expenses of L809,000. The cash element of the purchase price was partially
financed by a term loan of L4.8 million.
The allocation of purchase price is summarized as follows:
<TABLE>
<CAPTION>
BOOK AND FAIR
VALUE
-------------
<S> <C>
L000
Net assets acquired at cost (including cash of L370,000)........................................... 34
------
Purchase price:
Getty Communications shares issued............................................................... 3,965
Loan notes issued................................................................................ 7,957
Cash paid, including acquisition expenses........................................................ 11,309
------
Total purchase price............................................................................... 23,231
------
Excess of purchase price over net assets acquired.................................................. 23,197
Amount allocated to other intangibles (amortized over 3 to 4 years)................................ 1,122
Amount allocated to other intangibles (amortized over 10 years).................................... 345
------
Amount allocated to goodwill (amortized over 30 years)............................................. 21,730
------
------
</TABLE>
F-24
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES;
TONY STONE ASSOCIATES LIMITED AND SUBSIDIARIES (PREDECESSOR)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. ACQUISITIONS (CONTINUED)
The allocation of the purchase price has been determined based on the
requirements of Accounting Principles Board Opinion No. 16 "Business
Combinations" (APB 16). The specific allocation of the purchase price to
identifiable intangible assets was made based on separate discounted cash flow
analyses relating to customer lists, photographer contracts and licensee
agreements. The amounts allocated to each of these identifiable intangible
assets is L561,000, L561,000 and L345,000, respectively. Amortization of these
separately identifiable intangible assets is taken in relation to the specific
contractual arrangements, substantially over a remaining term of three to four
years.
The value of these separately identifiable intangible assets is limited to
the specific contractual arrangements. The renewal of these arrangements
requires ongoing investment by the Company in terms of costs of marketing,
growth of the core collection of images and growth of the licensee network.
Additionally, as part of this acquisition, a dividend of L3.8 million was
declared and accrued on March 13, 1995 and was paid on March 14, 1995 to the
shareholders of Tony Stone Associates Limited. Payment was made immediately
after completion of the acquisition.
HULTON GETTY HOLDINGS LIMITED
On April 2, 1996, the Company acquired all of the common stock of Hulton
Getty Holdings Limited, (formerly Hephaistos Limited) for a purchase
consideration of L8.5 million cash and acquisition expenses of L80,000, and
refinanced approximately L4 million of debt. Hulton Getty Holdings Limited is
the holding company of The Hulton Getty Picture Collection Limited (formerly The
Hulton-Deutsch Collection Limited) which owns and licenses to customers an
archival collection of still images and operates in the United Kingdom. The
acquisition and refinancing of existing debt was financed by a term loan of L6.2
million, a bridge loan of L5 million and L1.4 million from the Company's
revolving credit facilities.
The allocation of purchase price is summarized as follows:
<TABLE>
<CAPTION>
BOOK AND FAIR
VALUE
-------------
<S> <C>
L000
Book value of net (liabilities) acquired at cost................................................... (5,256)
------
Fair value adjustments:
Fair value of archival collection, as determined by appraisal, less net book value............... 10,787
Interest and redemption premiums accrued on outstanding loan notes issued by Hephaistos Limited
and acquired by the Company and converted to interest free debt................................ 976
------
Fair value of net assets acquired at cost (including on demand borrowings of ,863,000 assumed and
repaid by the Company)........................................................................... 6,507
------
Purchase price:
Cash paid for the common stock, including acquisition expenses................................... 2,755
------
Excess of net assets acquired over purchase price, allocated against the fair value of the archival
collection....................................................................................... 3,752
------
------
</TABLE>
In addition to the cash paid above, the Company acquired the outstanding
loan stock issued by Hephaistos at its nominal value of L5,793,000 and
immediately converted this to interest free intercompany debt.
F-25
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES;
TONY STONE ASSOCIATES LIMITED AND SUBSIDIARIES (PREDECESSOR)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. ACQUISITIONS (CONTINUED)
FABULOUS FOOTAGE INC.
On April 24, 1996, the Company acquired all of the common stock of Fabulous
Footage Inc. ("Fabulous Footage"), operating as two separate legal entities in
the United States and Canada, respectively. Fabulous Footage is a provider of
contemporary stock footage, with operations primarily in Canada and the United
States.
The purchase consideration was L1.5 million cash and acquisition expenses of
L116,000, financed from a revolving credit facility.
The allocation of purchase price is summarized as follows:
<TABLE>
<CAPTION>
BOOK AND FAIR
VALUE
---------------
<S> <C>
L000
Value of net assets acquired at cost (including cash of L127,000).................................. 120
-----
Purchase price:
Cash paid, including acquisition expenses........................................................ 1,652
-----
Excess of purchase price over net assets acquired, allocated to goodwill (amortized over 15
years)........................................................................................... 1,532
-----
-----
</TABLE>
WORLD VIEW
On November 20, 1996, the Company acquired all the common stock of the World
View group of companies (referred to collectively as "World View"), operating as
four separate legal entities in Belgium, Denmark, Holland and Sweden. World View
is a provider of contemporary stock photography, operating primarily in Benelux
and Scandinavia.
The purchase consideration was L1.6 million cash and acquisition expenses of
L65,000, financed from cash resources. Of this amount, L338,000 is contingent on
the results of World View in its year ended December 31, 1996. The amount to be
paid is expected to become due in full in the short-term and has therefore been
included in the purchase consideration.
The allocation of purchase price is summarized as follows:
<TABLE>
<CAPTION>
BOOK AND FAIR
VALUE
---------------
<S> <C>
L000
Value of net assets acquired at cost (including cash of L225,000).................................. 273
-----
Purchase price:
Cash paid, including acquisition expenses........................................................ 1,353
Contingent consideration, anticipated to be paid in full, in cash................................ 338
-----
1,691
-----
Excess of purchase price over net assets acquired, allocated to goodwill (amortized over five
years)........................................................................................... 1,418
-----
-----
</TABLE>
F-26
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES;
TONY STONE ASSOCIATES LIMITED AND SUBSIDIARIES (PREDECESSOR)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. ACQUISITIONS (CONTINUED)
ACCUMULATED AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES
As of December 31, 1994, March 13, 1995 and December 31, 1995 and 1996,
accumulated amortization of goodwill and other intangibles was L803,000, L1.1
million, L2.3 million and L3.7 million, respectively.
16. PRO FORMA INFORMATION RELATING TO ACQUISITIONS (UNAUDITED)
The following unaudited pro forma information shows the results of the
Company for the three years ended December 31, 1996, as if the acquisition of
AllStock Inc. occurred on January 1, 1994, the acquisition of Tony Stone Images
occurred on January 1, 1995 and the acquisitions of Hulton Getty Holdings
Limited, Fabulous Footage and World View occurred on January 1, 1996. The
proforma information includes adjustments related to the financing of the
acquisitions, the effect of amortizing goodwill and other intangible assets
acquired, as well as the related tax effects. The pro forma results of
operations are unaudited, have been prepared for comparative purposes only and
do not purport to indicate the results of operations which would actually have
occurred had the combinations been in effect on the dates indicated or which may
occur in the future.
<TABLE>
<CAPTION>
UNAUDITED
-------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996
--------- ---------
1994 L000* L000*
---------
L000
<S> <C> <C> <C>
Sales............................................................................ 27,919 39,929 59,692
Net (loss)/income................................................................ (547) 941 1,786
Net income per share(L).......................................................... -- 0.04 0.06
</TABLE>
- ------------------------
* Except for per share amounts.
F-27
<PAGE>
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
OF GETTY COMMUNICATIONS PLC AND SUBSIDIARIES
F-28
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1997
----------------- -----------------
<S> <C> <C>
SALES....................................................................... L26,269 L29,824
Cost of sales............................................................... 10,150 11,227
------- -------
GROSS PROFIT................................................................ 16,119 18,597
Selling, general and administrative expenses................................ 11,398 13,078
------- -------
OPERATING INCOME BEFORE AMORTIZATION AND DEPRECIATION....................... 4,721 5,519
Amortization of intangibles................................................. 660 826
Depreciation................................................................ 1,645 2,218
------- -------
OPERATING INCOME............................................................ 2,416 2,475
Net interest (expense)/income............................................... (891) 478
Exchange losses............................................................. (125) (191)
------- -------
INCOME BEFORE INCOME TAXES.................................................. 1,400 2,762
Income taxes................................................................ (795) (1,267)
------- -------
NET INCOME.................................................................. L 605 L 1,495
------- -------
------- -------
NET INCOME PER SHARE........................................................ L 0.03 L 0.04
------- -------
------- -------
NET INCOME PER ADR(1)....................................................... L 0.05 L 0.08
------- -------
------- -------
</TABLE>
- ------------------------
(1) Net income per ADR is calculated by adjusting net income per share for the
ratio of two Class A shares per ADR.
F-29
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
<S> <C> <C>
<CAPTION>
ASSETS
<S> <C> <C>
CURRENT ASSETS
CASH AND CASH EQUIVALENTS............................................................ L34,441 L 29,260
Accounts receivable.................................................................. 12,059 13,501
Prepaid expenses and other assets.................................................... 2,184 3,228
------------ ----------
Total current assets................................................................. 48,684 45,989
Fixed assets, net...................................................................... 19,692 21,535
Intangible assets...................................................................... 24,187 30,150
Deferred assets........................................................................ 2,981 2,677
------------ ----------
TOTAL ASSETS........................................................................... L95,544 L100,351
------------ ----------
------------ ----------
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable..................................................................... L10,708 L 12,300
Accrued expenses..................................................................... 5,229 6,244
Income taxes payable................................................................. 1,104 1,378
Short-term borrowings, including current portion of long-term debt................... 1,700 1,501
------------ ----------
TOTAL CURRENT LIABILITIES............................................................ 18,741 21,423
Long-term debt......................................................................... 10,466 9,375
------------ ----------
TOTAL LIABILITIES...................................................................... 29,207 30,798
------------ ----------
SHAREHOLDERS' EQUITY
Common stock......................................................................... 373 376
Additional paid-in capital........................................................... 63,261 64,904
Retained earnings.................................................................... 2,618 4,113
Cumulative translation adjustments................................................... 85 160
------------ ----------
TOTAL SHAREHOLDERS' EQUITY........................................................... 66,337 69,553
------------ ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................................. L95,544 L100,351
------------ ----------
------------ ----------
</TABLE>
The consolidated balance sheet as at December 31, 1996 is derived from
audited annual financial statements, but does not include all disclosures
required by generally accepted accounting principles.
F-30
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1997
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................................. L 605 L 1,495
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................. 2,305 3,044
Other items............................................................... -- 241
Net change in assets and liabilities...................................... 659 (311)
-------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES................................... 3,569 4,469
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Business acquisitions, net of cash acquired............................... (10,988) (4,367)
Purchase of fixed assets.................................................. (2,056) (3,992)
-------- -------
NET CASH USED IN INVESTING ACTIVITIES....................................... (13,044) (8,359)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of debt.......................................................... 11,200 --
Changes in short-term borrowings.......................................... 1,434 (200)
Payments on principal balance of debt..................................... (3,583) (1,091)
Proceeds from issuance of ordinary shares................................. 81 --
-------- -------
NET CASH (USED IN)/PROVIDED BY FINANCING ACTIVITIES......................... 9,132 (1,291)
-------- -------
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS........................ (343) (5,181)
Cash and cash equivalents:
beginning of the period................................................... 1,223 34,441
-------- -------
end of the period......................................................... L 880 L29,260
-------- -------
-------- -------
</TABLE>
F-31
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The interim consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States
("U.S. GAAP") except that they do not provide all of the disclosures required by
U.S. GAAP, present the interim unaudited consolidated financial statements of
Getty Communications plc and subsidiaries (the "Company").
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of these interim
financial statements have been included therein. The results of these interim
periods are not necessarily indicative of results for the entire year.
For the purposes of these interim financial statements, certain information
and disclosures normally included in financial statements prepared in accordance
with U.S. GAAP have been condensed or omitted. These unaudited consolidated
interim financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto as of and for the period
ended December 31, 1996. Amounts, unless otherwise indicated, have been rounded
to the nearest thousand. The Company's interim consolidated financial statements
include Getty Communications plc and its subsidiaries all of which are 100 per
cent owned. All material intercompany amounts and transactions have been
eliminated in the interim consolidated financial statements.
2. ACQUISITIONS AND ISSUES OF SHARES
On March 14, 1997, Getty Communications acquired all of the common stock of
Liaison Agency, Inc., a news and reportage agency operating primarily in North
America. The purchase consideration was $9.4 million, including acquisition
costs, of which $2.6 million was settled by way of the issuance of 311,847 Getty
Class A Ordinary Shares. The balance was financed from cash resources.
On July 25, 1997, Getty Communications acquired all of the common stock of
Energy Film Library, Inc., a stock footage company operating primarily in North
America. On August 14, 1997, Getty Communications acquired the net assets and
trade of Profile Photo Library, its former agent in Hong Kong. The total
purchase consideration was $17 million, including acquisition costs, of which $4
million was settled by way of the issuance of 617,762 Getty Class A shares. The
balance was financed from cash resources. The excess of purchase consideration
over net assets acquired, estimated at $17.9 million, has been allocated to
goodwill.
Getty Communications is currently in discussions to acquire a visual content
company for approximately L30.5 million, of which approximately L16 million
would be paid in the form of cash and approximately L14.5 million would be paid
in the form of Getty Class A Ordinary Shares. Getty Communications believes that
a definitive agreement for such acquisition could be executed during the fourth
quarter of 1997. However, no assurance can be given that an agreement will be
reached with respect to such acquisition, or that such acquisition will be
completed.
3. SHARE OPTION PLAN
On May 15, 1997, market options over 215,204 Class A shares were granted
under the Getty Communications plc Executive Share Option Plan ("the Option
Plan") at an exercise price of $6.81 per share (equivalent to $13.62 per ADS).
Additionally, premium options over 215,204 Class A shares were granted under the
Option Plan at an exercise price of $10.97 per share (equivalent to $21.94 per
ADS).
F-32
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SCHEME OF ARRANGEMENT AND ACQUISITION OF PHOTODISC, INC.
On September 15, 1997, Getty Images, Inc., Getty Communications, PhotoDisc,
Inc., and Print Merger, Inc. entered into a merger agreement, (the "Merger
Agreement") whereby:
(a) a newly formed company, Getty Images, Inc., will enter into a scheme of
arrangement with Getty Communications, pursuant to which the shareholders
of Getty Communications will be issued one share of Getty Images, Inc.
Common Stock for every two Getty Communications ordinary shares held and
Getty Communications will become a wholly owned subsidiary of Getty
Images, Inc.; and
(b) a subsidiary company of Getty Images, Inc., Print Merger, Inc. will
merge with PhotoDisc, Inc., a company which develops and markets digital
stock photography products for electronic delivery to customers and which
operates in various geographical territories, pursuant to which the
shareholders of PhotoDisc, Inc. will receive an amount of cash and a
number of shares of Getty Images, Inc. Common Stock for each share of
PhotoDisc, Inc. Common Stock held, as determined in accordance with the
Merger Agreement; and options to acquire shares of PhotoDisc, Inc. Common
Stock and shares of Getty Communications will be converted to options to
acquire shares of Getty Images, Inc. Common Stock in accordance with the
terms of the Merger Agreement.
The total consideration payable to shareholders of PhotoDisc, Inc. is
estimated at $196,000,000, based on certain assumptions. The cash consideration
payable to shareholders of PhotoDisc, Inc. and the costs of the Merger
Agreement, estimated to amount to $43 million in total, are expected to be
financed by way of a five-year term loan carrying interest of U.S. dollar LIBOR
plus a margin of 1.5 percent.
The completion of the Merger Agreement is dependent on a number of
conditions being satisfied, including shareholder and regulatory approvals.
5. NET INCOME PER SHARE
Net income per share is L0.04 for the Company in the six months ended June
30, 1997 and is computed based on 38,469,000 Shares. This number of Shares
represents a total of 37,388,000 shares outstanding at December 31, 1996
adjusted, on a weighted basis, for shares issued during the period and for the
incremental effect of shares issuable pursuant to stock options granted,
calculated under the treasury stock method.
6. CONTINGENT LIABILITIES
Certain costs will be incurred by Getty Communications and PhotoDisc even if
the Transactions are not completed, in which case such costs will be expensed as
one-time charges. Getty Communications and PhotoDisc have agreed that if the
Closing shall not have occurred by March 31, 1998 as a result of a breach of a
representation, warranty or covenant of a party, the breaching party shall
reimburse the non-breaching party for the reasonable costs and expenses incurred
by such party. In addition, Getty Communications and PhotoDisc have agreed that
if the Merger Agreement is terminated by PhotoDisc because Getty Communications
has not obtained the requisite approvals of the Getty Shareholders on or prior
to the earlier of January 31, 1998 or the date 31 days after the Registration
Statement is declared effective by the Commission, Getty Communications shall
reimburse PhotoDisc for all reasonable costs and expenses incurred by PhotoDisc
in connection with the Merger Agreement.
F-33
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. CONTINGENT LIABILITIES (CONTINUED)
On September 18, 1997, Digital Stock Corporation, a California corporation
("Digital Stock"), and two directors and shareholders of Digital Stock, filed a
complaint in the United States District Court for the Southern District of
California against Getty Communications, Mark Getty and Jonathan Klein, both of
whom are directors of Getty Communications, alleging, among other things, breach
of contract, fraud and misappropriation of trade secrets by Getty Communications
in connection with discussions regarding a potential acquisition of Digital
Stock by Getty Communications. The complaint seeks, among other things,
unspecified compensatory damages, punitive damages and costs and an injunction
prohibiting the defendants from using or disclosing trade secrets and
confidential information of Digital Stock. Getty Communications is currently
assessing the alleged claims, but believes that it has meritorious defenses to
the action and intends to defend vigorously against it.
F-34
<PAGE>
PHOTODISC, INC. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
Board of Directors
PhotoDisc, Inc.
Seattle, Washington
We have audited the accompanying consolidated balance sheets of PhotoDisc,
Inc. and subsidiaries (the "Company") as of December 31, 1995 and 1996, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Seattle, Washington
August 16, 1997
(September 16, 1997 as to Note 1)
F-35
<PAGE>
PHOTODISC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 239 $ 6,315 $ 5,519
Trade accounts receivable, net of allowance of $103, $188 and $187.............. 1,094 1,739 2,599
Other accounts receivable....................................................... 32 257 23
Inventories..................................................................... 1,277 1,207 2,109
Deferred taxes.................................................................. -- 171 445
Prepaid expenses................................................................ 78 809 1,416
--------- --------- -----------
Total current assets........................................................ 2,720 10,498 12,111
Property and equipment:
Leasehold improvements.......................................................... 17 95 109
Furniture and equipment......................................................... 289 936 1,048
Image Collection................................................................ 531 1,800 2,553
Computer equipment.............................................................. 630 2,296 4,059
--------- --------- -----------
1,467 5,127 7,769
Less accumulated depreciation................................................... (400) (1,205) (2,147 )
--------- --------- -----------
Total property and equipment................................................ 1,067 3,922 5,622
Goodwill, net of accumulated amortization of $24.................................. -- -- 263
Other, net of accumulated amortization of $145, $186 and $194..................... 56 285 720
--------- --------- -----------
Total Assets................................................................ $ 3,843 $ 14,705 $ 18,716
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.......................................................... $ 933 $ 2,686 $ 4,237
Accrued payroll and related liabilities......................................... 185 756 977
Other accrued liabilities....................................................... 162 550 1,088
Taxes payable................................................................... 16 276 721
Line of credit.................................................................. 734 -- --
Current maturities of long-term debt to bank.................................... 60 -- --
Current maturities of long-term debt to shareholder............................. 60 -- --
--------- --------- -----------
Total current liabilities................................................... 2,150 4,268 7,023
Long-term debt to bank, net of current maturities................................. 61 -- --
Long-term debt to shareholder, net of current maturities.......................... 34 -- --
Deferred taxes.................................................................... -- -- 28
Commitments and contingencies..................................................... -- -- --
--------- --------- -----------
Total liabilities........................................................... 2,245 4,268 7,051
--------- --------- -----------
Shareholders' equity:
Common stock, $.01 par value--authorized, 20,000,000 shares, issued and
outstanding, 1,108,942, 8,635,164 and 8,769,914 shares........................ 11 86 88
Series A preferred stock, $.01 par value--authorized 5,000,000 shares, issued
and outstanding, 1,701,879 shares (preference in liquidation $7,199).......... -- 17 17
Additional paid-in capital...................................................... 175 6,230 6,246
Note receivable from shareholder................................................ -- -- (18 )
Retained earnings............................................................... 1,414 4,126 5,334
Foreign currency translation adjustment......................................... (2) (22) (2 )
--------- --------- -----------
Total shareholders' equity.................................................. 1,598 10,437 11,665
--------- --------- -----------
Total liabilities and shareholders' equity.................................. $ 3,843 $ 14,705 $ 18,716
--------- --------- -----------
--------- --------- -----------
</TABLE>
See notes to consolidated financial statements.
F-36
<PAGE>
PHOTODISC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- --------- SIX MONTHS ENDED JUNE
30,
------------------------
1996 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales................................................... $ 4,709 $ 12,512 $ 28,231 $ 12,102 $ 19,811
Cost of sales:
Cost of royalties..................................... 655 1,158 2,416 1,039 1,651
Cost of finished product.............................. 735 1,884 3,686 1,448 2,223
--------- --------- --------- ----------- -----------
1,390 3,042 6,102 2,487 3,874
--------- --------- --------- ----------- -----------
Gross profit........................................ 3,319 9,470 22,129 9,615 15,937
Operating expenses:
Sales and marketing................................... 1,402 4,018 9,456 4,042 7,343
Customer service and fulfillment...................... 224 721 2,019 1,014 1,629
Product development................................... 461 802 2,306 941 1,897
General and administrative............................ 726 1,597 4,132 1,656 3,254
--------- --------- --------- ----------- -----------
Total operating expenses............................ 2,813 7,138 17,913 7,653 14,123
--------- --------- --------- ----------- -----------
Operating income.................................... 506 2,332 4,216 1,962 1,814
Other income (expense):
Interest income (expense)............................. (11) (28) 94 (24) 116
Other................................................. 90 (12) 2 -- (8)
--------- --------- --------- ----------- -----------
79 (40) 96 (24) 108
--------- --------- --------- ----------- -----------
Income before income tax expense.................... 585 2,292 4,312 1,938 1,922
Income tax expense.................................... -- 817 1,600 719 714
--------- --------- --------- ----------- -----------
Net income............................................ $ 585 $ 1,475 $ 2,712 $ 1,219 $ 1,208
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Unaudited pro forma information:
Pro forma net income per share........................ $ 0.06 $ 0.13 $ 0.23 $ 0.11 $ 0.09
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Pro forma weighted average
shares outstanding.................................. 9,550 11,083 12,051 11,272 13,124
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-37
<PAGE>
PHOTODISC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
NOTE FOREIGN
SERIES A ADDITIONAL RECEIVABLE CURRENCY
COMMON PREFERRED PAID-IN FROM RETAINED TRANSLATION
STOCK STOCK CAPITAL SHAREHOLDER EARNINGS ADJUSTMENT
------ --------- ---------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994.................................... $ 11 $-- $ 175 -$- $ (229) -$-
Net income................................................ 585
Repurchase of 22,289 shares of common stock............... -- (28)
------ --------- ---------- ----- -------- -----
Balance, January 1, 1995.................................... 11 -- 175 -- 328 --
Net income................................................ 1,475
Dividends paid............................................ (389)
Foreign currency translation.............................. (2)
------ --------- ---------- ----- -------- -----
Balance, December 31, 1995.................................. 11 -- 175 -- 1,414 (2)
Net income................................................ 2,712
Common stock split........................................ 77 (77)
Repurchase of 236,372 shares of common stock.............. (2) (998)
Issuance of 1,701,879 shares of preferred stock........... 17 7,130
Foreign currency translation.............................. (20)
------ --------- ---------- ----- -------- -----
Balance, December 31, 1996.................................. 86 17 6,230 -- 4,126 (22)
Net income (unaudited).................................... 1,208
Issuance of 134,750 shares of common stock (unaudited).... 2 16 (18)
Foreign currency translation (unaudited).................. 20
------ --------- ---------- ----- -------- -----
Balance, June 30, 1997 (unaudited).......................... $ 88 $ 17 $6,246 $(18) $5,334 $ (2)
------ --------- ---------- ----- -------- -----
------ --------- ---------- ----- -------- -----
<CAPTION>
TOTAL
-------
<S> <C>
Balance, January 1, 1994.................................... $ (43)
Net income................................................ 585
Repurchase of 22,289 shares of common stock............... (28)
-------
Balance, January 1, 1995.................................... 514
Net income................................................ 1,475
Dividends paid............................................ (389)
Foreign currency translation.............................. (2)
-------
Balance, December 31, 1995.................................. 1,598
Net income................................................ 2,712
Common stock split........................................ --
Repurchase of 236,372 shares of common stock.............. (1,000)
Issuance of 1,701,879 shares of preferred stock........... 7,147
Foreign currency translation.............................. (20)
-------
Balance, December 31, 1996.................................. 10,437
Net income (unaudited).................................... 1,208
Issuance of 134,750 shares of common stock (unaudited).... --
Foreign currency translation (unaudited).................. 20
-------
Balance, June 30, 1997 (unaudited).......................... $11,665
-------
-------
</TABLE>
See notes to consolidated financial statements.
F-38
<PAGE>
PHOTODISC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- --------- SIX MONTHS ENDED JUNE
30,
------------------------
1996 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income............................................. $ 585 $ 1,475 $ 2,712 $ 1,219 $ 1,208
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................ 146 286 1,002 391 969
Deferred income taxes................................ -- 1 (172) (86) (247)
Loss on asset disposition............................ -- -- 50 -- --
Foreign currency translation adjustment.............. -- (2) (20) (2) 20
Cash provided (used) by changes in operating assets
and liabilities:
Accounts receivable................................ (336) (628) (870) (698) (626)
Inventories........................................ (322) (908) 70 (66) (902)
Prepaid expenses................................... 36 46 (731) (369) (607)
Other assets....................................... -- -- (271) -- (409)
Accounts payable................................... 138 361 1,753 1,060 1,551
Taxes payable...................................... -- 15 261 (29) 445
Accrued liabilities................................ 51 293 959 (12) 759
--------- --------- --------- ----------- -----------
Net cash provided by operating activities........ 298 939 4,743 1,408 2,161
Investing activities:
Purchase of property and equipment..................... (283) (1,000) (3,865) (1,259) (2,957)
Financing activities:
Net borrowings (payments) on revolving credit
agreements........................................... 166 544 (734) (196) --
Payments on long-term borrowings....................... (53) (76) (215) (133) --
Proceeds from long-term borrowings..................... -- 121 -- -- --
Dividend paid.......................................... -- (389) -- -- --
Preferred stock issuance............................... -- -- 7,147 7,092 --
Common stock repurchase................................ (28) -- (1,000) -- --
--------- --------- --------- ----------- -----------
Net cash provided by financing activities........ 85 200 5,198 6,763 --
--------- --------- --------- ----------- -----------
Net increase in cash and cash equivalents................ 100 139 6,076 6,912 (796)
Cash and cash equivalents:
Beginning of period.................................... -- 100 239 239 6,315
--------- --------- --------- ----------- -----------
End of period.......................................... $ 100 $ 239 $ 6,315 $ 7,151 $ 5,519
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest............................................. $ 13 $ 23 $ 44 $ 21 $ --
Income taxes......................................... -- 813 2,001 1,020 560
</TABLE>
See notes to consolidated financial statements.
F-39
<PAGE>
PHOTODISC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE PERIODS ENDED JUNE 30, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
NOTE 1: SUMMARY OF BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
PhotoDisc, Inc. (the "Company" or "PhotoDisc") develops high-resolution
photographs on CD-ROM which are sold primarily through retail catalog sales to
digital publishing and multimedia markets domestically and internationally.
The Company is subject to certain business risks which could affect future
operations and financial performance. These risks include changes in technology
and related delivery of products, increased competition and litigation against
the Company based on intellectual property rights.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of PhotoDisc,
Inc. and its subsidiaries, PhotoDisc Europe, Ltd., PhotoDisc Deutschland GmbH
and PhotoDisc Australia, Pty. All significant intercompany transactions are
eliminated upon consolidation.
CASH AND CASH EQUIVALENTS
For the purpose of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost or market on a first-in,
first-out basis. Capitalized production and image acquisition costs include
direct costs for the purchase or development of images, scanning, labor,
overhead, and other costs related to the development of products. Costs are
charged to cost of sales based on units produced, and estimated units to be
sold, as revenue from the sale of those units is recognized.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
straight-line and accelerated methods over the estimated useful lives of the
assets ranging from three to seven years.
ORGANIZATION COSTS
The Company capitalized costs incurred with the formation and start-up of
the business. These costs are being amortized using the straight-line method
over five years.
FOREIGN CURRENCY TRANSLATION
Foreign currency adjustments arise as a result of the translation of the
financial statements of the Company's foreign subsidiary into U.S. dollars, the
Company's functional currency.
F-40
<PAGE>
PHOTODISC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED JUNE 30, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
NOTE 1: SUMMARY OF BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
REVENUE RECOGNITION
Revenues are primarily recognized upon shipment of goods to customers. The
Company has a policy which guarantees refunds or exchanges for all product
returns, regardless of reason, for 30 days after purchase. The Company provides
allowances for such returns based on historical return patterns and specific
customer information.
INCOME TAXES
Prior to 1995, the Company's shareholders elected to file income taxes as an
S corporation. On January 1, 1995, the Company changed its status to a C
corporation and began accounting for income taxes under Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, which requires
an asset and liability approach to financial accounting and reporting for income
taxes. Unaudited pro forma income tax expense is presented for the year ended
December 31, 1994 as if the company had been a C corporation.
UNAUDITED PRO FORMA NET INCOME/LOSS PER SHARE
Pro forma net income/loss per share is based on the weighted average number
of shares outstanding during the period after consideration of the dilutive
effect, if any, of options and warrants issued and outstanding, and after giving
pro forma effect to the conversion of the Company's outstanding preferred stock,
as described above, as if such conversion had occurred at the beginning of the
periods presented.
MERGER AGREEMENT
On September 15, 1997, the Company entered into a Merger Agreement with
Getty Communications plc ("Getty Communications") and Getty Images, Inc. ("Getty
Images"), pursuant to which the PhotoDisc Common Shareholders will receive cash
and shares of Getty Images Common Stock for each share of PhotoDisc Common Stock
held; and Getty Communications Shareholders will be issued one share of Getty
Images Common Stock for every two Getty Communications Ordinary Shares held of
record by such holders, and Getty Communications will become a wholly owned
subsidiary of Getty Images.
INTERIM FINANCIAL INFORMATION
The interim financial information as of June 30, 1997, and for the six-month
periods ended June 30, 1996 and 1997, was prepared by the Company in a manner
consistent with the audited financial statements and pursuant to the rules and
requirements of the Securities and Exchange Commission. The unaudited
information, in management's opinion, reflects all adjustments that are of a
normal recurring nature and that are necessary to present fairly the results for
the periods presented. The results of operations for the six-month period ended
June 30, 1997 are not necessarily indicative of the results to be expected for
the entire year.
F-41
<PAGE>
PHOTODISC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED JUNE 30, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
NOTE 1: SUMMARY OF BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Significant estimates used by the Company include the development of
allowance for doubtful accounts, estimated units of inventory to be sold,
depreciable and amortizable lives of property and equipment, allowance for sales
returns, income taxes, and the fair value of financial instruments.
Unaudited pro forma income tax expense is presented for the year ended
December 31, 1994 as if the company had been a C corporation.
FOREIGN SALES
The Company had sales to customers in foreign countries, primarily in
Europe, Asia and Australia. The foreign sales accounted for 14%, 23%, 29%, 27%
and 32% of total revenues in aggregate for the years ended December 31, 1994,
1995 and 1996, and the six months ended June 30, 1996 and 1997, respectively. No
one country accounted for more than 10% of sales for any of the periods
presented.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1994 and 1995 financial
statements in order to conform with the 1996 presentation.
NOTE 2: INVENTORIES
Inventories are composed of raw materials and finished products available
for sale as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------- -----------
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Raw material (primarily packaging)........................... $ 346 $ 468 $ 903
Finished goods............................................... 931 739 1,206
--------- --------- -----------
$ 1,277 $ 1,207 $ 2,109
--------- --------- -----------
--------- --------- -----------
</TABLE>
F-42
<PAGE>
PHOTODISC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED JUNE 30, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
NOTE 3: LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------- -------------
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Note payable to a bank; payable in monthly installments of $4;
paid in full in 1996........................................... $ 121 $ -- $ --
Unsecured note payable to a shareholder; principal and interest
due in monthly installments of $5; paid in full in 1996........ 94 -- --
--------- --------- -----
215 -- --
Less current maturities......................................... (120) -- --
--------- --------- -----
$ 95 -- --
--------- --------- -----
--------- --------- -----
</TABLE>
LINE OF CREDIT
The Company had a revolving line of credit with a bank which required
monthly interest payments of prime plus 1.25% (9.5% at December 31, 1996) and
expired in May 1997. No amounts were outstanding under this facility at December
31, 1996.
NOTE 4: EQUITY
On June 27, 1996, the Board of Directors amended the Company's Articles of
Incorporation to authorize 5,000,000 shares of preferred stock, par value $.01
per share, and 20,000,000 shares of common stock, par value $.01 per share.
PREFERRED STOCK
The Preferred stock is issuable in one or more series, each with such
designations, preferences, rights, qualifications, limitations and restrictions
as the Board of Directors of the Company may determine at the time of issuance.
The Company's Articles of Incorporation, amended June 1996, authorized
1,701,879 shares of Series A Preferred stock and 1,701,879 shares of Series A-1
Preferred stock. At December 31, 1996, no shares of the Series A-1 Preferred
stock had been issued. The Company issued 1,701,879 shares of Series A Preferred
stock during 1996 with the following terms:
CONVERSION: Each share of Series A Preferred stock is convertible at the
option of the holder into shares of common stock based on the Series A
conversion price. The conversion price was set at the original Series A issue
price and will subsequently be adjusted for the dilutive effect of additional
shares of common stock, except common stock issued pursuant to an incentive
equity ownership program or to effect a joint venture or other partnering
arrangement, merger, or reorganization. Each share is automatically converted in
the event of a public offering of the Company's common stock.
F-43
<PAGE>
PHOTODISC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED JUNE 30, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
NOTE 4: EQUITY (CONTINUED)
LIQUIDATION: In the event of a voluntary or involuntary liquidation,
dissolution or winding up of the Company, the holders of Series A Preferred
stock will be entitled to receive, prior to any distributions of the surplus
funds of the Company to the holders of common stock, an amount equal to $4.23
per share plus any declared but unpaid dividends.
VOTING: The holders of Series A Preferred stock are entitled to the number
of votes they would be entitled to if the shares of Series A Preferred stock
were converted to common stock.
The rights, preferences, privileges, and restrictions relating to the Series
A-1 Preferred stock are the same as those for the Series A Preferred stock,
except that no adjustments will be made to the conversion price.
COMMON STOCK
On May 31, 1996, the Board of Directors authorized an eight-for-one common
stock split. This common stock split was effected in the form of eight shares of
common stock issued for every one share of common stock outstanding at the date
of declaration. All references in the financial statements to average number of
shares outstanding and related prices, per share amounts and stock option plan
data have been retroactively adjusted for the stock split. The Company also
repurchased 236,372 shares for $4.23 per share during 1996.
NOTE 5: COMMITMENTS AND CONTINGENCIES
LITIGATION
In the normal course of business, the Company has various claims in process,
matters in litigation and other contingencies. The Company regularly assesses
all contingencies and believes the recorded liabilities are adequate.
ROYALTY AGREEMENTS
The Company enters into licensing agreements in conjunction with the
purchase of images. The Company is required under certain licensing agreements
to pay royalties based on a percentage of net sales to photographers and stock
photo houses as long as the product is marketed. Such royalties are recorded as
expense when revenue is recognized and paid quarterly. The Company may grant
advance royalties to photographers on a case-by-case basis, which are
capitalized as prepaid expense and amortized over future royalty earnings.
The parties to the licensing agreements have agreed to certain mutually
restrictive covenants with regard to confidentiality, indemnification,
disclosure of sales information, promotional use of products, and noncompete
agreements. Management believes the Company is in compliance with such covenants
at December 31, 1996.
F-44
<PAGE>
PHOTODISC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED JUNE 30, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
NOTE 5: COMMITMENTS AND CONTINGENCIES (CONTINUED)
OPERATING LEASES
The Company leases office space from an officer and shareholder under an
operating lease expiring December 2002. The Company has made certain
improvements that will be treated as reimbursements to the lessor and amortized
over the remaining lease period. Lease payments of $46,174 are due monthly.
Lease payments to the related party were $87, $170, $265, $[109] and $[228] for
1994, 1995 and 1996 and the six months ended June 30, 1996 and 1997,
respectively. Also, the Company leases other office space and office equipment
from unaffiliated parties under operating leases over three to five years. In
February 1997, the Company entered into a lease for additional office space from
an unrelated third party. Future minimum lease payments, including the lease
entered into in February 1997, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
- -------------------------------------------------------------------------------------
<S> <C>
1997................................................................................. $ 716
1998................................................................................. 1,329
1999................................................................................. 1,372
2000................................................................................. 1,372
2001................................................................................. 1,368
Thereafter........................................................................... 1,053
---------
$ 7,210
---------
---------
</TABLE>
NOTE 6: EMPLOYEE BENEFITS
DEFINED CONTRIBUTION PLANS
Prior to 1996, the Company provided eligible employees with a Salary
Reduction Simplified Employee Pension Plan (SAR-SEP), which allowed employees to
contribute a portion of their wages to a tax-deferred individual retirement
account. The Company could also contribute to the plan at the discretion of the
Board of Directors. The voluntary contribution by the Company was $15 and $48
during 1994 and 1995, respectively. The SAR-SEP was replaced with a 401(k)
Savings Plan in 1996. The Company can contribute to the plan at the discretion
of the Board of Directors. There were no contributions made by the Company
during 1996.
STOCK OPTION PLANS
The Company has reserved 2,400,000 shares of common stock for issuance under
its 1994 Stock Option Plan for certain qualified employees and directors.
Options granted under this plan may be either incentive stock options or
nonqualified stock options and are granted at the fair market value of the
Company's common stock at the date of grant. Options vest and expire under the
terms established at the date of grant. The remaining contractual option lives
range from 8 to 10 years. The Company agreed to pay a portion of the purchase
price and related personal income taxes related to 859,200 shares granted to key
F-45
<PAGE>
PHOTODISC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED JUNE 30, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
NOTE 6: EMPLOYEE BENEFITS (CONTINUED)
employees, subject to certain conditions. No liability has been recorded due to
the uncertainty of the ultimate payment. A summary of stock options, restated to
reflect the eight-for-one stock split, follows:
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996 1997
----------------------- ----------------------- ----------------------- ----------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE (UNAUDITED)
SHARES PRICE SHARES PRICE SHARES PRICE SHARES
---------- ----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year..... -- $ -- 1,650,400 $ 0.1575 1,650,400 $ 0.1575 2,151,300
Granted............................ 1,650,400 0.1575 -- 536,900 2.2200 236,750
Exercised.......................... -- -- -- (116,000)
Canceled........................... -- -- (36,000) 0.1575 (22,000)
---------- ---------- ---------- ----------
Outstanding, end of year........... 1,650,400 $ 0.1575 1,650,400 $ 0.1575 2,151,300 $ 0.6722 2,250,050
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Exercisable, end of year........... 11,200 $ 0.1575 477,667 $ 0.1575 1,407,334 $ 0.2361 1,549,226
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
PRICE
-----------
<S> <C>
Outstanding, beginning of year..... $ 0.6722
Granted............................ 5.3028
Exercised.......................... 0.1575
Canceled........................... 1.0950
Outstanding, end of year........... $ 1.1819
Exercisable, end of year........... $ 0.3280
</TABLE>
The following table summarized information about common stock option outstanding
at December 31, 1996 and June 30, 1997:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1997 (UNAUDITED)
-------------------------------------- --------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF REMAINING NUMBER OF NUMBER OF REMAINING NUMBER OF
OPTIONS CONTRACTUAL OPTIONS OPTIONS CONTRACTUAL OPTIONS
EXERCISE PRICES OUTSTANDING LIFE EXERCISABLE OUTSTANDING LIFE EXERCISABLE
- ------------------------------------ ----------- ------------- ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
$0.1575............................. 1,614,400 7.64 1,353,734 1,486,400 7.13 1,422,400
$2.2200............................. 536,900 9.65 53,600 526,900 9.15 125,574
$4.2500............................. 89,750 9.04 1,252
$5.0000............................. 10,000 9.92
$6.0000............................. 135,000 9.88
$7.0000............................. 2,000 9.92
----------- ---------- ----------- ----------
2,151,300 8.14 1,407,334 2,250,050 7.86 1,549,226
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
</TABLE>
During 1995, the Company granted warrants to purchase 500,880 shares of
common stock at $0.125 per share to a majority shareholder and 167,592 shares at
$0.1575 per share to founding shareholders, in recognition of various
contributions to the Company since its inception.
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for its
plans. Accordingly, no compensation cost has been recognized. Had compensation
expense been determined based on the fair value at the grant dates for awards
under those plans consistent with the method of SFAS No. 123, Accounting for
Stock-Based
F-46
<PAGE>
PHOTODISC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED JUNE 30, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
NOTE 6: EMPLOYEE BENEFITS (CONTINUED)
Compensation, the Company's net income would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------- -----------
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Net income:
As reported................................................ $ 1,475 $ 2,712 $ 1,208
Pro forma.................................................. $ 1,442 $ 2,650 $ 1,135
</TABLE>
The effects of applying SFAS No. 123 in the above pro forma disclosure are
not indicative of future amounts. SFAS No. 123 does not apply to options granted
prior to 1995.
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the foregoing assumptions:
expected life, 2 years following vesting; stock volatility, 0%; risk fare
interest rates, 7.13%, 6.05%, and 6.47% for the years ended December 31, 1995
and 1996 and the six months ended June 30, 1997, respectively; and no dividends
during the expected term.
NOTE 7: INCOME TAXES
As described more fully in Note 1, the Company changed from an S corporation
to a C corporation during 1995. As a result of the termination of the Subchapter
S election, during 1995 the Company distributed to the shareholders their pro
rata shares of $389 in previously undistributed taxable profits. The following
unaudited pro forma income tax expense is presented as if the Company had been a
C corporation for the year ended December 31, 1994:
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
------------- -------------
<S> <C> <C>
Current tax expense.................................................. $ -- $ 199
Deferred tax expense................................................. -- --
----- -----
Total tax expense.................................................. $ -- $ 199
----- -----
----- -----
Net income........................................................... $ 585 $ 386
----- -----
----- -----
</TABLE>
The provision for federal income taxes for 1995 and 1996 and the six months
ended June 30, 1997 are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------- -------------
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Current tax expense............................................ $ 816 $ 1,756 $ 866
Deferred tax expense........................................... 1 (156) (152)
--------- --------- -----
$ 817 $ 1,600 $ 714
--------- --------- -----
--------- --------- -----
</TABLE>
F-47
<PAGE>
PHOTODISC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED JUNE 30, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
NOTE 7: INCOME TAXES (CONTINUED)
The tax effects of the temporary differences comprising the Company's net
deferred tax assets (liabilities) at December 31, 1995 and 1996 and June 30,
1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------- -------------
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Inventory........................................................ $ -- $ 64 $ 297
Allowance for bad debt and returns............................... 15 27 44
Prepaid expenses................................................. (11) (91) (98)
Property and equipment........................................... -- (28)
Accrued payroll and related liabilities.......................... (5) 58 32
Other accrued liabilities........................................ -- 112 170
--- --------- -----
$ (1) $ 171 $ 417
--- --------- -----
--- --------- -----
</TABLE>
F-48
<PAGE>
APPENDIX A
CONFORMED COPY
------------------------
MERGER AGREEMENT
---------------
AMONG
GETTY COMMUNICATIONS (USA), INC.,
GETTY COMMUNICATIONS PLC,
PHOTODISC, INC.
AND
PRINT MERGER, INC.
DATED AS OF SEPTEMBER 15, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ----------- -----
<C> <S> <C>
ARTICLE I
THE MERGER
1.01. The Merger........................................................................................ 2
1.02. Closing........................................................................................... 2
1.03. Effective Time.................................................................................... 2
1.04. Effects of the Merger............................................................................. 2
1.05. Articles of Incorporation......................................................................... 2
1.06. By-laws........................................................................................... 2
1.07. Directors of Surviving Corporation................................................................ 3
1.08. Officers of Surviving Corporation................................................................. 3
1.09. Effect on Photodisc Treasury Stock and Certain Other Shares of PhotoDisc Common Stock............. 3
1.10. Effect on Capital Stock of Merger Sub............................................................. 3
1.11 Effect on Shares of PhotoDisc Common Stock........................................................ 3
1.12. Exchange of Certificates.......................................................................... 4
1.13. Further Assurances................................................................................ 6
1.14. Stock Transfer Books.............................................................................. 6
1.15. PhotoDisc Common Stock Warrants................................................................... 6
1.16. PhotoDisc Options................................................................................. 6
1.17. Shares of Dissenting Stockholders................................................................. 7
1.18. Tax Free Transaction.............................................................................. 8
ARTICLE II
THE SCHEME OF ARRANGEMENT
2.01. Implementation of the Scheme of Arrangement....................................................... 8
2.02. The Scheme of Arrangement......................................................................... 9
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PHOTODISC
3.01. Organization, Corporate Power and Qualification of PhotoDisc...................................... 10
3.02. Corporate Authorizations, Execution and Delivery.................................................. 10
3.03. Capital Stock of PhotoDisc; Ownership of the Shares of PhotoDisc Stock............................ 11
3.04. PhotoDisc Subsidiaries............................................................................ 11
3.05. Corporate Books and Records....................................................................... 12
3.06. No Conflict....................................................................................... 12
3.07. Governmental Consents and Approvals............................................................... 13
3.08. Financial Information............................................................................. 13
3.09. No Undisclosed Liabilities........................................................................ 13
3.10. Form S-4, Getty Images Prospectus and Getty Shareholder Circular.................................. 14
3.11. Conduct in the Ordinary Course; Absence of Certain Changes, Events and Conditions................. 14
3.12. Litigation........................................................................................ 16
3.13. Compliance with Laws.............................................................................. 16
3.14. Certain Interests................................................................................. 16
3.15. Environmental and Safety Matters.................................................................. 17
3.16. Material Contracts................................................................................ 17
</TABLE>
A-(i)
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
SECTION PAGE
- ----------- -----
<C> <S> <C>
3.17. Intellectual Property............................................................................. 18
3.18. Real Property..................................................................................... 19
3.19. Assets............................................................................................ 20
3.20. Customers and Sales Agents........................................................................ 20
3.21. Content Providers................................................................................. 20
3.22. Employee Benefit Matters.......................................................................... 20
3.23. Labor Matters..................................................................................... 22
3.24. Key Employees..................................................................................... 23
3.25. Taxes............................................................................................. 23
3.26. Insurance......................................................................................... 25
3.27. Opinion of Financial Advisor...................................................................... 25
3.28. Full Disclosure................................................................................... 25
3.29. Brokers........................................................................................... 25
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF GETTY
4.01. Organization and Corporate Power of Getty......................................................... 25
4.02. Corporate Authorizations, Execution and Delivery.................................................. 25
4.03. Capital Stock of Getty............................................................................ 26
4.04. Getty Subsidiaries................................................................................ 26
4.05. No Conflict....................................................................................... 27
4.06 Governmental Consents and Approvals............................................................... 27
4.07 SEC Reports and Financial Statements.............................................................. 28
4.08. No Undisclosed Liabilities........................................................................ 28
4.09. Form S-4, Getty Images Prospectus and Getty Shareholder Circular.................................. 28
4.10. Conduct in the Ordinary Course.................................................................... 29
4.11. Litigation........................................................................................ 29
4.12. Compliance with Laws.............................................................................. 29
4.13. Certain Interests................................................................................. 29
4.14. Environmental and Safety Matters.................................................................. 30
4.15. Intellectual Property............................................................................. 30
4.16 Tax-Free Treatment................................................................................ 31
4.17. Opinion of Financial Advisor...................................................................... 31
4.18. Full Disclosure................................................................................... 31
4.19. Brokers........................................................................................... 31
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF GETTY IMAGES AND MERGER SUB
5.01. Organization and Corporate Power.................................................................. 31
5.02. Corporate Authorizations, Execution and Delivery.................................................. 31
5.03. Capital Stock of Getty Images and Merger Sub...................................................... 32
5.04. No Conflict....................................................................................... 32
5.05. Governmental Consents and Approvals............................................................... 33
5.06. No Business Activities............................................................................ 33
5.07. Form S-4, Getty Images Prospectus and Getty Shareholder Circular.................................. 33
</TABLE>
A-(ii)
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
SECTION PAGE
- ----------- -----
<C> <S> <C>
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
6.01. Conduct of Business of PhotoDisc Prior to the Closing............................................. 33
6.02. Conduct of Business of Getty Prior to the Closing................................................. 34
6.03. No Solicitation or Negotiation.................................................................... 34
ARTICLE VII
ADDITIONAL AGREEMENTS
7.01. Cooperation with Respect to Preparation of Form S-4, Getty Images Prospectus and Getty Shareholder
Circular.......................................................................................... 35
7.02. PhotoDisc Stockholder Meeting..................................................................... 35
7.03. Affiliate and Auditor Letters..................................................................... 35
7.04. Nasdaq Quotation.................................................................................. 36
7.05. Access to Information............................................................................. 36
7.06. Regulatory and Other Authorizations; Notices and Consents......................................... 36
7.07. Notice of Developments............................................................................ 36
7.08. Certificate of Incorporation and By-laws of Getty Images.......................................... 37
7.09. Adoption of New Getty Images Stock Option Plan.................................................... 37
7.10. Director and Officer Indemnification and Insurance................................................ 37
7.11. Board of Directors of Getty Images................................................................ 38
7.12. Name of Getty Images.............................................................................. 38
7.13. Assumption of Obligation to Pay Cash Amount to Holders of Series A Preferred Stock................ 38
7.14. No Actions Inconsistent with Tax Free Status...................................................... 38
7.15. Rollover of Existing Registration Rights.......................................................... 38
7.16. Further Action.................................................................................... 38
ARTICLE VIII
TAX MATTERS
8.01. Allocation of Taxes............................................................................... 39
8.02. Miscellaneous..................................................................................... 39
ARTICLE IX
CONDITIONS TO CLOSING
9.01. Mutual Conditions to the Obligations to Effect the Merger and the Scheme of Arrangement........... 39
9.02. Conditions to Obligations of PhotoDisc to Effect the Merger....................................... 41
9.03. Conditions to Obligations of Getty Images and Getty to Effect the Scheme of Arrangement........... 42
ARTICLE X
INDEMNIFICATION
10.01. Survival of Representations and Warranties........................................................ 44
10.02. Indemnification by the Principal Stockholders..................................................... 44
10.03. Indemnification by Getty Images and Getty......................................................... 44
10.04. Limits on Indemnification......................................................................... 45
</TABLE>
A-(iii)
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
SECTION PAGE
- ----------- -----
<C> <S> <C>
10.05. Indemnification Procedures........................................................................ 45
10.06. Distributions from Escrow Fund.................................................................... 46
ARTICLE XI
TERMINATION AND WAIVER
11.01. Termination....................................................................................... 47
11.02. Effect of Termination............................................................................. 48
11.03. Waiver............................................................................................ 48
ARTICLE XII
GENERAL PROVISIONS
12.01. Expenses.......................................................................................... 49
12.02. Notices........................................................................................... 49
12.03. Public Announcements.............................................................................. 50
12.04. Headings.......................................................................................... 50
12.05. Severability...................................................................................... 50
12.06. Entire Agreement.................................................................................. 50
12.07. Assignment........................................................................................ 50
12.08. No Third Party Beneficiaries...................................................................... 51
12.09. Amendment......................................................................................... 51
12.10. Governing Law..................................................................................... 51
12.11. Counterparts...................................................................................... 51
12.12. Specific Performance.............................................................................. 51
ARTICLE XIII
DEFINITIONS
13.01. Certain Defined Terms............................................................................. 51
13.02. Other Defined Terms............................................................................... 55
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
A Form of Stockholders' Transaction Agreement
B Form of Escrow Agreement
7.03(b) Form of Affiliate Letter
7.08 Significant Terms of Certificate of Incorporation and By-Laws of Getty Images
7.11 Board of Directors of Getty Images as of the Effective Time
9.01(k) Significant Terms of Stockholders' Agreement
9.01(l)(i) Significant Terms of Registration Rights Agreement of PDI and Mark Torrance
9.01(l)(ii) Significant Terms of Registration Rights Agreement of Getty Investments
9.01(m) Significant Terms of Employment Agreements
</TABLE>
A-(iv)
<PAGE>
MERGER AGREEMENT, dated as of September 15, 1997, among Getty Communications
(USA), Inc., a Delaware corporation ("GETTY IMAGES"), Getty Communications plc,
a public limited company organized under the laws of England and Wales
("GETTY"), PhotoDisc, Inc., a Washington corporation ("PHOTODISC"), and Print
Merger, Inc., a Washington corporation and wholly owned subsidiary of Getty
Images ("MERGER SUB").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Getty, PhotoDisc, Getty
Images and Merger Sub have approved the merger of the businesses of Getty and
PhotoDisc (the "TRANSACTION") upon the terms and subject to the conditions set
forth in this Agreement;
WHEREAS, in furtherance of the Transaction, the Boards of Directors of Getty
Images, PhotoDisc and Merger Sub have each approved the merger (the "MERGER") of
Merger Sub with and into PhotoDisc in accordance with the Washington Business
Corporation Act (the "WBCA") and upon the terms and subject to the conditions
set forth herein;
WHEREAS, in furtherance of the Transaction, the Boards of Directors of Getty
Images and Getty have each approved the implementation of a Scheme of
Arrangement (the "SCHEME OF ARRANGEMENT") in accordance with Section 425 of the
Companies Act of 1985 of the United Kingdom (the "COMPANIES ACT") and upon the
terms and subject to the conditions set forth herein;
WHEREAS, pursuant to the Merger, each issued and outstanding share of common
stock, par value $0.01 per share, of PhotoDisc ("PHOTODISC COMMON STOCK"), other
than shares owned directly or indirectly by Getty or by PhotoDisc, will be
converted into the right to receive a number of shares of common stock, par
value $0.01 per share, of Getty Images ("GETTY IMAGES SHARES") and an amount of
cash as set forth in Article I of this Agreement;
WHEREAS, the effect of the Scheme of Arrangement will be that each issued
and outstanding Class A ordinary share, nominal value 1p per share, of Getty
("GETTY CLASS A ORDINARY SHARES") and each issued and outstanding Class B
ordinary share, nominal value 1p per share, of Getty ("GETTY CLASS B ORDINARY
SHARES" and, together with Getty Class A Ordinary Shares, "GETTY ORDINARY
SHARES"), will be cancelled and reissued to Getty Images and, in consideration
of the cancellation of the Getty Ordinary Shares, Getty Images will allot to the
former holders of such Getty Ordinary Shares one Getty Images Share for every
two Getty Ordinary Shares so cancelled;
WHEREAS, for United States federal income tax purposes, the parties intend
(i) that the Merger shall qualify as a "reorganization" under Section 368(a) of
the Code and that this Agreement constitute a "plan of reorganization" within
the meaning of the Code and (ii) that the Merger, when considered together with
the Scheme of Arrangement, shall qualify as a transaction under Section 351 of
the Code;
WHEREAS, Getty Images, Getty, PhotoDisc and Merger Sub desire to make
certain representations, warranties, covenants, indemnities and agreements in
connection with the Transaction and also to prescribe certain conditions to the
Transaction;
WHEREAS, as an inducement to Getty Images, Getty and Merger Sub to enter
into this Agreement, simultaneously with the execution and delivery of this
Agreement, Getty Images and certain stockholders of PhotoDisc (the "PRINCIPAL
STOCKHOLDERS") are entering into the Stockholders' Transaction Agreement dated
the date hereof, substantially in the form attached hereto as Exhibit A (the
"STOCKHOLDERS' TRANSACTION AGREEMENT"), which provides, among other things, that
such Principal Stockholders shall indemnify Getty Images (subject to specified
limitations) for breaches of representations, warranties and covenants of
PhotoDisc contained in this Agreement;
WHEREAS, as an inducement to Getty Images, Getty and Merger Sub to enter
into this Agreement, Getty Images desires that each of the Principal
Stockholders agrees, and each of the Principal Stockholders
A-1
<PAGE>
pursuant to the Stockholders' Transaction Agreement does agree, to enter into on
or prior to the closing of the Merger an escrow agreement (the "ESCROW
AGREEMENT") among Getty Images, the Principal Stockholders and an escrow agent
(the "ESCROW AGENT") substantially in the form attached hereto as Exhibit B;
WHEREAS, certain of the Principal Stockholders have entered into a voting
agreement with Getty Images, dated the date hereof (the "PHOTODISC VOTING
AGREEMENT"), with respect to this Agreement and the transactions contemplated
hereby;
WHEREAS, each of Getty Investments L.L.C. ("GETTY INVESTMENTS") and Carlton
("CARLTON") have entered into agreements with Getty Images, dated the date
hereof, with respect to this Agreement and the transactions contemplated hereby;
and
WHEREAS, certain capitalized terms used herein shall have the meanings
ascribed to such terms in Article XIII of this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, indemnities and agreements set forth
herein, the parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. THE MERGER. Unless otherwise permitted by Section 1.18, upon
the terms and subject to the conditions set forth in Article IX, and in
accordance with the WBCA, at the Effective Time of the Merger (as defined in
Section 1.03), Merger Sub shall be merged with and into PhotoDisc. As a result
of the Merger, the separate corporate existence of Merger Sub shall cease and
PhotoDisc shall continue as the surviving corporation of the Merger (the
"SURVIVING CORPORATION").
SECTION 1.02. CLOSING. The closing of the Transaction (the "CLOSING")
shall take place at 10:00 a.m., San Francisco time, on a date to be specified by
the parties, which (subject to satisfaction or waiver of the conditions set
forth in Article IX) shall be no later than the fifth business day after
satisfaction or waiver of the conditions (excluding conditions that, by their
terms, cannot be satisfied until the Closing Date) set forth in Article IX (the
"CLOSING DATE"), unless another date is agreed to in writing by the parties. The
Closing shall be held at the offices of Shearman & Sterling, 555 California
Street, San Francisco, California, unless another place is agreed to in writing
by the parties.
SECTION 1.03. EFFECTIVE TIME. As soon as practicable following the
Closing, the parties hereto shall (i) file Articles of Merger (the "ARTICLES OF
MERGER") with the Secretary of State of the State of Washington in such form as
is required by, and executed in accordance with, the relevant provisions of the
WBCA and (ii) make all other filings or recordings required under the WBCA. The
Merger shall become effective at such time as the Articles of Merger are duly
filed with the Secretary of State of the State of Washington or at such later
time as may be agreed in writing by each of the parties hereto and specified in
the Articles of Merger (the date and time that the Merger becomes effective
being the "EFFECTIVE TIME").
SECTION 1.04. EFFECTS OF THE MERGER. At and after the Effective Time, the
Merger shall have the effects set forth in the WBCA. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time all the
property, rights, privileges, powers and franchises of PhotoDisc and Merger Sub
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of each of PhotoDisc and Merger Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
SECTION 1.05. ARTICLES OF INCORPORATION. At the Effective Time, the
Articles of Incorporation of PhotoDisc, as in effect immediately prior to the
Effective Time, shall be the Articles of Incorporation of the Surviving
Corporation, until thereafter amended as provided by applicable law and such
Articles of Incorporation.
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SECTION 1.06. BY-LAWS. At the Effective Time, the By-laws of Merger Sub,
as in effect immediately prior to the Effective Time, shall be the By-laws of
the Surviving Corporation, until thereafter amended as provided by applicable
law, the Articles of Incorporation of the Surviving Corporation and such
By-laws, subject to Section 7.10(a).
SECTION 1.07. DIRECTORS OF SURVIVING CORPORATION. The directors of Merger
Sub immediately prior to the Effective Time shall be the initial directors of
the Surviving Corporation, each to hold office in accordance with the Articles
of Incorporation and By-laws of the Surviving Corporation until the earlier of
their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
SECTION 1.08. OFFICERS OF SURVIVING CORPORATION. The officers of PhotoDisc
immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, each to hold office in accordance with the Articles of
Incorporation and By-laws of the Surviving Corporation until the earlier of
their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
SECTION 1.09. EFFECT ON PHOTODISC TREASURY STOCK AND CERTAIN OTHER SHARES
OF PHOTODISC COMMON STOCK. At the Effective Time, by virtue of the Merger and
without any action on the part of Getty Images, Merger Sub, PhotoDisc, the
holders of any shares of PhotoDisc Common Stock or the holders of any shares of
capital stock of Merger Sub, each share of PhotoDisc Common Stock that is owned
by PhotoDisc as treasury stock and each share of PhotoDisc Common Stock that is
owned by Getty Images or any direct or indirect wholly owned subsidiary of Getty
Images or PhotoDisc immediately prior to the Effective Time shall automatically
be cancelled and retired and shall cease to exist without any conversion thereof
and no payment or distribution shall be made with respect thereto or delivered
in exchange therefor.
SECTION 1.10. EFFECT ON CAPITAL STOCK OF MERGER SUB. At the Effective
Time, by virtue of the Merger and without any action on the part of Getty
Images, Merger Sub, PhotoDisc, the holders of any shares of PhotoDisc Common
Stock or the holders of any shares of capital stock of Merger Sub, each share of
common stock, par value $0.01 per share, of Merger Sub issued and outstanding
immediately prior to the Effective Time shall be converted into and exchanged
for one validly issued, fully paid and nonassessable share of common stock, par
value $0.01 per share, of the Surviving Corporation.
SECTION 1.11. EFFECT ON SHARES OF PHOTODISC COMMON STOCK. At the Effective
Time, by virtue of the Merger and without any action on the part of Getty
Images, Merger Sub, PhotoDisc, the holders of any shares of PhotoDisc Common
Stock or the holders of any shares of capital stock of Merger Sub, except as
otherwise provided in this Section 1.11, each share of PhotoDisc Common Stock
issued and outstanding immediately prior to the Effective Time (other than any
shares cancelled pursuant to Section 1.09) shall be cancelled and shall be
converted into the following (the "MERGER CONSIDERATION"):
(i) the right to receive the number of Getty Images Shares (the "STOCK
CONSIDERATION") equal to the number obtained by applying the following
formula:
(A) 12.4 million,
(B) less the result obtained by dividing (1) the amount of the cash
payment payable to the holders of shares of Series A Preferred Stock
immediately prior to the Effective Time as contemplated in Section 7.14
by (2) the Average Trading Price of Getty ADRs at Closing (as defined
below),
(C) less the result obtained by dividing (1) 50% of the Adjusted
Closing Estimate as determined in accordance with Section 12.01 by (2)
the Average Trading Price of Getty ADRs at Closing (as defined below),
(D) divided by the fully diluted number of shares of PhotoDisc Common
Stock outstanding immediately prior to the Effective Time (such result
being the "PHOTODISC EXCHANGE RATIO"),
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(E) multiplied by 0.8; and
(ii) the right to receive the amount in cash (the "CASH CONSIDERATION"),
without interest, equal to the Cash Value of Getty ADRs at Closing (as
defined below) multiplied by the PhotoDisc Exchange Ratio multiplied by 0.2.
The "AVERAGE TRADING PRICE OF GETTY ADRS AT CLOSING" means the Average
Trading Price of Getty ADRs on the Nasdaq National Market during the period
commencing 11 trading days prior to the Closing Date and ending on the trading
day prior to the Closing Date.
The "CASH VALUE OF GETTY ADRS AT CLOSING" means (i) if the Average Trading
Price of Getty ADRs at Closing is greater than or equal to $12.00, the
Discounted Trading Price of Getty ADRs at Closing or (ii) if the Average Trading
Price of Getty ADRs at Closing is less than $12.00, the Average Trading Price of
Getty ADRs at Closing.
The "DISCOUNTED TRADING PRICE OF GETTY ADRS AT CLOSING" means the Average
Trading Price of Getty ADRs at Closing multiplied by 0.9.
As of the Effective Time, all such shares of PhotoDisc Common Stock shall no
longer be outstanding and shall automatically be cancelled and retired and shall
cease to exist, and each holder of a certificate representing any such shares of
PhotoDisc Common Stock shall cease to have any rights with respect thereto,
except the right to receive, upon surrender of such certificate in accordance
with Section 1.12, the Merger Consideration with respect to the shares of
PhotoDisc Common Stock formerly represented thereby to which such holder is
entitled pursuant to this Section 1.11.
SECTION 1.12. EXCHANGE OF CERTIFICATES. (a) EXCHANGE PROCEDURES. At any
time after the Effective Time, a holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of PhotoDisc Common Stock (the "PHOTODISC SHARE
CERTIFICATES") that were converted into the right to receive Getty Images Shares
pursuant to Section 1.11 may surrender PhotoDisc Share Certificates to Getty
Images.
Upon surrender of a PhotoDisc Share Certificate for cancellation to Getty
Images, together with such documents as may reasonably be required by Getty
Images:
(i) the holder of such PhotoDisc Share Certificate shall be entitled to
receive in exchange therefor:
(A) one or more certificates representing, in the aggregate, that
whole number of Getty Images Shares that such holder has the right to
receive in respect of such PhotoDisc Share Certificate pursuant to the
provisions of this Article I (after taking into account all shares of
PhotoDisc Common Stock then held by such holder), less, in the case of
shares of PhotoDisc Common Stock held by the Principal Stockholders
immediately prior to the Effective Time, 12.5% of that number, which
represents the number of Getty Images Shares that are to be held in
escrow by the Escrow Agent pursuant to the Escrow Agreement (such Getty
Images Shares being the "ESCROW SHARES"); and
(B) an amount of cash by check or wire transfer equal to the amount
of cash that such holder has the right to receive pursuant to the
provisions of Section 1.11;
(ii) in the case of shares of PhotoDisc Common Stock held by the
Principal Stockholders immediately prior to the Effective Time, Getty Images
shall deliver to the Escrow Agent one or more certificates registered in the
names of the Principal Stockholders representing, in the aggregate, the
Escrow Shares, which will be held in escrow by the Escrow Agent in
accordance with the Escrow Agreement; and
(iii) the PhotoDisc Share Certificate so surrendered shall forthwith be
cancelled.
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In the event of a transfer of ownership of shares of PhotoDisc Common Stock
that is not registered in the transfer records of PhotoDisc, the applicable
Merger Consideration may be issued to a Person other than the Person in whose
name the PhotoDisc Share Certificate so surrendered is registered if the
PhotoDisc Share Certificate representing such shares of PhotoDisc Stock is
presented to Getty Images, accompanied by all documents required to evidence and
effect such transfer and evidence that any applicable stock transfer taxes have
been paid.
Until surrendered as contemplated by this Article I, each PhotoDisc Share
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon surrender the applicable Merger Consideration
with respect to the shares of PhotoDisc Common Stock formerly represented
thereby to which such holder is entitled pursuant to Section 1.11.
(b) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions declared or made after the Effective Time with respect to
Getty Images Shares with a record date after the Effective Time shall be paid to
the holder of any unsurrendered PhotoDisc Share Certificate with respect to the
Getty Images Shares that such holder would be entitled to receive upon surrender
of such PhotoDisc Share Certificate, until such holder shall surrender such
PhotoDisc Share Certificate in accordance with this Section 1.12. Subject to the
effect of applicable laws, following surrender of any such PhotoDisc Share
Certificate, there shall be paid to the holder of certificates representing
whole Getty Images Shares issued in exchange therefor, without interest, at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to such surrender and a payment
date subsequent to such surrender payable with respect to such whole Getty
Images Shares.
(c) NO FURTHER RIGHTS IN PHOTODISC COMMON STOCK. All Getty Images Shares
and cash issued upon conversion of shares of PhotoDisc Common Stock in
accordance with the terms of this Article I shall be deemed to have been issued
or paid in full satisfaction of all rights pertaining to such shares of
PhotoDisc Common Stock.
(d) NO FRACTIONAL GETTY IMAGES SHARES. (i) No certificates or scrip
representing fractional Getty Images Shares shall be issued upon the surrender
for exchange of PhotoDisc Share Certificates and such fractional share interests
will not entitle the owner thereof to vote or to have any rights of a
shareholder of Getty Images.
(ii) Notwithstanding any other provision of this Agreement, each holder of
shares of PhotoDisc Common Stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a Getty Images Share
(after taking into account all shares of PhotoDisc Common Stock then held by
such holder) shall receive, in lieu thereof, one Getty Images Share.
(e) LOST CERTIFICATES. If any PhotoDisc Share Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
Person claiming such PhotoDisc Share Certificate to be lost, stolen or destroyed
and, if required by Getty Images, the posting by such Person of a bond in such
reasonable amount as Getty Images may direct, as indemnity against any claim
that may be made against it with respect to such PhotoDisc Share Certificate,
Getty Images will deliver in exchange for such lost, stolen or destroyed
PhotoDisc Share Certificate the applicable Merger Consideration with respect to
the shares of PhotoDisc Common Stock formerly represented thereby to which such
holder is entitled pursuant to Section 1.11.
(f) WITHHOLDING RIGHTS. Each of the Surviving Corporation and Getty Images
shall, after making reasonable efforts to request from the holders of shares of
PhotoDisc Common Stock immediately prior to the Effective Time such certificates
or information as may permit avoidance of withholding, be entitled to deduct and
withhold from the consideration otherwise payable pursuant to this Agreement to
any holder of shares of PhotoDisc Common Stock such amounts as it is required to
deduct and withhold with respect to the making of such payment under the Code,
or under any provision of state, local or foreign tax law. To the extent that
amounts are so withheld by the Surviving Corporation or Getty Images, as the
case may be,
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such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the shares of PhotoDisc Common Stock in
respect of which such deduction and withholding was made by the Surviving
Corporation or Getty Images, as the case may be.
SECTION 1.13. FURTHER ASSURANCES. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of PhotoDisc or Merger Sub, any
deeds, bills of sale, assignments or assurances and to take and do, in the name
and on behalf of PhotoDisc or Merger Sub, any other actions and things to vest,
perfect or confirm of record or otherwise in the Surviving Corporation any and
all right, title and interest in, to and under any of the rights, properties or
assets acquired or to be acquired by the Surviving Corporation as a result of,
or in connection with, the Merger.
SECTION 1.14. STOCK TRANSFER BOOKS. At the Effective Time, the stock
transfer books of PhotoDisc shall be closed and there shall be no further
registration of transfers of shares of PhotoDisc Common Stock or Series A
Preferred Stock thereafter on the records of PhotoDisc. From and after the
Effective Time, the holders of PhotoDisc Share Certificates representing shares
of PhotoDisc Common Stock outstanding prior to the Effective Time shall cease to
have any rights with respect to such shares of PhotoDisc Common Stock formerly
represented thereby, except as otherwise provided herein or by law. On or after
the Effective Time, any PhotoDisc Share Certificates presented to Getty Images
for any reason shall be converted into the applicable Merger Consideration with
respect to the shares of PhotoDisc Common Stock formerly represented thereby to
which the holders thereof are entitled pursuant to Section 1.11.
SECTION 1.15. PHOTODISC COMMON STOCK WARRANTS. As soon as practicable
following the date of this Agreement and in any event within five Business Days
after the date of this Agreement, PhotoDisc shall demand that the holders of the
PhotoDisc Common Stock Warrants exercise such warrants in accordance with
Section 1.3 thereof, with such exercise to occur immediately prior to and
conditional upon the Closing.
SECTION 1.16. PHOTODISC OPTIONS. (a) All options to purchase PhotoDisc
Stock (the "PHOTODISC OPTIONS") outstanding, whether or not exercisable or
vested, at the Effective Time, under PhotoDisc's 1994 Combined Incentive and
Non-qualified Stock Option Plan, as amended (the "PHOTODISC STOCK OPTION PLAN"),
shall remain outstanding following the Effective Time. At the Effective Time,
PhotoDisc Options shall, by virtue of the Merger and without any further action
on the part of PhotoDisc or the holder thereof, be assumed by Getty Images in
such manner that Getty Images (i) is a corporation "assuming a stock option in a
transaction to which Section 424(a) applied" within the meaning of Section 424
of the Code or (ii) to the extent that Section 424 of the Code does not apply to
any such PhotoDisc Options, would be such a corporation were Section 424 of the
Code applicable to such PhotoDisc Options. From and after the Effective Time,
all references to PhotoDisc in the PhotoDisc Stock Option Plan and the
applicable stock option agreements issued thereunder shall be deemed to refer to
Getty Images. Each PhotoDisc Option assumed by Getty Images shall be exercisable
upon the same terms and conditions as under the PhotoDisc Stock Option Plan and
the applicable option agreement issued thereunder, except that (A) each such
PhotoDisc Option shall be exercisable for that whole number of Getty Images
Shares (rounded down to the nearest whole share) determined by multiplying the
number of shares of PhotoDisc Common Stock subject to such PhotoDisc Option
immediately prior to the Effective Time by the PhotoDisc Exchange Ratio and (B)
the option price per Getty Images Share shall be an amount equal to the option
price per share of PhotoDisc Common Stock subject to such PhotoDisc Option in
effect immediately prior to the Effective Time divided by the PhotoDisc Exchange
Ratio (the option price per share, as so determined, being rounded up to the
nearest full cent).
(b) In respect of each PhotoDisc Option assumed by Getty Images, and the
shares of Getty Images Common Stock underlying such PhotoDisc Option, Getty
Images shall file, promptly, but in any event
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within ten business days after the Effective Time, and keep current, a Form S-8
or other appropriate registration statement for as long as PhotoDisc Options
remain outstanding.
(c) PhotoDisc has not taken, and shall not take, any action that would
result in the accelerated vesting, exercisability or payment of PhotoDisc
Options as a consequence of the execution of this Agreement or the transactions
contemplated by this Agreement.
(d) Getty Images shall (i) on or prior to the Effective Time, reserve for
issuance the number of shares of Getty Images Common Stock that will become
subject to options to purchase shares of Getty Images Common Stock ("GETTY
IMAGES OPTIONS") pursuant to this Section 1.16 and (ii) from and after the
Effective Time, upon exercise of the Getty Images Options in accordance with the
terms thereof, make available for issuance all shares of Getty Images Common
Stock covered thereby.
(e) It is the intention of the parties that PhotoDisc Options assumed by
Getty Images qualify following the Effective Time of the Merger as incentive
stock options as defined in Section 422 of the Code to the extent that PhotoDisc
Options qualified as incentive stock options prior to the Effective Time.
(f) As soon as practicable after the Effective Time, Getty Images shall
extend an offer to each holder of options to purchase Getty Images Shares issued
to such holder pursuant to Section 1.16(a) who immediately prior to the
Effective Time held PhotoDisc Options to purchase at least 500 shares of
PhotoDisc Common Stock to purchase from such holder a number of such options
representing 20% of the number of Getty Images Shares subject to such options
for an amount in cash, without interest, per Getty Images Share equal to the
difference between the Cash Value of Getty ADRs at Closing and the exercise
price per Getty Images Share determined in accordance with Section 1.16(a). If
requested by Getty Images prior to the Effective Time and in lieu of the offer
by Getty Images described in the previous sentence, PhotoDisc shall prior to the
Effective Time extend the comparable offer, adjusted to appropriately reflect
the PhotoDisc Exchange Ratio, to holders of PhotoDisc Options immediately prior
to the Effective Time to purchase PhotoDisc Options conditional on Closing and
as of the Effective Time.
Holders of PhotoDisc Options or options to purchase Getty Images Shares to
whom such offer is extended may elect to accept such offer with respect to
either then vested options or then unvested options; PROVIDED, HOWEVER, that if
such holder elects to accept such offer with respect to then unvested options,
such holder may only accept such offer on a pro rata basis over the vesting
schedule of the options held by such holder.
Each of Natalie Angelillo, Chris Birkeland, Bob Chamberlain, Susan
Dotterweich, Kurt Haug, Bill Heston, Tom Hughes, Michel Perrin, Heather Redman
and Katherine Schuitemaker have entered into a separate agreement dated the date
hereof with Getty Images pursuant to which such Persons have agreed to accept
such offer.
SECTION 1.17. SHARES OF DISSENTING STOCKHOLDERS. Notwithstanding anything
in this Agreement to the contrary, any shares of PhotoDisc Common Stock that are
outstanding immediately prior to the Effective Time and that are held by
stockholders who shall not have voted in favor of the Merger or consented
thereto in writing and who shall have demanded properly in writing appraisal for
such shares in accordance with Section 23B.13.210 of the WBCA (collectively, the
"DISSENTING SHARES") shall not be converted into or represent the right to
receive the Merger Consideration. Such stockholders shall be entitled to receive
payment of the appraised value of such shares of PhotoDisc Common Stock held by
them in accordance with the provisions of Section 23B.13.250 of the WBCA, except
that all Dissenting Shares held by stockholders who shall have failed to perfect
or who effectively shall have withdrawn or lost their rights to appraisal of
such shares of PhotoDisc Common Stock under such Section 23B.13.210 shall
thereupon be deemed to have been converted into and to have become exchangeable,
as of the Effective Time, for the right to receive, without any interest
thereon, the applicable Merger Consideration. PhotoDisc shall give Getty Images
(i) prompt notice of any notices or demands for appraisal or payment for shares
of PhotoDisc Common Stock received by PhotoDisc and (ii) the opportunity to
participate in all
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negotiations and proceedings with respect to any such demands or notices.
PhotoDisc shall not, without the prior written consent of Getty Images, make any
payment with respect to, or settle, offer to settle or otherwise negotiate, any
such demands. PhotoDisc shall make all payments with respect to Dissenting
Shares from its own funds as in existence prior to the Merger.
SECTION 1.18. TAX FREE TRANSACTION. (a) The Parties intend (i) to adopt
this Agreement as a tax free plan of reorganization and to consummate the Merger
in accordance with the provisions of Section 368(a) of the Code and (ii) that
the Merger, when considered together with the Scheme of Arrangement, shall
qualify as a transaction under Section 351 of the Code.
(b) In the event that the tax opinion of Heller Ehrman White & McAuliffe
referred to in Section 9.02(d) cannot be rendered (as reasonably determined by
Heller Ehrman White & McAuliffe after consultation with counsel to Getty Images)
as a result of the Merger failing to satisfy requirements relating to
reorganizations under Section 368(a) of the Code, then Getty Images shall elect
one of the following alternatives:
(A) instead of as specified in Section 1.01, upon the terms and subject
to the conditions set forth in Article IX and in accordance with the WBCA,
at the Effective Time of the Merger, PhotoDisc shall be merged with and into
Merger Sub and, as a result of such Merger, the separate corporate existence
of PhotoDisc shall cease and Merger Sub shall be the Surviving Corporation
of the Merger; or
(B) reduce, on a pro rata basis, to the minimum extent necessary to
enable the Merger to qualify to be treated for United States federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code, the amount of cash to be delivered with respect to each share of
PhotoDisc Common Stock pursuant to Section 1.11 and in lieu thereof deliver
such number of Getty Images Shares that equal (1) the amount of cash that
has been reduced in order to enable the Merger to qualify to be treated for
United States federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code divided by (2) the Cash Value of Getty
ADRs at Closing.
ARTICLE II
THE SCHEME OF ARRANGEMENT
SECTION 2.01. IMPLEMENTATION OF THE SCHEME OF ARRANGEMENT. (a) Promptly
following the date of this Agreement, Getty shall, in cooperation with
PhotoDisc, prepare documentation necessary for the implementation of the Scheme
of Arrangement upon the terms and conditions set forth herein, including a
circular to its shareholders (the "GETTY SHAREHOLDER CIRCULAR") containing,
among other things, (i) the Scheme of Arrangement in a form that Getty and
PhotoDisc shall mutually agree upon, (ii) a notice convening a meeting of the
holders of Getty Class A Ordinary Shares in the form settled by the High Court
of Justice of England and Wales (the "HIGH COURT") for the purpose of
considering and, if thought fit, approving the Scheme of Arrangement, (iii) an
explanatory statement as required by Section 426 of the Companies Act with
respect to the Scheme of Arrangement, (iv) such other information as may be
required by The City Code on Takeovers and Mergers of the United Kingdom (the
"CITY CODE"), (v) a notice convening an extraordinary general meeting of the
holders of Getty Ordinary Shares and separate meetings of the holders of Getty
Class A Ordinary Shares and Getty Class B Ordinary Shares at which resolutions
will be proposed to approve the reduction of capital and other matters necessary
to give effect to the Scheme of Arrangement and (vi) such other information as
Getty and Getty Images shall agree.
(b) On the terms and subject to the conditions of this Agreement, Getty
shall use its reasonable best efforts to take or cause to be taken all such
steps as are within its power and necessary to implement the Scheme of
Arrangement, including the following:
(i) Getty shall apply to the High Court by way of originating summons
for leave to convene the court meeting (the "GETTY COURT MEETING") and shall
itself convene the requisite extraordinary meeting
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of the holders of Getty Ordinary Shares and separate meetings of the holders
of Getty Class A Ordinary Shares and Getty Class B Ordinary Shares;
(ii) upon (A) the High Court making the order on the originating
summons, (B) the necessary advertisements, the Getty Shareholder Circular
and the forms of proxy being settled with the High Court and (C) unless
otherwise agreed by Getty and PhotoDisc, the SEC declaring the Form S-4
effective, Getty shall in accordance with the order of the High Court:
(A) publish the requisite advertisements and post the Getty
Shareholder Circular and forms of proxies to the holders of Getty
Ordinary Shares and thereafter publish and/or post such other documents
and information as the High Court may approve or direct from time to time
in connection with the due implementation of the Scheme of Arrangement
under Section 425 of the Companies Act; and
(B) duly call, give notice of, convene and hold an extraordinary
general meeting of the holders of Getty Ordinary Shares and, to the
extent required, separate meetings of the holders of Getty Class A
Ordinary Shares and Getty Class B Ordinary Shares (the "GETTY SHAREHOLDER
MEETINGS") for the purpose of obtaining the requisite approvals of (x)
the holders of Getty Ordinary Shares, (y) the holders of Getty Class A
Ordinary Shares and (z) the holders of Getty Class B Ordinary Shares for
the Scheme of Arrangement (including a reduction of capital and changes
to the Articles of Association of Getty) and, if necessary, this
Agreement and the other transactions contemplated hereby;
(iii) unless otherwise required pursuant to the applicable fiduciary
duties of the Board of Directors of Getty to the shareholders of Getty,
Getty will, through its Board of Directors, recommend to its shareholders
approval of all matters required to be approved at the Getty Court Meeting
and at the Getty Shareholder Meeting in order to effect the Scheme of
Arrangement and will otherwise use its reasonable best efforts to obtain
such approval;
(iv) following the Getty Court Meeting and the Getty Shareholder
Meetings, assuming the necessary resolutions are passed, Getty shall seek
the sanction of the High Court for the Scheme of Arrangement; and
(v) as soon as practicable after the approvals of the Scheme of
Arrangement by the High Court, Getty shall, subject to the satisfaction or
waiver (if permitted) of the conditions set forth in Article IX, cause an
office copy of the order of the High Court under Section 425 of the
Companies Act sanctioning the Scheme of Arrangement to be filed with the
Registrar of Companies in England and Wales.
(c) Getty Images agrees to be bound by the Scheme of Arrangement and to
undertake to the High Court on the hearing of the petition to sanction the
Scheme of Arrangement to be bound thereby and to execute and do and to procure
to be executed and done all such documents, acts and things as may be necessary
or desirable to be executed or done by it for the purpose of giving effect to
the Scheme of Arrangement.
SECTION 2.02. THE SCHEME OF ARRANGEMENT. After the filing of the order of
the High Court with the Registrar of Companies in England and Wales as described
in Section 2.01(b)(iv) above and in accordance with the terms of the Scheme of
Arrangement:
(i) the holders of Getty Class A Ordinary Shares of record on the date
specified in the Scheme of Arrangement shall each be issued one Getty Images
Share for every two Getty Class A Ordinary Shares so held of record by such
holder;
(ii) the holders of Getty Class B Ordinary Shares of record on the date
specified in the Scheme of Arrangement shall each be issued one Getty Images
Share for every two Getty Class B Ordinary Shares so held of record by such
holder;
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(iii) Getty shall make available to each holder of share options granted
under the Getty Executive Share Option Scheme (the "GETTY EXECUTIVE
SCHEME"), which are not exercised within one month of notification in
accordance with the rules of the Getty Executive Scheme that the High Court
has sanctioned the Scheme of Arrangement, the opportunity to receive options
to acquire Getty Images Shares of equivalent value; and
(iv) to the extent that options granted under the Getty Executive Scheme
are exercised following the Getty Shareholder Meeting, the articles of
association of Getty will be amended so that Getty Ordinary Shares issued or
appearing on the register thereafter will either be subject to the Scheme of
Arrangement or will be compulsorily acquired by Getty Images in
consideration for the issue of Getty Images Shares on the same terms as the
Scheme of Arrangement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PHOTODISC
As an inducement to Getty Images, Getty and Merger Sub to enter into this
Agreement, PhotoDisc hereby represents and warrants to Getty Images, Getty and
Merger Sub as follows:
SECTION 3.01. ORGANIZATION, CORPORATE POWER AND QUALIFICATION OF
PHOTODISC. (a) PhotoDisc is a corporation duly organized, validly existing and
in good standing under the laws of the State of Washington and has all necessary
corporate power and authority (i) to own, operate or lease the properties and
assets now owned, operated or leased by it and to carry on the Business as it
has been and is currently conducted and (ii) to enter into this Agreement, to
carry out its obligations hereunder and to consummate the transactions
contemplated hereby.
(b) PhotoDisc is duly licensed or qualified to do business and is in good
standing in each jurisdiction in which the properties owned or leased by it or
the operation of its business makes such licensing or qualification necessary,
except where the failure to be so licensed, qualified or in good standing
reasonably could not be expected, individually or in the aggregate, to have a
Material Adverse Effect on PhotoDisc. Section 3.01 of the PhotoDisc Disclosure
Schedule sets forth all jurisdictions in which PhotoDisc is so licensed or
qualified.
(c) All material corporate actions taken by PhotoDisc have been duly
authorized, and PhotoDisc has not taken any action that in any material respect
conflicts with, constitutes a default under or results in a violation of any
provision of its Articles of Incorporation or By-laws.
(d) True and correct copies of the Articles of Incorporation and By-laws of
PhotoDisc, each as in effect on the date hereof, have been delivered by
PhotoDisc to Getty.
SECTION 3.02. CORPORATE AUTHORIZATIONS, EXECUTION AND DELIVERY. The
execution and delivery of this Agreement by PhotoDisc, the performance by
PhotoDisc of its obligations hereunder and the consummation by PhotoDisc of the
transactions contemplated hereby have been duly authorized by all requisite
action on the part of PhotoDisc, subject in the case of the consummation of the
Merger to obtaining the approvals required under the WBCA and the Articles of
Incorporation of PhotoDisc of the holders of shares of PhotoDisc Common Stock
and Series A Preferred Stock, voting together as a single class. The holders of
shares of Series A Preferred Stock are not entitled to vote as a separate class
to approve this Agreement or the transactions contemplated hereby. This
Agreement has been duly executed and delivered by PhotoDisc, and (assuming due
authorization, execution and delivery by the other parties hereto) this
Agreement constitutes a legal, valid and binding obligation of PhotoDisc
enforceable against PhotoDisc in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of equitable remedies, including specific performance, is subject
to the discretion of the court before which any proceeding therefor may be
brought.
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SECTION 3.03. CAPITAL STOCK OF PHOTODISC; OWNERSHIP OF THE SHARES OF
PHOTODISC STOCK. (a) The authorized capital stock of PhotoDisc consists of
25,000,000 shares of capital stock, including (i) 20,000,000 shares of PhotoDisc
Common Stock and (ii) 5,000,000 shares of preferred stock, par value $0.01 per
share, of which (A) 1,701,879 shares have been designated as Series A Preferred
Stock and (B) 1,701,879 shares have been designated as Series A-1 Preferred
Stock ("SERIES A-1 PREFERRED STOCK"). As of the date hereof, (i) 8,436,580
shares of PhotoDisc Common Stock are issued and outstanding, all of which are
validly issued, fully paid and nonassessable, (ii) 3,000,000 shares of PhotoDisc
Common Stock are reserved for issuance pursuant to employee stock options
granted pursuant to the PhotoDisc Stock Option Plan, (iii) 668,472 shares of
PhotoDisc Common Stock are reserved for issuance pursuant to the PhotoDisc
Common Stock Warrants, (iv) 1,701,879 shares of PhotoDisc Common Stock are
reserved for issuance pursuant to conversions of shares of Series A Preferred
Stock, (v) 1,701,879 shares of Series A Preferred Stock are issued and
outstanding, all of which are validly issued, fully paid and nonassessable, and
(vi) no shares of Series A-1 Preferred Stock are issued or outstanding.
(b) None of the issued and outstanding shares of PhotoDisc Common Stock or
Series A Preferred Stock was issued in violation of any preemptive rights.
Except for (i) options outstanding under the PhotoDisc Stock Option Plan to
purchase up to an aggregate of 2,619,800 shares of PhotoDisc Common Stock, (ii)
the PhotoDisc Common Stock Warrants, which entitle the holders thereof to
purchase up to an aggregate of 668,472 shares of PhotoDisc Common Stock, and
(iii) 1,701,879 shares of Series A Preferred Stock, there are no options,
warrants, convertible securities or other rights, agreements, arrangements or
commitments of any character relating to the capital stock of PhotoDisc or
obligating PhotoDisc or any of the PhotoDisc Subsidiaries to issue or sell any
shares of capital stock of, or any other interest in, PhotoDisc. There are no
outstanding contractual obligations of PhotoDisc to repurchase, redeem or
otherwise acquire any shares of PhotoDisc Common Stock or Series A Preferred
Stock or to provide funds to, or make any investment (in the form of a loan,
capital contribution or otherwise) in, any other Person, except as set forth in
the Articles of Incorporation of PhotoDisc with respect to the Series A
Preferred Stock.
(c) Except as set forth in Section 3.03(c) of the PhotoDisc Disclosure
Schedule, there are no voting trusts, stockholder agreements, proxies or other
agreements or understandings in effect with respect to the voting or transfer of
any of the outstanding shares of PhotoDisc Common Stock or Series A Preferred
Stock. Except as set forth in Section 3.03(c) of the PhotoDisc Disclosure
Schedule, PhotoDisc has not granted or agreed to grant to any Person any rights
to subscribe for securities of PhotoDisc, to nominate for election or have
elected any Person to the Board of Directors of PhotoDisc or to register any
securities of PhotoDisc under the Securities Act.
(d) Section 3.03(d) of the PhotoDisc Disclosure Schedule sets forth the name
and address of each Person owning shares of PhotoDisc Common Stock or Series A
Preferred Stock and the number and type of shares owned by each such Person.
(e) Section 3.03(e) of the PhotoDisc Disclosure Schedule sets forth the name
of each Person owning options to purchase shares of PhotoDisc Common Stock and,
for each option, the issue date, number of shares, exercise price and vesting
schedule.
SECTION 3.04. PHOTODISC SUBSIDIARIES. (a) Section 3.04(a) of the PhotoDisc
Disclosure Schedule sets forth a true and complete list of all PhotoDisc
Subsidiaries, listing for each PhotoDisc Subsidiary its name, type of entity,
the jurisdiction and date of its incorporation or organization, its authorized
capital stock, partnership capital or equivalent, the number and type of its
issued and outstanding shares of capital stock, partnership interests or similar
ownership interests and the current ownership of such shares, partnership
interests or similar ownership interests.
(b) Other than the PhotoDisc Subsidiaries, there are no other corporations,
partnerships, joint ventures, associations or other entities in which PhotoDisc
owns, of record or beneficially, any direct or indirect equity or other interest
or any right (contingent or otherwise) to acquire the same. Other than the
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PhotoDisc Subsidiaries, PhotoDisc is not a member of (nor is any part of the
Business conducted through) any partnership. Except as set forth in Section
3.04(b) of the PhotoDisc Disclosure Schedule, PhotoDisc is not a participant in
any joint venture or similar arrangement.
(c) Each PhotoDisc Subsidiary (i) is a corporation, partnership, limited
liability company or other legal entity duly organized and validly existing
under the laws of its jurisdiction of incorporation, (ii) has all necessary
power and authority to own, operate or lease the properties and assets owned,
operated or leased by such PhotoDisc Subsidiary and to carry on its business as
it has been and is currently conducted by such PhotoDisc Subsidiary and (iii) is
duly licensed or qualified to do business and is in good standing in each
jurisdiction in which the properties owned or leased by it or the operation of
its business makes such licensing or qualification necessary, except for such
failures which, when taken together with all other such failures, reasonably
could not be expected to have a Material Adverse Effect on PhotoDisc.
(d) All the outstanding shares of capital stock of each PhotoDisc Subsidiary
that is a corporation are validly issued, fully paid, nonassessable and, except
with respect to wholly owned PhotoDisc Subsidiaries, free of preemptive rights
and, except as set forth in Section 3.04(d) of the PhotoDisc Disclosure
Schedule, are owned by PhotoDisc, whether directly or indirectly, free and clear
of all Encumbrances.
(e) Except as set forth in Section 3.04(e) of the PhotoDisc Disclosure
Schedule, there are no options, warrants, convertible securities or other
rights, agreements, arrangements or commitments of any character relating to the
capital stock of any PhotoDisc Subsidiary or obligating PhotoDisc or any
PhotoDisc Subsidiaries to issue or sell any shares of capital stock of, or any
other interest in, any PhotoDisc Subsidiary.
(f) All material corporate actions taken by each PhotoDisc Subsidiary have
been duly authorized and no PhotoDisc Subsidiary has taken any action that in
any material respect conflicts with, constitutes a default under or results in a
violation of any provision of its charter or by-laws (or similar organizational
documents). True and complete copies of the charter and by-laws (or similar
organizational documents), in each case as in effect on the date hereof, of each
PhotoDisc Subsidiary have been delivered by PhotoDisc to Getty.
(g) Except as set forth in Section 3.04(g) of the PhotoDisc Disclosure
Schedule, no PhotoDisc Subsidiary is a member of (nor is any part of its
business conducted through) any partnership nor is any PhotoDisc Subsidiary a
participant in any joint venture or similar arrangement.
(h) Except as set forth in Section 3.04(h) of the PhotoDisc Disclosure
Schedule, there are no voting trusts, stockholder agreements, proxies or other
agreements or understandings in effect with respect to the voting or transfer of
any shares of capital stock of or any other interests in any PhotoDisc
Subsidiary.
SECTION 3.05. CORPORATE BOOKS AND RECORDS. The minute books of PhotoDisc
and the PhotoDisc Subsidiaries contain accurate records of all meetings and
accurately reflect all other actions taken by the stockholders, Boards of
Directors and all committees of the Boards of Directors of PhotoDisc and the
PhotoDisc Subsidiaries. Complete and accurate copies of all such minute books
and of the stock register of PhotoDisc and the PhotoDisc Subsidiaries have been
provided by PhotoDisc to Getty.
SECTION 3.06. NO CONFLICT. Assuming that all consents, approvals,
authorizations and other actions described in Section 3.07 have been obtained
and all filings and notifications listed in Section 3.07 of the PhotoDisc
Disclosure Schedule have been made, except as set forth in Section 3.06 of the
PhotoDisc Disclosure Schedule, the execution, delivery and performance of this
Agreement by PhotoDisc do not and will not (a) violate, conflict with or result
in the breach of any provision of the charter or by-laws (or similar
organizational documents) of PhotoDisc or any PhotoDisc Subsidiary, (b) conflict
with or violate (or cause an event which reasonably could be expected to have a
Material Adverse Effect on PhotoDisc as a result of) any Law or Governmental
Order applicable to PhotoDisc, any PhotoDisc Subsidiary or any of their
respective assets, properties or businesses, including, without limitation, the
Business, or (c) conflict with, result in any material breach of, constitute a
default (or event which with the giving of notice or lapse of
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time, or both, would become a default) under, require any consent under, or give
to others any rights of termination, amendment, acceleration, suspension,
revocation or cancellation of, or result in the creation of any Encumbrance on
any of the shares of PhotoDisc Common Stock or on any of the assets or
properties of PhotoDisc or any PhotoDisc Subsidiary pursuant to, any material
note, bond, mortgage or indenture, contract, agreement, lease, sublease,
license, permit, franchise or other instrument or arrangement to which PhotoDisc
or any PhotoDisc Subsidiary is a party or by which any of the shares of
PhotoDisc Common Stock or any of such assets or properties is bound or affected.
Except as set forth in Section 3.06 of the PhotoDisc Disclosure Schedule, no
material amounts will become payable by PhotoDisc or any PhotoDisc Subsidiary to
current or former directors or officers of PhotoDisc or any PhotoDisc Subsidiary
as a result of or in connection with the transactions contemplated by this
Agreement.
SECTION 3.07. GOVERNMENTAL CONSENTS AND APPROVALS. The execution, delivery
and performance of this Agreement by PhotoDisc do not and will not require any
consent, approval, authorization or other order of, action by, filing with or
notification to any Governmental Authority, except (a) as described in Section
3.07 of the PhotoDisc Disclosure Schedule and (b) the notification requirements
of the HSR Act.
SECTION 3.08. FINANCIAL INFORMATION. (a) True and complete copies of (i)
the audited consolidated balance sheets of PhotoDisc as of December 31, 1994,
December 31, 1995 and December 31, 1996, the audited consolidated income
statements of PhotoDisc for each of the three fiscal years ended December 31,
1994, December 31, 1995 and December 31, 1996 and the related audited
consolidated statements of retained earnings, stockholders' equity and cash
flows of PhotoDisc, together with all related notes and schedules thereto,
accompanied by the reports thereon of PhotoDisc's Accountants (collectively
referred to herein as the "PHOTODISC FINANCIAL STATEMENTS") and (ii) the
unaudited consolidated balance sheet of PhotoDisc as of June 30, 1997, and the
related unaudited consolidated statements of income, retained earnings,
stockholders' equity and cash flows of PhotoDisc for the six months ended June
30, 1997, together with all related notes and schedules thereto (collectively
referred to herein as the "PHOTODISC INTERIM FINANCIAL STATEMENTS"), have been
delivered by PhotoDisc to Getty. Except as disclosed in Section 3.08 of the
PhotoDisc Disclosure Schedule, the PhotoDisc Financial Statements and the
PhotoDisc Interim Financial Statements (i) were prepared in accordance with the
books of account and other financial records of PhotoDisc, (ii) present fairly
in all material respects the consolidated financial condition and results of
operations of PhotoDisc and the PhotoDisc Subsidiaries as of the dates thereof
or for the periods covered thereby, (iii) have been prepared in accordance with
U.S. GAAP applied on a basis consistent with the past practices of PhotoDisc,
except, in the case of the PhotoDisc Interim Financial Statements, for the
absence of footnote disclosures, and (iv) include all adjustments (consisting
only of normal recurring accruals) that are necessary for a fair presentation of
the consolidated financial condition of PhotoDisc and the PhotoDisc Subsidiaries
and the results of operations of PhotoDisc and the PhotoDisc Subsidiaries as of
the dates thereof or for the periods covered thereby, except, in the case of the
PhotoDisc Interim Financial Statements, for normal year-end audit adjustments.
(b) Except as disclosed in Section 3.08 of the PhotoDisc Disclosure
Schedule, the books of account and other financial records of PhotoDisc and the
PhotoDisc Subsidiaries: (i) reflect all items of income and expense and all
assets and Liabilities required to be reflected therein in accordance with U.S.
GAAP applied on a basis consistent with the past practices of PhotoDisc and the
PhotoDisc Subsidiaries, respectively, (ii) are in all material respects complete
and correct and do not contain or reflect any material inaccuracies or
discrepancies and (iii) have been maintained in accordance with good business
and accounting practices.
SECTION 3.09. NO UNDISCLOSED LIABILITIES. There are no Liabilities of
PhotoDisc or any PhotoDisc Subsidiary, other than Liabilities (i) reflected or
reserved against on the audited consolidated balance sheet of PhotoDisc as of
December 31, 1996 (the "REFERENCE BALANCE SHEET"), (ii) disclosed in Section
3.09 of the PhotoDisc Disclosure Schedule or (iii) incurred since the date of
this Agreement in the ordinary course of the business, consistent with the past
practice, of PhotoDisc and the PhotoDisc Subsidiaries and which do not and
reasonably could not be expected to have a Material Adverse Effect on PhotoDisc.
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SECTION 3.10. FORM S-4, GETTY IMAGES PROSPECTUS AND GETTY SHAREHOLDER
CIRCULAR. (a) (i) The registration statement on Form S-4 to be filed with the
SEC by Getty Images in connection with the issuance of Getty Images Shares in
the Merger (the "FORM S-4") will not, at the time the Form S-4 is filed with the
SEC, at any time it is amended or supplemented or at the time it becomes
effective under the Securities Act, in so far as it contains information related
to PhotoDisc, the PhotoDisc Subsidiaries or the Business, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii)
the prospectus of Getty Images included in the Form S-4 (the "GETTY IMAGES
PROSPECTUS") will not, at the time the Form S-4 is filed with the SEC, at any
time it is amended or supplemented or at the time it becomes effective under the
Securities Act, insofar as it contains information related to PhotoDisc, the
PhotoDisc Subsidiaries or the Business, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading and (iii) the Getty
Shareholder Circular will not, on the date it is first mailed to Getty
shareholders or at the time of the Getty Shareholders Meeting, insofar as it
contains information related to PhotoDisc, the PhotoDisc Subsidiaries or the
Business, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Insofar as it relates to PhotoDisc, the PhotoDisc Subsidiaries
and the Business, the Form S-4 will comply as to form in all material respects
with the requirements of the Securities Act and the rules and regulations of the
SEC thereunder.
(b) Notwithstanding the foregoing provisions of this Section 3.10, no
representation or warranty is made by PhotoDisc with respect to statements made
or incorporated by reference in the Form S-4, the Getty Images Prospectus or the
Getty Shareholder Circular with respect to Getty, the Getty Subsidiaries, Getty
Images or Merger Sub.
SECTION 3.11. CONDUCT IN THE ORDINARY COURSE; ABSENCE OF CERTAIN CHANGES,
EVENTS AND CONDITIONS. Since December 31, 1996 (the "REFERENCE BALANCE SHEET
DATE"), except as disclosed in Section 3.11 of the PhotoDisc Disclosure
Schedule, the business of PhotoDisc and the PhotoDisc Subsidiaries has been
conducted in the ordinary course and consistent with past practice. As
amplification and not limitation of the foregoing, except as disclosed in
Section 3.11 of the PhotoDisc Disclosure Schedule, since the Reference Balance
Sheet Date, neither PhotoDisc nor any PhotoDisc Subsidiary has:
(i) permitted or allowed any of the assets or properties (whether
tangible or intangible) of PhotoDisc or any PhotoDisc Subsidiary to be
subjected to any Encumbrance, other than Permitted Encumbrances and
Encumbrances that will be released at or prior to the Closing;
(ii) except in the ordinary course of business consistent with past
practice, discharged or otherwise obtained the release of any Encumbrance or
paid or otherwise discharged any Liability, other than current liabilities
reflected on the Reference Balance Sheet and current liabilities incurred in
the ordinary course of business consistent with past practice since the
Reference Balance Sheet Date;
(iii) made any loan to, guaranteed any Indebtedness of or otherwise
incurred any Indebtedness on behalf of any Person;
(iv) failed to pay any content provider or creditor any amount in excess
of $15,000 owed to such content provider or creditor when due;
(v) redeemed any of the capital stock or declared, made or paid any
dividends or distributions (whether in cash, securities or other property)
to the holders of capital stock of PhotoDisc or any PhotoDisc Subsidiary or
otherwise, other than dividends, distributions and redemptions declared,
made or paid by any PhotoDisc Subsidiary solely to PhotoDisc;
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(vi) made any material changes in the customary methods of operations
PhotoDisc or any PhotoDisc Subsidiary, including, without limitation,
practices and policies relating to marketing, selling and pricing;
(vii) merged with, entered into a consolidation with or acquired an
interest of 5% or more in any Person or acquired a substantial portion of
the assets or business of any Person or any division or line of business
thereof, or otherwise acquired any material assets other than in the
ordinary course of business consistent with past practice;
(viii) made any capital expenditure or commitment for any capital
expenditure other than as described in the capital expenditure budget set
forth in Section 3.11 of the PhotoDisc Disclosure Schedule;
(ix) sold, transferred, leased, subleased, licensed or otherwise
disposed of any properties or assets, real, personal or mixed (including,
without limitation, leasehold interests and intangible assets) for
consideration in excess of $50,000 individually or $250,000 in the
aggregate, other than in the ordinary course of business consistent with
past practice;
(x) issued or sold any capital stock, notes, bonds or other securities,
or any option, warrant or other right to acquire the same, of, or any other
interest in, PhotoDisc or any PhotoDisc Subsidiary;
(xi) entered into any agreement, arrangement or transaction with any of
its directors, officers, employees or shareholders (or with any relative,
beneficiary, spouse or Affiliate of such Person);
(xii) (A) granted any increase, or announced any increase, in the wages,
salaries, compensation, bonuses, incentives, pension or other benefits
payable by PhotoDisc or any PhotoDisc Subsidiary to any of its employees,
including, without limitation, any increase or change pursuant to any Plan,
or (B) established or increased or promised to increase any benefits under
any Plan, in either the case of (A) or (B) except as required by Law, any
collective bargaining agreement or involving ordinary increases consistent
with the past practices of PhotoDisc or such PhotoDisc Subsidiary;
(xiii) written down or written up (or failed to write down or write up in
accordance with U.S. GAAP consistent with past practice) the value of any
Inventories or receivables or revalued any assets of PhotoDisc or any
PhotoDisc Subsidiary other than in the ordinary course of business
consistent with past practice and in accordance with U.S. GAAP;
(xiv) amended, terminated, cancelled or compromised any material claims
of PhotoDisc or any PhotoDisc Subsidiary or waived any other rights of
substantial value to PhotoDisc or any PhotoDisc Subsidiary;
(xv) made any change in any method of accounting or accounting practice
or policy used by PhotoDisc or any PhotoDisc Subsidiary, other than such
changes required by U.S. GAAP or disclosed in Section 3.11 of the PhotoDisc
Disclosure Schedule;
(xvi) incurred any Indebtedness in excess of $50,000 individually or
$250,000 in the aggregate;
(xvii) amended, modified or consented to the termination of any Material
Contract or any rights of PhotoDisc or any PhotoDisc Subsidiary thereunder;
(xviii) amended or restated the Articles of Incorporation or the By-laws
(or other organizational documents) of PhotoDisc or any PhotoDisc
Subsidiary;
(xix) disclosed any secret or confidential Intellectual Property (except
by way of issuance of a patent or pursuant to an appropriate nondisclosure
agreement) or permitted to lapse or go abandoned any Intellectual Property
(or any registration or grant thereof or any application relating thereto)
to which, or under which, PhotoDisc or any PhotoDisc Subsidiary has any
right, title, interest or license;
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(xx) made any express election or settled or compromised any liability
with respect to Taxes of PhotoDisc or any PhotoDisc Subsidiary;
(xxi) suffered any Material Adverse Effect on PhotoDisc or suffered any
loss or material adverse change in its relationship with any of its 20
largest customers or 20 largest content providers (measured, in each case,
by dollar amount of business conducted with PhotoDisc and the PhotoDisc
Subsidiaries in the fiscal year ended December 31, 1996);
(xxii) except in the ordinary course of business, entered into, amended or
terminated any producer, contributor or agency agreement or entered into any
agreement restricting the right of PhotoDisc and the PhotoDisc Subsidiaries
to distribute products or services of PhotoDisc or Getty in any territory;
or
(xxiii) agreed, whether in writing or otherwise, to take any of the
actions specified in this Section 3.11 or granted any options to purchase,
rights of first refusal, rights of first offer or any other similar rights
or commitments with respect to any of the actions specified in this Section
3.11, except as expressly contemplated by this Agreement.
SECTION 3.12. LITIGATION. Except as set forth in Section 3.12 of the
PhotoDisc Disclosure Schedule (which, with respect to each Action disclosed
therein, sets forth the parties, the nature of the proceeding, the date and
method of commencement and the amount of damages or other relief sought), there
are no Actions pending (or to the best knowledge of PhotoDisc after due inquiry,
threatened) by or against PhotoDisc or any PhotoDisc Subsidiary. None of the
matters disclosed in Section 3.12 of the PhotoDisc Disclosure Schedule has had
or reasonably could be expected to have a Material Adverse Effect on PhotoDisc
or could be reasonably likely to materially adversely affect the legality,
validity or enforceability of this Agreement or PhotoDisc's ability to
consummate the transactions contemplated hereby. Except as set forth in Section
3.12 of the PhotoDisc Disclosure Schedule, neither PhotoDisc nor any PhotoDisc
Subsidiary is subject to any Governmental Order which has had or reasonably
could be expected to have a Material Adverse Effect on PhotoDisc.
SECTION 3.13. COMPLIANCE WITH LAWS. Except as set forth in Section 3.13 of
the PhotoDisc Disclosure Schedule, PhotoDisc and the PhotoDisc Subsidiaries have
each conducted and continue to conduct in all material respects the Business in
accordance with all Laws and Governmental Orders applicable to PhotoDisc or any
of the PhotoDisc Subsidiaries or the Business, and neither PhotoDisc nor any
PhotoDisc Subsidiary is in violation of any such Law or Governmental Order which
could reasonably be expected to have a material adverse effect on the Business.
SECTION 3.14. CERTAIN INTERESTS. (a) Except as disclosed in Section
3.14(a) of the PhotoDisc Disclosure Schedule, no officer or director of
PhotoDisc or any PhotoDisc Subsidiary and no relative or spouse (or relative of
such spouse) who resides with, or is a dependent of, any such officer or
director:
(i) to the best knowledge of PhotoDisc after due inquiry, has any direct
or indirect financial interest in any competitor, supplier or customer of
PhotoDisc or any PhotoDisc Subsidiary; PROVIDED, HOWEVER, that the ownership
of securities representing no more than two percent of the outstanding
voting power of any competitor, supplier or customer, and which are listed
on any national securities exchange or traded actively in the national
over-the-counter market, shall not be deemed to be a "financial interest" so
long as the Person owning such securities has no other connection or
relationship with such competitor, supplier or customer;
(ii) owns, directly or indirectly, in whole or in part, or has any other
interest in any tangible or intangible property which PhotoDisc or any
PhotoDisc Subsidiary uses or has used in the conduct of the Business or
otherwise; or
(iii) has outstanding any Indebtedness to PhotoDisc or any PhotoDisc
Subsidiary.
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(b) Except as disclosed in Section 3.14(b) of the PhotoDisc Disclosure
Schedule, neither PhotoDisc nor any of its Subsidiaries has any Liability or any
other obligation of any nature whatsoever to any officer, director or
shareholder of PhotoDisc or any PhotoDisc Subsidiary or to any relative or
spouse (or relative of such spouse) who resides with, or is a dependent of, any
such officer, director or shareholder.
SECTION 3.15. ENVIRONMENTAL AND SAFETY MATTERS. PhotoDisc and each of the
PhotoDisc Subsidiaries is in all material respects in compliance with the
provisions of all federal, state, local and foreign laws relating to pollution,
protection of the environment or occupational safety and health applicable to it
or to real property owned or leased by it or to the use, operation or occupancy
thereof. Neither PhotoDisc nor any PhotoDisc Subsidiary has engaged in any
activity in material violation of any provision of any federal, state or local
law relating to pollution, protection of the environment or occupational safety
and health. Neither PhotoDisc nor any PhotoDisc Subsidiary has any material
liability, absolute or contingent, under any federal, state or local law
relating to pollution, protection of the environment or occupational safety and
health.
SECTION 3.16. MATERIAL CONTRACTS. (a) Section 3.16(a) of the PhotoDisc
Disclosure Schedule lists each of the following contracts and agreements of
PhotoDisc and the PhotoDisc Subsidiaries (such contracts and agreements,
together with all contracts, agreements, leases and subleases concerning the
management or operation of any Real Property listed or otherwise disclosed in
Section 3.18(a) or 3.18(b) of the PhotoDisc Disclosure Schedule to which
PhotoDisc or any PhotoDisc Subsidiary is a party and all agreements relating to
Intellectual Property set forth in Section 3.17(a) of the PhotoDisc Disclosure
Schedule, being "MATERIAL CONTRACTS"):
(i) each contract and agreement under the terms of which PhotoDisc or
any PhotoDisc Subsidiary (A) is likely to pay or receive consideration of
more than $50,000 in the aggregate during the calendar year ended December
31, 1997, or upon any termination of such contract, or (B) is likely to pay
or receive consideration of more than $250,000 in the aggregate over the
remaining term of such contract or upon any termination of such contract;
(ii) all contracts and agreements relating to Indebtedness in excess of
$50,000 of PhotoDisc or any PhotoDisc Subsidiary;
(iii) all broker, distributor, dealer, franchise, agency, sales
promotion, market research, marketing consulting and advertising contracts
and agreements to which PhotoDisc or any PhotoDisc Subsidiary is a party;
(iv) (A) each contract with producers, contributors, photographers and
other content providers (or similar arrangements) to which PhotoDisc or any
PhotoDisc Subsidiary is a party which has generated $15,000 or more of
license revenues for the year ended December 31, 1996 and (B) all contracts
with independent contractors or consultants to which PhotoDisc or any
PhotoDisc Subsidiary is likely to pay consideration of more than $15,000 in
the aggregate during the calendar year ended December 31, 1997;
(v) all contracts and agreements relating to Software or technology of,
or used by, PhotoDisc or any PhotoDisc Subsidiary, including agreements with
technology partners (other than standard license agreements for
"off-the-shelf" Software);
(vi) all contracts and agreements with any Governmental Authority to
which PhotoDisc or any PhotoDisc Subsidiary is a party;
(vii) all contracts and agreements that limit or purport to limit the
ability of PhotoDisc or any PhotoDisc Subsidiary to compete in any line of
business or with any Person or in any geographic area or during any period
of time;
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(viii) all contracts and agreements between or among PhotoDisc or any
PhotoDisc Subsidiary and any stockholder of PhotoDisc or any Affiliate of
any stockholder of PhotoDisc, including, without limitation, Mark Torrance
and PDI; and
(ix) all other contracts and agreements, whether or not made in the
ordinary course of business, the absence of which could reasonably be
expected to have a Material Adverse Effect on PhotoDisc.
(b) Except as disclosed in Section 3.16(b) of the PhotoDisc Disclosure
Schedule, each Material Contract: (i) to the best knowledge of PhotoDisc after
due inquiry, is valid and binding on the respective parties thereto and is in
full force and effect and (ii) upon consummation of the transactions
contemplated by this Agreement, except to the extent that any consents set forth
in Section 3.07 of the PhotoDisc Disclosure Schedule are not obtained, shall
continue in full force and effect without penalty or other adverse consequence.
Neither PhotoDisc nor any PhotoDisc Subsidiary is in breach of, or default
under, any material term of any Material Contract. Except as disclosed in
Section 3.16(b) of the PhotoDisc Disclosure Schedule, to the best knowledge of
PhotoDisc after due inquiry, no other party to any Material Contract is in
breach thereof or default thereunder.
SECTION 3.17. INTELLECTUAL PROPERTY. (a) Section 3.17(a)(i) of the
PhotoDisc Disclosure Schedule sets forth a true and complete list of each patent
and patent application and each other registration or application for
registration of all PhotoDisc Owned Intellectual Property. Section 3.17(a)(ii)
of the PhotoDisc Disclosure Schedule sets forth a true and complete list of all
licenses or sublicenses of all PhotoDisc Licensed Intellectual Property. Except
as disclosed in Section 3.17(a)(iii) of the PhotoDisc Disclosure Schedule, to
the best knowledge of PhotoDisc after due inquiry, the rights of PhotoDisc or
any PhotoDisc Subsidiary, as the case may be, in or to such Intellectual
Property do not conflict with or infringe on the intellectual property rights of
any other Person, and neither PhotoDisc nor any PhotoDisc Subsidiary has
received any claim or written notice from any Person to such effect.
(b) Except as disclosed in Section 3.17(b) of the PhotoDisc Disclosure
Schedule: (i) all the PhotoDisc Owned Intellectual Property is owned by either
PhotoDisc or a PhotoDisc Subsidiary, as the case may be, free and clear of any
Encumbrance other than Permitted Encumbrances and (ii) no Actions have been made
or asserted or are pending (nor, to the best knowledge of PhotoDisc after due
inquiry, has any such Action been threatened) against PhotoDisc or any PhotoDisc
Subsidiary either (A) based upon or challenging or seeking to deny or restrict
the use by PhotoDisc or any PhotoDisc Subsidiary of any of the PhotoDisc Owned
Intellectual Property or (B) alleging that any services provided or products
manufactured or sold by PhotoDisc or any PhotoDisc Subsidiary are being
provided, manufactured or sold in violation of any patents, trademarks or
copyrights, or any other rights of any Person. To the best knowledge of
PhotoDisc after due inquiry, no Person is using any patents, copyrights,
trademarks, service marks, trade names, trade secrets or similar property that
infringes upon the PhotoDisc Owned Intellectual Property or upon the rights of
PhotoDisc or any PhotoDisc Subsidiary therein. Except as disclosed in Section
3.17(b) of the PhotoDisc Disclosure Schedule, neither PhotoDisc nor any
PhotoDisc Subsidiary has granted any license or other right to any other Person
with respect to the PhotoDisc Owned Intellectual Property. The consummation of
the transactions contemplated by this Agreement will not result in the
termination or impairment of any of the PhotoDisc Owned Intellectual Property.
(c) PhotoDisc has, or has caused to be, delivered to Getty correct and
complete copies of all the licenses and sublicenses for PhotoDisc Licensed
Intellectual Property listed in Section 3.17(a)(ii) of the PhotoDisc Disclosure
Schedule and any and all ancillary documents pertaining thereto (including, but
not limited to, all amendments, consents and evidence of commencement dates and
expiration dates). With respect to each of such licenses and sublicenses:
(i) such license or sublicense, together with all ancillary documents
delivered pursuant to the first sentence of this Section 3.17(c), is valid
and binding and in full force and effect and represents the entire agreement
between the respective licensor and licensee with respect to the subject
matter of such license or sublicense;
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(ii) except as otherwise set forth in Section 3.17(a)(ii) of the
PhotoDisc Disclosure Schedule, such license or sublicense will not cease to
be valid and binding and in full force and effect on terms identical to
those currently in effect as a result of the consummation of the
transactions contemplated by this Agreement, nor will the consummation of
the transactions contemplated by this Agreement constitute a breach or
default under such license or sublicense or otherwise give the licensor or
sublicensor a right to terminate such license or sublicense;
(iii) except as otherwise disclosed in Section 3.17(a)(ii) of the
PhotoDisc Disclosure Schedule, with respect to each such license or
sublicense: (A) neither PhotoDisc nor any PhotoDisc Subsidiary has received
any notice of termination or cancellation under such license or sublicense
and no licensor or sublicensor has any right of termination or cancellation
under such license or sublicense except in connection with the default of
PhotoDisc or any PhotoDisc Subsidiary thereunder, (B) neither PhotoDisc nor
any PhotoDisc Subsidiary has received any notice of a breach or default
under such license or sublicense, which breach or default has not been
cured, and (C) neither PhotoDisc nor any PhotoDisc Subsidiary has granted to
any other Person any rights, adverse or otherwise, under such license or
sublicense;
(iv) none of PhotoDisc, any PhotoDisc Subsidiary nor (to the best
knowledge of PhotoDisc after due inquiry) any other party to such license or
sublicense is in breach or default in any material respect, and, to the best
knowledge of PhotoDisc after due inquiry, no event has occurred that, with
notice or lapse of time, would constitute such a material breach or default
or permit termination, modification or acceleration under such license or
sublicense;
(v) no Actions have been made or asserted or are pending (nor, to the
best knowledge of PhotoDisc after due inquiry, has any such Action been
threatened) against PhotoDisc or any PhotoDisc Subsidiary either (A) based
upon or challenging or seeking to deny or restrict the use by PhotoDisc or
any PhotoDisc Subsidiary of any of the PhotoDisc Licensed Intellectual
Property or (B) alleging that any PhotoDisc Licensed Intellectual Property
is being licensed, sublicensed or used in violation of any patents or
trademarks, or any other rights of any Person; and
(vi) to the best knowledge of PhotoDisc after due inquiry, no Person is
using any patents, copyrights, trademarks, service marks, trade names, trade
secrets or similar property that is confusingly similar to the PhotoDisc
Licensed Intellectual Property or that infringes upon the PhotoDisc Licensed
Intellectual Property or upon the rights of PhotoDisc or any PhotoDisc
Subsidiary therein.
(d) PhotoDisc and the PhotoDisc Subsidiaries own or have the legal right to
use all Intellectual Property used or held by PhotoDisc or any PhotoDisc
Subsidiary or forming a part of, used or held in, and all such Intellectual
Property necessary in the conduct of, the Business.
SECTION 3.18. REAL PROPERTY. (a) Section 3.18(a)(i) of the PhotoDisc
Disclosure Schedule lists the street address of each parcel of Owned Real
Property. Section 3.18(a)(ii) of the PhotoDisc Disclosure Schedule lists the
street address of each parcel of Leased Real Property, the identity of the
lessor and lessee thereof and the lease agreement applicable thereto.
(b) Except as described in Section 3.18(b) of the PhotoDisc Disclosure
Schedule, there is no material violation of any Law (including, without
limitation, any building, planning or zoning law) relating to any of the Real
Property. Either PhotoDisc or a PhotoDisc Subsidiary, as the case may be, is in
peaceful and undisturbed possession of each parcel of Real Property and there
are no contractual or legal restrictions that preclude or restrict the ability
to use the premises for the purposes for which they are currently being used.
(c) PhotoDisc has, or has caused to be, delivered to Getty true and complete
copies of all leases and subleases listed in Section 3.18(a)(ii) of the
PhotoDisc Disclosure Schedule and any and all ancillary documents pertaining
thereto (including, but not limited to, all amendments, consents for alterations
and documents recording variations and evidence of commencement dates and
expiration dates).
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SECTION 3.19. ASSETS. (a) Except as disclosed in Section 3.19 of the
PhotoDisc Disclosure Schedule, either PhotoDisc or a PhotoDisc Subsidiary, as
the case may be, owns, leases or has the legal right to use all the properties
and assets used in the conduct of the Business or otherwise owned, leased or
used by PhotoDisc or any PhotoDisc Subsidiary and, with respect to contract
rights, is a party to and enjoys the right to the benefits of all contracts,
agreements and other arrangements used by PhotoDisc or any PhotoDisc Subsidiary
in or relating to the conduct of the Business (all such properties, assets and
contract rights being the "ASSETS"). Either PhotoDisc or a PhotoDisc Subsidiary,
as the case may be, has good and marketable title to, or, in the case of leased
or subleased Assets, valid and subsisting leasehold interests in, all the
Assets, free and clear of all Encumbrances, except (i) as disclosed in Section
3.19 of the PhotoDisc Disclosure Schedule and (ii) Permitted Encumbrances.
(b) Except to the extent that any consents, approvals, authorizations or
other actions listed in Section 3.06 or 3.07 of the PhotoDisc Disclosure
Schedule have not been obtained or taken, following the consummation of the
transactions contemplated by this Agreement, either PhotoDisc or a PhotoDisc
Subsidiary, as the case may be, will continue to own, pursuant to good and
marketable title, or lease, under valid and subsisting leases, or otherwise
retain, its respective interest in the Assets without incurring any penalty or
other adverse consequence, including, without limitation, any increase in
rentals, royalties or licenses, or other fees imposed as a result of, or arising
from, the consummation of the transactions contemplated by this Agreement.
SECTION 3.20. CUSTOMERS AND SALES AGENTS. Listed in Section 3.20 of the
PhotoDisc Disclosure Schedule are the names of (i) all sales agents of PhotoDisc
or any PhotoDisc Subsidiary and (ii) all customers of PhotoDisc and the
PhotoDisc Subsidiaries that contracted for products or services from PhotoDisc
or any PhotoDisc Subsidiary with an aggregate value of $25,000 or more during
the fiscal year ended December 31, 1996, and the amount for which each such
customer was invoiced during such period. Except as disclosed in Section 3.20 of
the PhotoDisc Disclosure Schedule, neither PhotoDisc nor any PhotoDisc
Subsidiary has received any notice or has any reason to believe that any
significant customer of PhotoDisc has ceased, or will cease, to use the products
or services of PhotoDisc or any PhotoDisc Subsidiary, or has substantially
reduced, or will substantially reduce, the use of such products, equipment,
goods or services at any time.
SECTION 3.21. CONTENT PROVIDERS. Listed in Section 3.21 of the PhotoDisc
Disclosure Schedule are the names of all the content providers from which
PhotoDisc and the PhotoDisc Subsidiaries ordered, purchased or received content
for PhotoDisc and the PhotoDisc Subsidiaries with an aggregate purchase price of
$25,000 or more during the fiscal year ended December 31, 1996, and the amount
for which each such content provider invoiced PhotoDisc and the PhotoDisc
Subsidiaries during such period. Except as disclosed in Section 3.21 of the
Disclosure Schedule, neither PhotoDisc nor any PhotoDisc Subsidiary has received
any notice or has any reason to believe that any such content provider will not
sell content to PhotoDisc or any PhotoDisc Subsidiary at any time after the
Closing Date on terms and conditions substantially similar to those used in its
current sales to PhotoDisc and the PhotoDisc Subsidiaries, subject only to
general and customary price increases. Except as disclosed in Section 3.21 of
the PhotoDisc Disclosure Schedule, PhotoDisc or the PhotoDisc Subsidiaries, as
the case may be, have the right to terminate each of such content providers on
not more than 90 days' notice. There are no unrecorded liabilities owed to any
content provider from which PhotoDisc and the PhotoDisc Subsidiaries have
ordered, purchased or received content or related goods or services.
SECTION 3.22. EMPLOYEE BENEFIT MATTERS. (a) PLANS AND MATERIAL DOCUMENTS.
Section 3.22(a) of the PhotoDisc Disclosure Schedule lists (i) all employee
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and all bonus, stock option, stock
purchase, restricted stock, incentive, deferred compensation, retiree medical or
life insurance, supplemental retirement, severance or other benefit plans,
programs or arrangements, and all employment, termination, severance or other
contracts or agreements, whether legally enforceable or not, to which PhotoDisc
or any PhotoDisc Subsidiary is a party, with respect to which PhotoDisc or any
PhotoDisc
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Subsidiary has any obligation or which are maintained, contributed to or
sponsored by PhotoDisc or any PhotoDisc Subsidiary for the benefit of any
current or former employee, officer or director of PhotoDisc or any PhotoDisc
Subsidiary, (ii) each employee benefit plan for which PhotoDisc or any PhotoDisc
Subsidiary could incur liability under Section 4069 of ERISA in the event such
plan has been or were to be terminated, (iii) any plan in respect of which
PhotoDisc or any PhotoDisc Subsidiary could incur liability under Section
4212(c) of ERISA and (iv) any contracts, arrangements or understandings between
PhotoDisc or any of its Affiliates and any employee of PhotoDisc or of any
PhotoDisc Subsidiary, including, without limitation, any contracts, arrangements
or understandings relating to the sale of PhotoDisc (collectively, the "PLANS").
Each Plan is in writing and PhotoDisc has furnished Getty with a complete and
accurate copy of each Plan and a complete and accurate copy of each material
document prepared in connection with each such Plan including, without
limitation, (i) a copy of each trust or other funding arrangement, (ii) each
summary plan description and summary of material modifications, (iii) the most
recently filed Internal Revenue Service ("IRS") Form 5500, (iv) the most
recently received IRS determination letter for each such Plan and (v) the most
recently prepared actuarial report and financial statement in connection with
each such Plan. Except as disclosed on Section 3.22(a) of the Disclosure
Schedule, there are no other employee benefit plans, programs, arrangements or
agreements, whether formal or informal, whether in writing or not, to which
PhotoDisc or any PhotoDisc Subsidiary is a party, with respect to which
PhotoDisc or any PhotoDisc Subsidiary has any obligation or which are
maintained, contributed to or sponsored by PhotoDisc or any PhotoDisc Subsidiary
for the benefit of any current or former employee, officer or director of
PhotoDisc or any PhotoDisc Subsidiary. Neither PhotoDisc nor any PhotoDisc
Subsidiary has any express or implied commitment, whether legally enforceable or
not, (i) to create, incur liability with respect to or cause to exist any other
employee benefit plan, program or arrangement, (ii) to enter into any contract
or agreement to provide compensation or benefits to any individual or (iii) to
modify, change or terminate any Plan, other than with respect to a modification,
change or termination required by ERISA or the Code.
(b) ABSENCE OF CERTAIN TYPES OF PLANS. None of the Plans is subject to
Title IV of ERISA. None of the Plans provides for the payment of separation,
severance, termination or similar-type benefits to any Person or obligates
PhotoDisc or any PhotoDisc Subsidiary to pay separation, severance, termination
or similar-type benefits solely as a result of any transaction contemplated by
this Agreement or as a result of a "change in control", within the meaning of
such term under Section 280G of the Code. None of the Plans provides for or
promises retiree medical, disability or life insurance benefits to any current
or former employee, officer or director of PhotoDisc or any PhotoDisc
Subsidiary. Each of the Plans is subject only to the laws of the United States
or a political subdivision thereof.
(c) COMPLIANCE WITH APPLICABLE LAW. Each Plan is now and always has been
operated in all material respects in accordance with the requirements of all
applicable Law, including, without limitation, ERISA and the Code, and all
persons who participate in the operation of such Plans and all Plan
"fiduciaries" (within the meaning of Section 3(21) of ERISA) have always acted
in all material respects in accordance with the provisions of all applicable
Law, including, without limitation, ERISA and the Code. PhotoDisc and each
Subsidiary have performed in all material respects all obligations required to
be performed by them under, are not in any material respect in default under or
in violation of, and have no knowledge of any default or violation by any party
to, any Plan. No legal action, suit or claim is pending or, to the best
knowledge of PhotoDisc after due inquiry, threatened with respect to any Plan
(other than claims for benefits in the ordinary course) and, to the best
knowledge of PhotoDisc after due inquiry, no fact or event exists that could
give rise to any such action, suit or claim.
(d) QUALIFICATION OF CERTAIN PLANS. Each Plan which is intended to be
qualified under Section 401(a) of the Code or Section 401(k) of the Code has
received a favorable determination letter from the IRS that it is so qualified
and each trust established in connection with any Plan which is intended to be
exempt from federal income taxation under Section 501(a) of the Code has
received a determination letter from
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the IRS that it is so exempt, and no fact or event has occurred since the date
of such determination letter from the IRS to adversely affect the qualified
status of any such Plan or the exempt status of any such trust.
(e) ABSENCE OF CERTAIN LIABILITIES AND EVENTS. There has been no
prohibited transaction (within the meaning of Section 406 of ERISA or Section
4975 of the Code) with respect to any Plan for which PhotoDisc or any PhotoDisc
Subsidiary has incurred or could incur any Liability. Neither PhotoDisc nor any
PhotoDisc Subsidiary has incurred any Liability for any penalty or tax arising
under Section 4971, 4972, 4980, 4980B or 6652 of the Code or any Liability under
Section 502 of ERISA, and no fact or event exists which could give rise to any
such Liability. Neither PhotoDisc nor any PhotoDisc Subsidiary has incurred any
Liability under, arising out of or by operation of Title IV of ERISA (other than
Liability for premiums to the Pension Benefit Guaranty Corporation arising in
the ordinary course), including, without limitation, any Liability in connection
with the termination or reorganization of any employee benefit plan subject to
Title IV of ERISA, and no fact or event exists which could give rise to any such
Liability.
(f) PLAN CONTRIBUTIONS AND FUNDING. All contributions, premiums or
payments required to be made with respect to any Plan have been made on or
before their due dates. All such contributions have been fully deducted for
income tax purposes to the extent allowable and no such deduction has been
challenged or disallowed by any governmental entity and no fact or event exists
which could give rise to any such challenge or disallowance.
(g) AMERICANS WITH DISABILITIES ACT. Except as set forth in Section
3.22(g) of the PhotoDisc Disclosure Schedule, PhotoDisc and each PhotoDisc
Subsidiary are in compliance with the requirements of the Americans With
Disabilities Act.
(h) WARN ACT. PhotoDisc and the PhotoDisc Subsidiaries are in compliance
with the requirements of the Workers Adjustment and Retraining Notification Act
("WARN") and have no Liabilities pursuant to WARN.
SECTION 3.23. LABOR MATTERS. Except as set forth in Section 3.23 of the
PhotoDisc Disclosure Schedule, (a) neither PhotoDisc nor any PhotoDisc
Subsidiary is a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by PhotoDisc or any PhotoDisc
Subsidiary and, currently, to PhotoDisc's knowledge, there are no organizational
campaigns, petitions or other unionization activities seeking recognition of a
collective bargaining unit which could affect PhotoDisc or any PhotoDisc
Subsidiary; (b) there are no controversies, strikes, slowdowns or work stoppages
pending or, to the best knowledge of PhotoDisc after due inquiry, threatened
between PhotoDisc or any PhotoDisc Subsidiary and any of their respective
employees, and neither PhotoDisc nor any PhotoDisc Subsidiary has experienced
any such controversy, strike, slowdown or work stoppage within the past three
years; (c) neither PhotoDisc nor any PhotoDisc Subsidiary has materially
breached or otherwise failed to comply in any material respect with the
provisions of any collective bargaining or union contract and there are no
grievances outstanding against PhotoDisc or any PhotoDisc Subsidiary under any
such agreement or contract which could have a Material Adverse Effect on
PhotoDisc; (d) there are no unfair labor practice complaints pending against
PhotoDisc or any PhotoDisc Subsidiary before the National Labor Relations Board
or any other Governmental Authority or any current union representation
questions involving employees of PhotoDisc or any PhotoDisc Subsidiary which
could have a Material Adverse Effect on PhotoDisc; (e) PhotoDisc and each
PhotoDisc Subsidiary is currently in compliance in all material respects with
all applicable Laws relating to the employment of labor, including those related
to wages, hours, collective bargaining and the payment and withholding of taxes
and other sums as required by the appropriate Governmental Authority and has
withheld and paid to the appropriate Governmental Authority or is holding for
payment not yet due to such Governmental Authority all amounts required to be
withheld from employees of PhotoDisc or any PhotoDisc Subsidiary and is not
liable for any arrearages of wages, taxes, penalties or other sums for failure
to comply with any of the foregoing; (f) PhotoDisc and each PhotoDisc Subsidiary
has paid in full to all their respective employees, or adequately accrued for in
accordance with U.S. GAAP all wages, salaries, commissions, bonuses,
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benefits and other compensation due to or on behalf of such employees; (g) there
is no claim with respect to payment of wages, salary or overtime pay that has
been asserted to PhotoDisc or is now pending or, to the best knowledge of
PhotoDisc after due inquiry, threatened before any Governmental Authority with
respect to any Persons currently or formerly employed by PhotoDisc or any
PhotoDisc Subsidiary; (h) neither PhotoDisc nor any PhotoDisc Subsidiary is a
party to, or otherwise bound by, any consent decree with, or citation by, any
Governmental Authority relating to employees or employment practices; and (i)
there is no charge of discrimination in employment or employment practices, for
any reason, including, without limitation, age, gender, race, religion or other
legally protected category, which has been asserted to PhotoDisc or is now
pending or, to the best knowledge of PhotoDisc after due inquiry, threatened
before the United States Equal Employment Opportunity Commission, or any other
Governmental Authority in any jurisdiction in which PhotoDisc or any Subsidiary
has employed or currently employs any Person.
SECTION 3.24. KEY EMPLOYEES. Section 3.24 of the PhotoDisc Disclosure
Schedule lists the name, the place of employment, the current annual salary
rates, bonuses, deferred or contingent compensation, pension, accrued vacation
and other like benefits paid or payable (in cash or otherwise) in 1996, the date
of employment and a description of position and job function of each current
salaried employee, officer, director, consultant or agent of PhotoDisc or any
PhotoDisc Subsidiary whose annual compensation exceeded (or, in 1997, is
expected to exceed) $125,000.
SECTION 3.25. TAXES. Except as disclosed with reasonable specificity in
Section 3.25 of the PhotoDisc Disclosure Schedule, (a) (i) All returns and
reports in respect of Taxes required to be filed by or with respect to PhotoDisc
and each PhotoDisc Subsidiary (including any Tax return that includes or is
required to include PhotoDisc or any PhotoDisc Subsidiary on a consolidated,
combined or unitary basis) have been timely filed; (ii) all Taxes required to be
shown on such returns and reports or otherwise due (including any Taxes that do
not require the filing of a return or report) have been timely paid; (iii) all
such returns and reports (insofar as they relate to the activities or income of
PhotoDisc or any PhotoDisc Subsidiary) are true, correct and complete in all
material respects; (iv) no adjustment relating to any of such returns or reports
of Taxes has been proposed by any Tax authority (insofar as they relate to the
activities, assets or income of PhotoDisc or any PhotoDisc Subsidiary); (v)
there are no pending or, to the best knowledge of PhotoDisc and the PhotoDisc
Subsidiaries (after due inquiry), threatened actions or proceedings for the
assessment or collection of Taxes against PhotoDisc or any PhotoDisc Subsidiary
or (insofar as relates to the activities, assets or income of PhotoDisc or any
PhotoDisc Subsidiary); (vi) the amounts reflected in respect of the liability of
PhotoDisc and the PhotoDisc Subsidiaries for current period Taxes on the
PhotoDisc Interim Financial Statements are adequate to discharge in full the
actual liability of PhotoDisc and the PhotoDisc Subsidiaries for all Taxes
attributable to the period covered by the PhotoDisc Interim Financial Statements
(without regard to the materiality of such Taxes); (vii) no consent under
Section 341(f) of the Code has been filed with respect to PhotoDisc or any
PhotoDisc Subsidiary; (viii) there are no Tax liens on any assets of PhotoDisc
or any PhotoDisc Subsidiary, except for liens for Taxes not yet due and payable,
such as current year property taxes; (ix) none of the Principal Stockholders nor
any PhotoDisc Subsidiary or Affiliate of any Principal Stockholder is a party to
any agreement or arrangement that would result, separately or in the aggregate,
in the payment by PhotoDisc or any PhotoDisc Subsidiary of any "excess parachute
payments" within the meaning of Section 280G of the Code; (x) no acceleration of
the vesting schedule for any property that is substantially unvested within the
meaning of the regulations under Section 83 of the Code will occur in connection
with the transactions contemplated by this Agreement; (xi) from and after
January 1, 1995, PhotoDisc and each PhotoDisc Subsidiary has been and continues
to be a member of the affiliated group (within the meaning of Section 1504(a)(1)
of the Code) for which PhotoDisc files a consolidated return as the common
parent, and has not been includible in any other consolidated return for any
taxable period; (xii) neither PhotoDisc nor any PhotoDisc Subsidiary has been at
any time a member of any partnership or joint venture or the holder of a
beneficial interest in any trust for any period for which the statute of
limitations for any Tax has not expired; (xiii) neither PhotoDisc nor any
PhotoDisc Subsidiary has been a United States real property
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holding corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code; and
(xiv) neither PhotoDisc nor any PhotoDisc Subsidiary is subject to any
accumulated earnings tax penalty or personal holding company tax.
(b) Except as disclosed with reasonable specificity in Section 3.25 of the
PhotoDisc Disclosure Schedule: (i) there are no outstanding waivers or
agreements extending the statute of limitations for any period with respect to
any Tax to which PhotoDisc or any PhotoDisc Subsidiary may be subject; (ii)
neither PhotoDisc nor any PhotoDisc Subsidiary (A) has or is projected to have
an amount includible in its income for the current taxable year under Section
951 of the Code, (B) has been a passive foreign investment company within the
meaning of Section 1296 of the Code, (C) has an unrecaptured overall foreign
loss within the meaning of Section 904(f) of the Code or (D) has participated in
or cooperated with an international boycott within the meaning of Section 999 of
the Code; (iii) neither PhotoDisc nor any PhotoDisc Subsidiary has any (A)
income reportable for a period ending after the Closing Date but attributable to
a closed and completed transaction (E.G., an installment sale) occurring in, or
a change in accounting method made for a period ending on or prior to, the
Closing Date which resulted in a deferred reporting of income from such
transaction or from such change in accounting method (including any adjustment
required under Section 481(a) of the Code), or (B) deferred gain or loss arising
out of any deferred intercompany transaction; (iv) there are no outstanding
written requests for information from taxing authorities that could affect the
Taxes of PhotoDisc or any PhotoDisc Subsidiary; (v) neither PhotoDisc nor any
PhotoDisc Subsidiary is obligated under any agreement with respect to industrial
development bonds or similar obligations; and (vi) no power of attorney that is
currently in force has been granted with respect to any matter relating to Taxes
that could affect PhotoDisc or a PhotoDisc Subsidiary.
(c) (i) Section 3.25 of the PhotoDisc Disclosure Schedule lists all income,
franchise and similar Tax returns with respect to or based on net income
(federal, state, local and foreign) filed with respect to each of PhotoDisc and
the PhotoDisc Subsidiaries for taxable periods ended on or after January 1,
1992, indicates for which jurisdictions returns have been filed on the basis of
a consolidated, combined or unitary group, indicates the most recent income,
franchise or similar Tax return for each relevant jurisdiction for which an
audit has been completed or the statute of limitations has lapsed and indicates
all Tax returns that currently are the subject of audit; (ii) PhotoDisc has
delivered to Getty correct and complete copies of all federal, state and foreign
income, franchise and similar Tax returns, examination reports filed by
PhotoDisc, and all written requests for private rulings, determinations or
informal advice from an income tax authority filed or submitted by or on behalf
of PhotoDisc, any PhotoDisc Subsidiary or any Principal Stockholder (in such
Principal Stockholder's capacity as such) and all examination reports and
statements of deficiencies assessed against or agreed to by PhotoDisc or any
PhotoDisc Subsidiary since January 1, 1992; (iii) PhotoDisc has delivered to
Getty a true and complete copy of any tax-sharing or allocation agreement or
arrangement involving PhotoDisc or any PhotoDisc Subsidiary; and (iv) Section
3.25 of the PhotoDisc Disclosure Schedule sets forth the following information
with respect to each of PhotoDisc and the PhotoDisc Subsidiaries as of the most
recent practicable date (as well as on an estimated pro forma basis as of the
Closing, giving effect to the consummation of the transactions contemplated by
this Agreement): (A) the aggregate tax basis of PhotoDisc and the PhotoDisc
Subsidiaries in the assets used in the Business, (B) the tax basis of PhotoDisc
in the stock of each PhotoDisc Subsidiary (or the amount of any excess loss
account) (or, if such tax basis is not readily available, a description of the
books and records necessary to compute such tax basis and a statement that such
books and records will be made available to Getty), and (C) the amount of any
net operating loss, net capital loss, unused credit, unused foreign tax, or
excess charitable contribution allocable to each of PhotoDisc and the PhotoDisc
Subsidiaries.
(d) For purposes of the indemnification of Getty Images pursuant to Article
X, the representations in Section 3.25(a) shall be deemed to have been made with
no exception for items disclosed in Section 3.25 of the PhotoDisc Disclosure
Schedule or otherwise, except for the matters disclosed in Section 3.25(x) of
the PhotoDisc Disclosure Schedule. For purposes of determining the amount of any
Loss indemnifiable under Section 10.02 with respect to the breach of the
representations in Section 3.25(a), an indemnifiable Loss
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shall be deemed to have occurrred only to the extent that the liability of
PhotoDisc for Taxes for all periods through the date of the PhotoDisc Interim
Financial Statments exceeds the amount accrued for Taxes on the PhotoDisc
Interim Financial Statements, including reserves for taxes.
(e) As of the date hereof, PhotoDisc does not know of any reason (i) why it
would not be able to deliver to Heller Ehrman White & McAuliffe or Shearman &
Sterling at the Closing certificates substantially in compliance with IRS
published advance ruling guidelines, with customary exceptions and modifications
thereto, to enable such firms to deliver the legal opinions contemplated by
Sections 9.02(d) and 9.03(f), and PhotoDisc hereby agrees to deliver such
certificates effective as of the Closing or (ii) why Heller Ehrman White &
McAuliffe or Shearman & Sterling would not be able to deliver the opinions
required by Sections 9.02(d) and 9.03(f).
SECTION 3.26. INSURANCE. All material assets, properties and risks of
PhotoDisc and each PhotoDisc Subsidiary are, and for the past five years have
been, covered by valid and, except for policies that have expired under their
terms in the ordinary course, currently effective insurance policies or binders
of insurance (including, without limitation, general liability insurance,
property insurance and workers' compensation insurance) issued in favor of
PhotoDisc or a PhotoDisc Subsidiary, as the case may be, in such types and
amounts and covering such risks as are consistent with customary practices and
standards of companies engaged in businesses and operations similar to those of
PhotoDisc or such PhotoDisc Subsidiary, as the case may be.
SECTION 3.27. OPINION OF FINANCIAL ADVISOR. PhotoDisc has received the
opinion of Robertson Stephens & Co., dated the date of this Agreement, to the
effect that, as of such date, the consideration to be received in the Merger by
PhotoDisc stockholders is fair to PhotoDisc stockholders from a financial point
of view.
SECTION 3.28. FULL DISCLOSURE. PhotoDisc is not aware of any facts
pertaining to PhotoDisc, any PhotoDisc Subsidiary or the Business which
adversely affect PhotoDisc, any PhotoDisc Subsidiary or the Business or which
are likely in the future to materially adversely affect PhotoDisc, any PhotoDisc
Subsidiary or the Business and which have not been disclosed in this Agreement,
the PhotoDisc Disclosure Schedule, the PhotoDisc Financial Statements, the
PhotoDisc Interim Financial Statements or otherwise disclosed to Getty by
PhotoDisc in writing.
SECTION 3.29. BROKERS. Except for Robertson Stephens & Co., no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of PhotoDisc or any PhotoDisc
Subsidiary of PhotoDisc. The expenses of Robertson Stephens & Co. shall be borne
as provided in Section 12.01.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF GETTY
As an inducement to PhotoDisc to enter into this Agreement, Getty hereby
represents and warrants to PhotoDisc as follows:
SECTION 4.01. ORGANIZATION AND CORPORATE POWER OF GETTY. Getty is a public
limited company duly organized and validly existing under the laws of England
and Wales and has all necessary corporate power and authority to enter into this
Agreement, to carry out its obligations hereunder and to consummate the
transactions contemplated hereby.
SECTION 4.02. CORPORATE AUTHORIZATIONS, EXECUTION AND DELIVERY. The
execution and delivery of this Agreement by Getty, the performance by Getty of
its obligations hereunder and the consummation by Getty of the transactions
contemplated hereby have been duly authorized by all requisite action on the
part of Getty, subject in the case of the consummation of the Merger and the
Scheme of Arrangement to
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obtaining the approval of the High Court and the approvals required of the
holders of Getty Ordinary Shares. This Agreement has been duly executed and
delivered by Getty, and (assuming due authorization, execution and delivery by
the other parties hereto) this Agreement constitutes a legal, valid and binding
obligation of Getty enforceable against Getty in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency, or other similar
laws affecting the enforcement of creditors' rights generally, and except that
the availability of equitable remedies, including specific performance, is
subject to the discretion of the court before which any proceeding therefor may
be brought.
SECTION 4.03. CAPITAL STOCK OF GETTY. (a) The authorized capital stock of
Getty consists of (i) 29,000,000 Getty Class A Ordinary Shares and (ii)
14,000,000 Getty Class B Ordinary Shares. As of the date hereof, (i) 24,872,608
Getty Class A Ordinary Shares are issued, all of which are validly issued, fully
paid and not subject to further calls for funds, and (ii) 13,444,618 Getty Class
B Ordinary Shares are issued, all of which are validly issued, fully paid and
not subject to further calls for funds.
(b) None of the issued Getty Class A Ordinary Shares or Getty Class B
Ordinary Shares was issued in violation of any preemptive rights. Except as set
forth in Section 4.03 of the Getty Disclosure Schedule, there are no options,
warrants, convertible securities or other rights, agreements, arrangements or
commitments of any character relating to the capital stock of Getty or
obligating Getty or any of the Getty Subsidiaries to issue or sell any shares of
capital stock of, or any other interest in, Getty. There are no outstanding
contractual obligations of Getty to repurchase, redeem or otherwise acquire any
Getty Class A Ordinary Shares or Getty Class B Ordinary Shares or to provide
funds to, or make any investment (in the form of a loan, capital contribution or
otherwise) in, any other Person.
(c) Except as set forth in Section 4.03(c) of the Getty Disclosure Schedule,
there are no voting trusts, stockholder agreements, proxies or other agreements
or understandings in effect with respect to the voting or transfer of any of the
outstanding Getty Class A Ordinary Shares or Getty Class B Ordinary Shares.
Except as set forth in Section 4.03(c) of the Getty Disclosure Schedule, Getty
has not granted or agreed to grant to any Person any rights to subscribe for
securities of Getty, to nominate for election or have elected any Person to the
Board of Directors of Getty or to register any securities of Getty under the
Securities Act.
(d) Section 4.03(d) of the Getty Disclosure Schedule sets forth the name of
each Person owning Getty Class B Ordinary Shares and the number of Getty Class B
Ordinary Shares owned by each such Person.
(e) Effective upon consummation of the Scheme of Arrangement at the
Effective Time, Getty Images shall obtain all right, title and interest in and
to all of the voting equity securities of Getty outstanding immediately prior to
the Effective Time.
SECTION 4.04. GETTY SUBSIDIARIES. (a) Section 4.04(a) of the Getty
Disclosure Schedule sets forth a true and complete list of all Getty
Subsidiaries, listing for each Getty Subsidiary its name and jurisdiction of
incorporation.
(b) Other than the Getty Subsidiaries, there are no other corporations,
partnerships, joint ventures, associations or other entities in which Getty
owns, of record or beneficially, any direct or indirect equity or other interest
or any right (contingent or otherwise) to acquire the same. Other than the Getty
Subsidiaries, Getty is not a member of (nor is any part of the business of Getty
conducted through) any partnership. Except as set forth in Section 4.04(b) of
the Getty Disclosure Schedule, Getty is not a participant in any joint venture
or similar arrangement.
(c) Each Getty Subsidiary (i) is a corporation, partnership, limited
liability company or other legal entity duly organized and validly existing
under the laws of its jurisdiction of incorporation, (ii) has all necessary
power and authority to own, operate or lease the properties and assets owned,
operated or leased by such Getty Subsidiary and to carry on its business as it
has been and is currently conducted by such Getty Subsidiary and (iii) is duly
licensed or qualified to do business and is in good standing in each
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jurisdiction in which the properties owned or leased by it or the operation of
its business makes such licensing or qualification necessary or desirable,
except for such failures which, when taken together with all other such
failures, reasonably could not be expected to have a Material Adverse Effect on
Getty.
(d) Except as set forth in Section 4.04(d) of the Getty Disclosure Schedule,
all the outstanding shares of capital stock of each Getty Subsidiary that is a
corporation are validly issued, fully paid, nonassessable and, except with
respect to wholly owned Getty Subsidiaries, free of preemptive rights and are
owned by Getty, whether directly or indirectly, free and clear of all
Encumbrances.
(e) There are no options, warrants, convertible securities, or other rights,
agreements, arrangements or commitments of any character relating to the capital
stock of any Getty Subsidiary or obligating Getty or any Getty Subsidiaries to
issue or sell any shares of capital stock of, or any other interest in, any
Getty Subsidiary.
(f) All material corporate actions taken by each Getty Subsidiary have been
duly authorized and no Getty Subsidiary has taken any action that in any
material respect conflicts with, constitutes a default under or results in a
violation of any provision of its charter or by-laws (or similar organizational
documents).
(g) Except as set forth in Section 4.04(g) of the Getty Disclosure Schedule,
no Getty Subsidiary is a member of (nor is any part of its business conducted
through) any partnership nor is any Getty Subsidiary a participant in any joint
venture or similar arrangement.
(h) There are no voting trusts, stockholder agreements, proxies or other
agreements or understandings in effect with respect to the voting or transfer of
any shares of capital stock of or any other interests in any Getty Subsidiary.
SECTION 4.05. NO CONFLICT. Assuming that all consents, approvals,
authorizations and other actions described in Section 4.06 have been obtained
and all filings and notifications listed in Section 4.06 of the Getty Disclosure
Schedule have been made, except as set forth in Section 4.05 of the Getty
Disclosure Schedule, the execution, delivery and performance of this Agreement
by Getty do not and will not (a) violate, conflict with or result in the breach
of any provision of the Memorandum and Articles of Association (or similar
organizational documents) of Getty or any Getty Subsidiary, (b) conflict with or
violate (or cause an event which reasonably could be expected to have a Material
Adverse Effect on Getty as a result of) any Law or Governmental Order applicable
to Getty, any Getty Subsidiary or any of their respective assets, properties or
businesses or (c) conflict with, or result in any breach of, constitute a
default (or event which, with the giving of notice or lapse or time, or both,
would become a default) under, require any consent under, or give to others any
rights of termination, amendment, acceleration, suspension, revocation, or
cancellation of, or result in the creation of any Encumbrance on any of the
assets or properties of Getty or any Getty Subsidiary pursuant to, any note,
bond, mortgage or indenture, contract, agreement, lease, sublease, license,
permit, franchise or other instrument or arrangement to which Getty or any Getty
Subsidiary is a party or by which any of such assets or properties are bound or
affected which would have a material adverse effect on the ability of Getty to
consummate the transactions contemplated by this Agreement. Except as set forth
in Section 4.05 of the Getty Disclosure Schedule, no material amounts will
become payable by Getty or a Getty Subsidiary to current or former directors or
officers of Getty or any Getty Subsidiary as a result of or in connection with
the transactions contemplated by this Agreement.
SECTION 4.06. GOVERNMENTAL CONSENTS AND APPROVALS. The execution, delivery
and performance of this Agreement by Getty do not and will not require any
consent, approval, authorization or other order of, action by, filing with, or
notification to, any Governmental Authority, except (a) as described in Section
4.06 of the Getty Disclosure Schedule, (b) the notification requirements of the
HSR Act and (c) High Court approval for the Scheme of Arrangement.
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SECTION 4.07. SEC REPORTS AND FINANCIAL STATEMENTS. (a) Getty has filed
all required reports, schedules, forms, statements and other documents required
to be filed by it with the SEC since July 2, 1996 (collectively, including all
exhibits thereto, the "GETTY SEC REPORTS"). None of the Getty SEC Reports, as of
their respective dates (and, if amended or superseded by a filing prior to the
date of this Agreement or of the Closing Date, then on the date of such filing),
contained or will contain any untrue statement of a material fact or omitted or
will omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. All of the Getty SEC Reports, as of their respective dates
(and as of the date of any amendment to the respective Getty SEC Report),
complied as to form in all material respects with the applicable requirements of
the Securities Act and the Exchange Act and the rules and regulations
promulgated thereunder.
(b) True and complete copies of (i) the audited consolidated balance sheets
of Getty as of December 31, 1995 and December 31, 1996, the audited consolidated
statements of operations and cash flows of Getty for the period March 14, 1995
through December 31, 1995 and for the year ended December 31, 1996, the
consolidated balance sheets of Tony Stone Associates Limited at December 31,
1994 and at March 13, 1995, and the audited consolidated statements of
operations and cash flows of Tony Stone Associates Limited for the year ended
December 31, 1994 and for the period January 1, 1995 through March 13, 1995,
together with all related notes and schedules thereto, accompanied by the
reports thereon of Getty's Accountants (collectively referred to herein as the
"GETTY FINANCIAL STATEMENTS") have been included in Getty's Annual Report on
Form 20-F for the year ended December 31, 1996 as filed with the SEC and (ii)
the unaudited consolidated balance sheet of Getty as of June 30, 1997, and the
related unaudited consolidated income statement of Getty for the six months
ended June 30, 1997 (collectively referred to herein as the "GETTY INTERIM
FINANCIAL STATEMENTS") have been furnished to the SEC under cover of a Report on
Form 6-K. The Getty Financial Statements and the Getty Interim Financial
Statements (i) were prepared in accordance with the books of account and other
financial records of Getty, (ii) present fairly in all material respects the
consolidated financial condition and results of operations of Getty and the
Getty Subsidiaries as of the dates thereof or for the periods covered thereby,
(iii) have been prepared in accordance with U.S. GAAP applied on a basis
consistent with the past practices of Getty, except, in the case of the Getty
Interim Financial Statements, for the absence of footnote disclosures, and (iv)
include all adjustments (consisting only of normal recurring accruals) that are
necessary for a fair presentation of the consolidated financial condition of
Getty and the Getty Subsidiaries and the results of the operations of Getty and
the Getty Subsidiaries as of the dates thereof or for the periods covered
thereby, except, in the case of the Getty Interim Financial Statements, for
normal year-end audit adjustments.
(c) Except as set forth in the Getty SEC Reports filed prior to the date of
this Agreement, and except for liabilities and obligations incurred in the
ordinary course of business consistent with past practice since December 31,
1996, neither Getty nor any of its subsidiaries has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
which, individually or in the aggregate, would have a Material Adverse Effect on
Getty or would prevent or materially delay the performance of this Agreement by
Getty.
SECTION 4.08. NO UNDISCLOSED LIABILITIES. There are no Liabilities of
Getty or any Getty Subsidiary, other than Liabilities (i) reflected or reserved
against on the audited consolidated balance sheet of Getty as of December 31,
1996, (ii) disclosed in Section 4.08 of the Getty Disclosure Schedule, (iii)
disclosed in documents filed by Getty with the SEC or publicly furnished to the
SEC, or (iv) incurred since the date of this Agreement in the ordinary course of
business, consistent with the past practice, of Getty and the Getty Subsidiaries
and which do not and reasonably could not be expected to have a Material Adverse
Effect on Getty.
SECTION 4.09. FORM S-4, GETTY IMAGES PROSPECTUS AND GETTY SHAREHOLDER
CIRCULAR. (a)(i) The Form S-4 will not, at the time the Form S-4 is filed with
the SEC, at any time it is amended or supplemented or at the time it becomes
effective under the Securities Act, insofar as it contains information related
to Getty or the Getty Subsidiaries, contain any untrue statement of a material
fact or omit to state any material fact
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required to be stated therein or necessary to make the statements therein not
misleading, (ii) the Getty Images Prospectus will not, at the time the Form S-4
is filed with the SEC, at any time it is amended or supplemented or at the time
it becomes effective under the Securities Act, insofar as it contains
information related to Getty or the Getty Subsidiaries, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, and (iii) the
Getty Shareholder Circular will not, on the date it is first mailed to Getty
shareholders or at the time of the Getty Shareholders Meeting, insofar as it
contains information related to Getty or the Getty Subsidiaries, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. Insofar
as it relates to Getty or the Getty Subsidiaries, the Form S-4 will comply as to
form in all material respects with the requirements of the Securities Act and
the rules and regulations of the SEC thereunder.
(b) Notwithstanding the foregoing provisions of this Section 4.08, no
representation or warranty is made by Getty with respect to statements made or
incorporated by reference in the Form S-4, the Getty Images Prospectus or the
Getty Shareholder Circular with respect to PhotoDisc, the PhotoDisc
Subsidiaries, the Business, PhotoDisc's stockholders or Getty Images.
SECTION 4.10. CONDUCT IN THE ORDINARY COURSE. Since December 31, 1996,
except as disclosed in Section 4.10 of the Getty Disclosure Schedule, the
business of Getty and the Getty Subsidiaries has been conducted in the ordinary
course and consistent with past practice.
SECTION 4.11. LITIGATION. Except as set forth in Section 4.11 of the Getty
Disclosure Schedule (which, with respect to each Action disclosed therein, sets
forth the parties, the nature of the proceeding, the date and method of
commencement and the amount of damages or other relief sought), there are no
Actions pending (or to the best knowledge of Getty after due inquiry,
threatened) by or against Getty or any Getty Subsidiary. None of the matters
disclosed in Section 4.11 of the Getty Disclosure Schedule has had or reasonably
could be expected to have a Material Adverse Effect on Getty or could be
reasonably likely to materially adversely affect the legality, validity or
enforceability of this Agreement or Getty's ability to consummate the
transactions contemplated hereby. Except as set forth in Section 4.11 of the
Getty Disclosure Schedule, neither Getty nor any Getty Subsidiary is subject to
any Governmental Order which has had or reasonably could be expected to have a
Material Adverse Effect on Getty.
SECTION 4.12. COMPLIANCE WITH LAWS. Except as set forth in Section 4.12 of
the Getty Disclosure Schedule, Getty and the Getty Subsidiaries have each
conducted and continue to conduct in all material respects their businesses in
accordance with all Laws and Governmental Orders applicable to Getty or any of
the Getty Subsidiaries or their businesses, and neither Getty nor any Getty
Subsidiary is in violation of any such Law or Governmental Order which could
reasonably be expected to have a material adverse effect on the business of
Getty and the Getty Subsidiaries.
SECTION 4.13. CERTAIN INTERESTS. (a) Except as disclosed in Section
4.13(a) of the Getty Disclosure Schedule, no officer or director of Getty and no
relative or spouse (or relative of such spouse) who resides with, or is a
dependent of, any such officer or director:
(i) to the best knowledge of Getty after due inquiry, has any direct or
indirect financial interest in any competitor, supplier or customer of
Getty, PROVIDED, HOWEVER, that the ownership of securities representing no
more than two percent of the outstanding voting power of any competitor,
supplier or customer, and which are listed on any national securities
exchange or traded actively in the national over-the-counter market, shall
not be deemed to be a "financial interest" so long as the Person owning such
securities has no other connection or relationship with such competitor,
supplier or customer;
(ii) owns, directly or indirectly, in whole or in part, or has any other
interest in any tangible or intangible property which Getty uses or has used
in the conduct of the Business or otherwise; or
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(iii) has outstanding any Indebtedness to Getty.
(b) Except as disclosed in Section 4.13(b) of the Getty Disclosure Schedule,
neither Getty nor any of the Getty Subsidiaries has any Liability or any other
obligation of any nature whatsoever to any officer, director or shareholder of
Getty or to any relative or spouse (or relative of such spouse) who resides
with, or is a dependent of, any such officer, director or shareholder.
SECTION 4.14. ENVIRONMENTAL AND SAFETY MATTERS. Getty and each of the
Getty Subsidiaries is in all material respects in compliance with the provisions
of all federal, state, local and foreign laws relating to pollution, protection
of the environment or occupational safety and health applicable to it or to real
property owned or leased by it or to the use, operation or occupancy thereof.
Neither Getty nor any Getty Subsidiary has engaged in any activity in material
violation of any provision of any federal, state or local law relating to
pollution, protection of the environment or occupational safety and health.
Neither Getty nor any Getty Subsidiary has any material liability, absolute or
contingent, under any federal, state or local law relating to pollution,
protection of the environment or occupational safety and health.
SECTION 4.15. INTELLECTUAL PROPERTY. (a) Except as disclosed in Section
4.15(a) of the Getty Disclosure Schedule: (i) all the Getty Owned Intellectual
Property is owned by either Getty or a Getty Subsidiary, as the case may be,
free and clear of any Encumbrance other than Permitted Encumbrances and (ii) no
Actions have been made or asserted or are pending (nor, to the best knowledge of
Getty after due inquiry, has any such Action been threatened) against Getty or
any Getty Subsidiary either (A) based upon or challenging or seeking to deny or
restrict the use by Getty or any Getty Subsidiary of any of the Getty Owned
Intellectual Property or (B) alleging that any services provided, or products
manufactured or sold by Getty or any Getty Subsidiary, are being provided,
manufactured or sold in violation of any patents, trademarks or copyrights or
any other rights of any Person. To the best knowledge of Getty after due
inquiry, no Person is using any patents, copyrights, trademarks, service marks,
trade names, trade secrets or similar property that are confusingly similar to
the Getty Owned Intellectual Property or that infringe upon such owned
Intellectual Property or upon the rights of Getty or any Getty Subsidiary
therein. Except as disclosed in Section 4.15(a) of the Getty Disclosure
Schedule, neither Getty nor any Getty Subsidiary has granted any license or
other right to any other Person with respect to the Getty Owned Intellectual
Property. The consummation of the transactions contemplated by this Agreement
will not result in the termination or impairment of any of the Getty Owned
Intellectual Property.
(b) Except as disclosed in Section 4.15(b) of the Getty Disclosure Schedule,
with respect to each license and sublicense pursuant to which Getty or any Getty
Subsidiary licenses Intellectual Property from a third party: (i) such license
or sublicense is valid and binding and in full force and effect; (ii) such
license or sublicense will not cease to be valid and binding and in full force
and effect on terms identical to those currently in effect as a result of the
consummation of the transactions contemplated by this Agreement, nor will the
consummation of the transactions contemplated by this Agreement constitute a
breach or default under such license or sublicense or otherwise give the
licensor or sublicensor a right to terminate such license or sublicense; (iii)
neither Getty nor any Getty Subsidiary has received any notice of termination,
cancellation or material breach or default under such license or sublicense and
no licensor or sublicensor has any right of termination or cancellation under
such license or sublicense except in connection with the default of Getty or any
Getty Subsidiary thereunder; (iv) none of Getty, any Getty Subsidiary nor (to
the best knowledge of Getty after due inquiry) any other party to such license
or sublicense is in breach or default in any material respect, and, to the best
knowledge of Getty after due inquiry, no event has occurred that, with notice or
lapse of time would constitute such a material breach or default or permit
termination, modification or acceleration under such license or sublicense; (v)
no Actions have been made or asserted or are pending (nor, to the best knowledge
of PhotoDisc after due inquiry, has any such Action been threatened) against
Getty or any Getty Subsidiary either (A) based upon or challenging or seeking to
deny or restrict the use by Getty or any Getty Subsidiary of any of the Getty
Licensed Intellectual Property or (B) alleging that any of the Getty Licensed
Intellectual Property is being licensed, sublicensed or used in violation of any
patents or trademarks, or any other rights of any Person;
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and (vi) Getty and the Getty Subsidiaries own or have the legal right to use all
Intellectual Property used or held by Getty or any Getty Subsidiary or forming a
part of, used or held in, and all such Intellectual Property necessary in the
conduct of, the business of Getty and the Getty Subsidiaries.
SECTION 4.16. TAX-FREE TREATMENT. As of the date hereof, Getty does not
know of any reason (i) why it would not be able to deliver to Heller Ehrman
White & McAuliffe or Shearman & Sterling at the Closing certificates
substantially in compliance with IRS published advance ruling guidelines, with
customary exceptions and modifications thereto, to enable such firms to deliver
the legal opinions contemplated by Sections 9.02(d) and 9.03(f), and Getty
hereby agrees to deliver such certificates effective as of the Closing Date or
(ii) why Heller Ehrman White & McAuliffe or Shearman & Sterling would not be
able to deliver the opinions required by Sections 9.02(d) and 9.03(f).
SECTION 4.17. OPINION OF FINANCIAL ADVISOR. Getty has received the opinion
of Alex. Brown & Sons, dated the date of this Agreement, to the effect that, as
of such date, the consideration to be issued in the Merger by Getty Images is
fair to Getty and Getty Images from a financial point of view.
SECTION 4.18. FULL DISCLOSURE. Getty is not aware of any facts pertaining
to Getty, any Getty Subsidiary or the business of Getty and the Getty
Subsidiaries which adversely affect Getty, any Getty Subsidiary or the business
of Getty and the Getty Subsidiaries or which are likely in the future to
materially adversely affect Getty, any Getty Subsidiary or the business of Getty
and the Getty Subsidiaries and which have not been disclosed in this Agreement,
the Getty Disclosure Schedule, the Getty Financial Statements, the Getty Interim
Financial Statements or otherwise disclosed to PhotoDisc by Getty in writing.
SECTION 4.19. BROKERS. Except for Alex. Brown & Sons Ltd., no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Getty. Getty shall be solely
responsible for payment of the fees and expenses of Alex. Brown & Sons Ltd.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF GETTY IMAGES AND MERGER SUB
As an inducement to PhotoDisc to enter into this Agreement, Getty Images and
Merger Sub each represent and warrant to PhotoDisc as follows:
SECTION 5.01. ORGANIZATION AND CORPORATE POWER. Getty Images is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all necessary corporate power and authority to
enter into this Agreement, the Stockholders' Transaction Agreement and the
Escrow Agreement, to carry out its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. Getty Images has no
subsidiaries other than Merger Sub. Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of the State of Washington
and has all necessary corporate power and authority to enter into this
Agreement, to carry out its obligations hereunder and to consummate the
transactions contemplated hereby.
SECTION 5.02. CORPORATE AUTHORIZATIONS, EXECUTION AND DELIVERY. (a) The
execution and delivery by Getty Images of this Agreement, the Stockholders'
Transaction Agreement and the Escrow Agreement, the performance by Getty Images
of its obligations hereunder and thereunder and the consummation by Getty Images
of the transactions contemplated hereby and thereby have been duly authorized by
all requisite action on the part of Getty Images. Each of this Agreement and the
Stockholders' Transaction Agreement has been, and, upon its execution, the
Escrow Agreement will be, duly executed and delivered by Getty Images, and
(assuming due authorization, execution and delivery by the other parties hereto
and thereto) each of this Agreement and the Stockholders' Transaction Agreement
constitutes, and, upon its execution, the Escrow Agreement will constitute, a
legal, valid and binding obligation of Getty Images enforceable against Getty
Images in accordance with its terms, except as enforcement may be limited by
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bankruptcy, insolvency, or other similar laws affecting the enforcement of
creditors' rights generally, and except that the availability of equitable
remedies, including specific performance, is subject to the discretion of the
court before which any proceeding therefor may be brought.
(b) The execution and delivery of this Agreement by Merger Sub, the
performance by Merger Sub of its obligations hereunder and the consummation by
Merger Sub of the transactions contemplated hereby have been duly authorized by
all requisite action on the part of Merger Sub. This Agreement has been duly
executed and delivered by Merger Sub, and (assuming due authorization, execution
and delivery by the other parties hereto) this Agreement constitutes a legal,
valid and binding obligation of Merger Sub enforceable against Merger Sub in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency, or other similar laws affecting the enforcement of creditors' rights
generally, and except that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before which any
proceeding therefor may be brought.
SECTION 5.03. CAPITAL STOCK OF GETTY IMAGES AND MERGER SUB. (a) The
authorized capital stock of Getty Images consists of 1,000 Getty Images Shares.
As of the date hereof, 100 Getty Images Shares are issued, all of which are
validly issued, fully paid and nonassessable, and are owned of record and
beneficially by Getty.
(b) The authorized capital stock of Merger Sub consists of 1,000 shares of
common stock, par value $0.01 per share. As of the date hereof, 100 shares of
such common stock are issued, all of which are validly issued, fully paid and
nonassessable, and are owned of record and beneficially by Getty Images.
(c) None of the issued Getty Images Shares was issued in violation of any
preemptive rights. Except as set forth in Section 4.03 of the Getty Disclosure
Schedule, there are no options, warrants, convertible securities or other
rights, agreements, arrangements or commitments of any character relating to the
capital stock of Getty Images or obligating Getty Images to issue or sell any
shares of capital stock of, or any other interest in, Getty Images. There are no
outstanding contractual obligations of Getty Images to repurchase, redeem or
otherwise acquire any Getty Images Shares or to provide funds to, or make any
investment (in the form of a loan, capital contribution or otherwise) in, any
other Person.
(d) Except as set forth in Section 4.03(c) of the Getty Disclosure Schedule
or as contemplated by this Agreement, there are no voting trusts, stockholder
agreements, proxies or other agreements or understandings in effect with respect
to the voting or transfer of any of the outstanding Getty Images Shares. Except
as set forth in Section 4.03(c) of the Getty Disclosure Schedule or as
contemplated by this Agreement, Getty Images has not granted or agreed to grant
to any Person any rights to subscribe for securities of Getty Images, to
nominate for election or have elected any Person to the Board of Directors of
Getty Images or to register any securities of Getty Images under the Securities
Act.
(e) All of the Getty Images Shares issuable to the holders of shares of
PhotoDisc Common Stock in the Merger and to the holders of Getty Ordinary Shares
in the Scheme of Arrangement will be issued in compliance with applicable
securities laws and will be, when so issued, duly authorized, validly issued,
fully paid and nonassessable, and free and clear of any pledge, lien, security
interest, voting or transfer restriction, right of first refusal, preemptive
right or encumbrance of any kind created by Getty Images, except pursuant to the
Stockholders' Agreement or the Escrow Agreement or as otherwise contemplated
pursuant to this Agreement, the Stockholders' Transaction Agreement or the
Escrow Agreement.
SECTION 5.04. NO CONFLICT. Assuming that all consents, approvals,
authorizations and other actions described in Section 4.05 have been obtained
and all filings and notifications listed in Section 4.05 of the Getty Disclosure
Schedule have been made, except as set forth in Section 4.04 of the Getty
Disclosure Schedule, the execution, delivery and performance of this Agreement
by each of Getty Images and Merger Sub do not and will not (a) violate, conflict
with or result in the breach of any provision of the Certificate of
Incorporation, Articles of Incorporation or By-laws of either Getty Images or
Merger Sub, (b) conflict with or violate (or cause an event which reasonably
could be expected to have a material
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adverse effect on Getty Images as a result of) any Law or Governmental Order
applicable to either Getty Images or Merger Sub or (c) conflict with, or result
in any breach of, constitute a default (or event which, with the giving of
notice or lapse or time, or both, would become a default) under, require any
consent under, or give to others any rights of termination, amendment,
acceleration, suspension, revocation or cancellation of, or result in the
creation of any Encumbrance on any of the assets or properties of either Getty
Images or Merger Sub pursuant to, any note, bond, mortgage or indenture,
contract, agreement, lease, sublease, license, permit, franchise or other
instrument or arrangement to which Getty Images or Merger Sub is a party or by
which any of such assets or properties are bound or affected which would have a
material adverse effect on the ability of Getty Images or Merger Sub to
consummate the transactions contemplated by this Agreement.
SECTION 5.05. GOVERNMENTAL CONSENTS AND APPROVALS. The execution, delivery
and performance of this Agreement by each of Getty Images and Merger Sub do not
and will not require any consent, approval, authorization or other order of,
action by, filing with, or notification to, any Governmental Authority, except
(a) as described in Section 5.05 of the Getty Disclosure Schedule, (b) the
notification requirements of the HSR Act and (c) High Court approval of the
Scheme of Arrangement.
SECTION 5.06. NO BUSINESS ACTIVITIES. Neither Getty Images nor Merger Sub
has conducted any activities other than in connection with the organization of
Getty Images and Merger Sub, respectively, and the negotiation, execution and
delivery of this Agreement, the performance of its obligations hereunder and the
consummation of the transactions contemplated hereby.
SECTION 5.07. FORM S-4, GETTY IMAGES PROSPECTUS AND GETTY SHAREHOLDER
CIRCULAR. (a)(i) The Form S-4 will not, at the time the Form S-4 is filed with
the SEC, at any time it is amended or supplemented or at the time it becomes
effective under the Securities Act, insofar as it contains information related
to Getty Images, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Getty Images Prospectus will not, at
the time the Form S-4 is filed with the SEC, at any time it is amended or
supplemented or at the time it becomes effective under the Securities Act,
insofar as it contains information related to Getty Images, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, and (iii) the
Getty Shareholder Circular will not, on the date it is first mailed to Getty
shareholders or at the time of the Getty Shareholders Meeting, insofar as it
contains information related to Getty Images, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Insofar as it relates
to Getty Images, the Form S-4 will comply as to form in all material respects
with the requirements of the Securities Act and the rules and regulations of the
SEC thereunder.
(b) Notwithstanding the foregoing provisions of this Section 5.07, no
representation or warranty is made by Getty with respect to statements made or
incorporated by reference in the Form S-4, the Getty Images Prospectus or the
Getty Shareholder Circular with respect to PhotoDisc, the PhotoDisc
Subsidiaries, the Business, PhotoDisc's stockholders, Getty or the Getty
Subsidiaries.
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 6.01. CONDUCT OF BUSINESS OF PHOTODISC PRIOR TO THE
CLOSING. (a) PhotoDisc covenants and agrees that, except as described in
Section 6.01(a) of the PhotoDisc Disclosure Schedule, between the date hereof
and the time of the Closing, neither PhotoDisc nor any of the PhotoDisc
Subsidiaries shall conduct the Business other than in the ordinary course and
consistent with PhotoDisc's and such PhotoDisc Subsidiary's prior practice.
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Without limiting the generality of the foregoing, except as described in
Section 6.01(a) of the PhotoDisc Disclosure Schedule, PhotoDisc and each
PhotoDisc Subsidiary shall: (i) use its best efforts to (A) preserve intact
their business organizations and the business organization of the Business, (B)
keep available to Getty Images the services of the employees of PhotoDisc and
each PhotoDisc Subsidiary, and (C) preserve their current relationships with
their customers, suppliers and other persons with which they have significant
business relationships; and (ii) not engage in any practice, take any action,
fail to take any action or enter into any transaction which could cause any
representation or warranty of PhotoDisc to be untrue or result in a breach of
any covenant made by PhotoDisc in this Agreement.
(b) Except as described in Section 6.01(b) of the PhotoDisc Disclosure
Schedule, PhotoDisc covenants and agrees that, prior to the Closing, without the
prior written consent of Getty and Getty Images, neither PhotoDisc nor any
PhotoDisc Subsidiary will do any of the things enumerated in the second sentence
of Section 3.11 (including, without limitation, clauses (i) through (xxiii)
thereof).
SECTION 6.02. CONDUCT OF BUSINESS OF GETTY PRIOR TO THE CLOSING. Getty
covenants and agrees that, except as described in Section 6.02 of the Getty
Disclosure Schedule, between the date hereof and the time of the Closing, Getty
shall carry on its business in the ordinary course in all material respects, in
substantially the same manner as heretofore conducted.
Without limiting the generality of the foregoing, except as described in
Section 6.02 of the Getty Disclosure Schedule, between the date hereof and the
time of Closing, Getty and each Getty Subsidiary shall: (i) use its best efforts
to preserve intact their business organizations; (ii) not engage in any
practice, take any action, fail to take any action or enter into any transaction
which could cause any representation or warranty of Getty to be untrue or result
in a breach of any covenant made by Getty in this Agreement; (iii) not acquire
or engage in discussions to acquire a royalty-free digital stock photography
company without the prior written approval of PhotoDisc; (iv) issue or sell any
options, warrants or other rights to acquire any securities of Getty without the
prior written approval of PhotoDisc; PROVIDED, HOWEVER, that Getty may, without
the prior written approval of PhotoDisc, issue or sell options, warrants or
other rights to acquire up to 100,000 Getty Class A Ordinary Shares in
connection with the hiring of new employees of Getty or any Getty Subsidiary; or
(v) issue or sell any shares of capital stock of Getty; PROVIDED, HOWEVER, that
(x) Getty may issue Getty Ordinary Shares upon the exercise of options, warrants
and other convertible securities outstanding on the date hereof and (y) Getty
may issue a number of Getty Ordinary Shares up to an aggregate of 20% of the
Getty Ordinary Shares outstanding on the date hereof in connection with
acquisitions of shares, assets or other properties.
SECTION 6.03. NO SOLICITATION OR NEGOTIATION. PhotoDisc agrees that
between the date of this Agreement and the earlier of (i) the Closing and (ii)
the termination of this Agreement, neither PhotoDisc nor the PhotoDisc
Subsidiaries or any of their respective Affiliates, officers, directors,
representatives or agents will (a) solicit, initiate, consider, encourage or
accept any other proposals or offers from any Person (i) relating to any
acquisition or purchase of all or any portion of the capital stock of PhotoDisc
or any PhotoDisc Subsidiary or assets of PhotoDisc or any PhotoDisc Subsidiary,
(ii) to enter into any business combination with PhotoDisc or any PhotoDisc
Subsidiary or (iii) to enter into any other extraordinary business transaction
involving or otherwise relating to PhotoDisc or any PhotoDisc Subsidiary, or (b)
participate in any discussions, conversations, negotiations and other
communications regarding, or furnish to any other Person any information with
respect to, or otherwise cooperate in any way, assist or participate in,
facilitate or encourage any effort or attempt by any other Person to seek to do
any of the foregoing. PhotoDisc immediately shall cease, and cause to be
terminated, all existing discussions, conversations, negotiations and other
communications with any Persons conducted heretofore with respect to any of the
foregoing. PhotoDisc shall notify Getty promptly if any such proposal or offer,
or any inquiry or other contact with any Person with respect thereto, is made
and shall, in any such notice to Getty, indicate in reasonable detail the
identity of the Person making such proposal, offer, inquiry or contact and the
terms and conditions of such proposal, offer, inquiry or other contact.
PhotoDisc agrees not to, and to cause PhotoDisc and each PhotoDisc Subsidiary
not to, without the prior written consent of Getty, release
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any Person from, or waive any provision of, any confidentiality or standstill
agreement to which PhotoDisc or any PhotoDisc Subsidiary is a party.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01. COOPERATION WITH RESPECT TO PREPARATION OF FORM S-4, GETTY
IMAGES PROSPECTUS AND GETTY SHAREHOLDER CIRCULAR. (a) Each of Getty, Getty
Images and PhotoDisc shall use its reasonable best efforts to prepare and file
with the SEC the Form S-4 and the related Getty Images Prospectus by October 17,
1997, and Getty shall, in cooperation with Getty Images and PhotoDisc, prepare
the Getty Shareholder Circular as soon as practicable following the date of this
Agreement. Each of Getty Images, Getty and PhotoDisc shall use all reasonable
best efforts to have the Form S-4 declared effective under the Securities Act as
promptly as practicable after such filing and to keep the Form S-4 effective as
long as is necessary to consummate the Merger. Getty Images shall also take any
action (other than qualifying to do business in any jurisdiction in which Getty
Images is not now so qualified) required to be taken under any applicable United
States state securities laws in connection with the issuance of Getty Images
Shares in connection with the Merger. PhotoDisc shall furnish all information
concerning PhotoDisc as may be reasonably requested in connection with any such
action.
(b) Each party shall advise the other party, promptly after it receives
notice thereof, of the time when the Form S-4 has become effective or any
supplement or amendment has been filed, of the issuance of any stop order, of
the suspension of the qualification of Getty Images Shares issuable in
connection with the Merger for offering or sale in any jurisdiction, or of any
request by the SEC or the High Court for amendment of the Form S-4 or Getty
Shareholder Circular or comments thereon and responses thereto or requests by
the SEC or the High Court for additional information.
SECTION 7.02. PHOTODISC STOCKHOLDER MEETING. PhotoDisc shall, as soon as
practicable following the date of this Agreement and the effectiveness of the
Form S-4, duly call, give notice of, convene and hold a meeting of its
stockholders (the "PHOTODISC STOCKHOLDER MEETING") for the purpose of obtaining
the vote of such stockholders required to consummate the transactions
contemplated hereby. PhotoDisc will, through its Board of Directors, recommend
to its stockholders approval of all matters required to be approved at the
PhotoDisc Stockholder Meeting.
SECTION 7.03. AFFILIATE AND AUDITOR LETTERS. (a) Prior to the Closing
Date, PhotoDisc shall deliver to Getty Images a letter identifying all Persons
who are, immediately prior to the Effective Time, Rule 145 Affiliates of
PhotoDisc. PhotoDisc shall use all reasonable efforts to cause each such Person
to deliver to Getty Images on or prior to the Closing Date a written agreement
substantially in the form of Exhibit 2.09 to the Stockholders' Transaction
Agreement.
(b) Prior to the Closing Date, Getty shall deliver to Getty Images a letter
identifying all Persons who are, immediately prior to the Effective Time, Rule
145 Affiliates of Getty. Getty shall use all reasonable efforts to cause each
such Person to deliver to Getty Images on or prior to the Closing Date a written
agreement substantially in the form of Exhibit 7.03(b) to this Agreement.
(c) PhotoDisc shall use all reasonable best efforts to cause to be delivered
to Getty Images and Getty and their directors a letter from PhotoDisc's
Accountants, dated the date on which the Form S-4 shall become effective, and
addressed to such Persons, in form and substance customary for "comfort" letters
delivered by independent public accountants in connection with registration
statements similar to the Form S-4.
(d) Getty Images and Getty shall use all reasonable best efforts to cause to
be delivered to the directors of Getty Images a letter from Getty's Accountants,
dated the date on which the Form S-4 shall become effective, and addressed to
such Persons, in form and substance customary for "comfort" letters delivered by
independent public accountants in connection with registration statements
similar to the Form S-4.
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SECTION 7.04. NASDAQ QUOTATION. Getty Images shall, as promptly as
practicable, prepare and submit to the Nasdaq National Market an application for
the quotation of the Getty Images Shares to be issued in the Merger and the
Scheme of Arrangement, and shall use its reasonable best efforts to obtain,
prior to the Effective Time, agreement by the Nasdaq National Market for the
quotation of such Getty Images Shares, and Getty and PhotoDisc shall cooperate
with Getty Images with respect to such quotation.
SECTION 7.05. ACCESS TO INFORMATION. From the date hereof until the
Closing, upon reasonable notice, each of PhotoDisc and Getty shall cause their
respective Subsidiaries, officers, directors, employees, agents,
representatives, accountants and counsel to: (i) afford the officers, employees
and authorized agents, accountants, counsel and representatives of the other
reasonable access, during normal business hours, to the offices, properties,
plants, other facilities, books and records of it and its Subsidiaries and to
those officers, directors, employees, agents, accountants and counsel of it and
its Subsidiaries who have any knowledge relating to it or its Subsidiaries and
(ii) furnish to the officers, employees and authorized agents, accountants,
counsel and representatives of the other such additional financial and operating
data and other information regarding the assets, properties and goodwill of it
and its Subsidiaries (or legible copies thereof) as the other may from time to
time reasonably request.
SECTION 7.06. REGULATORY AND OTHER AUTHORIZATIONS; NOTICES AND
CONSENTS. (a) Each party shall use its reasonable best efforts to obtain all
authorizations, consents, orders and approvals of all Governmental Authorities
and officials that may be or become necessary for its execution and delivery of,
and the performance of its obligations pursuant to, this Agreement and will
cooperate fully with each other in promptly seeking to obtain all such
authorizations, consents, orders and approvals. Each party hereto agrees to make
an appropriate filing, if necessary, pursuant to the HSR Act with respect to the
transactions contemplated by this Agreement within ten Business Days of the date
hereof and to supply as promptly as practicable to the appropriate Governmental
Authorities any additional information and documentary material that may be
requested pursuant to the HSR Act.
(b) PhotoDisc and Getty shall give promptly such notices to third parties
and use their reasonable best efforts to obtain such third party consents and
estoppel certificates as they may in their reasonable discretion deem necessary
or desirable in connection with the transactions contemplated by this Agreement.
(c) The parties shall cooperate and use all reasonable efforts to assist the
other parties in giving such notices and obtaining such consents and estoppel
certificates; PROVIDED, HOWEVER, that no party shall have any obligation to give
any guarantee or other consideration of any nature in connection with any such
notice, consent or estoppel certificate or to consent to any change in the terms
of any agreement or arrangement which it in its reasonable discretion may deem
adverse to the interests of such party.
(d) Neither PhotoDisc nor Getty knows of any reason why all the consents,
approvals and authorizations necessary for the consummation of the transactions
contemplated hereby will not be received.
SECTION 7.07. NOTICE OF DEVELOPMENTS. Prior to the Closing, (a) PhotoDisc
shall promptly notify Getty in writing of, and (b) Getty shall promptly notify
PhotoDisc in writing of, (i) all events, circumstances, facts and occurrences
arising subsequent to the date of this Agreement which come to their attention
which reasonably could result in any material breach of a representation or
warranty or covenant of PhotoDisc or Getty, as the case may be, in this
Agreement or which could have the effect of making any representation or
warranty of PhotoDisc or Getty, as the case may be, in this Agreement untrue or
incorrect in any material respect and (ii) all other material developments which
come to their attention affecting the assets, Liabilities, business, financial
condition, operations, results of operations, customer or supplier relations,
employee relations, projections or prospects of PhotoDisc, Getty or any
Subsidiary thereof; PROVIDED, HOWEVER, that no such notification shall affect in
any manner the representations, warranties, covenants or agreements of the
parties (or remedies with respect thereto, including, without limitation, the
right to indemnification under Article X) or the conditions to the obligations
of the parties under this Agreement.
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SECTION 7.8. CERTIFICATE OF INCORPORATION AND BY-LAWS OF GETTY
IMAGES. Getty Images shall use its reasonable best efforts to cause the
Certificate of Incorporation and By-laws of Getty Images as of the Effective
Time to contain the provisions summarized in Exhibit 7.08 and otherwise to be in
form and substance reasonably acceptable to Getty and PhotoDisc.
SECTION 7.09. ADOPTION OF NEW GETTY IMAGES STOCK OPTION PLAN. Getty Images
shall use its reasonable best efforts to adopt as of the Effective Time a stock
option plan in form and substance reasonably acceptable to Getty and PhotoDisc
and with terms customary in the high technology industry in which PhotoDisc and
its subsidiaries operate and for the geographical regions in which Getty Images
and its subsidiaries will operate, with the understanding that, as a general
rule, options will vest over a four-year period unless decided otherwise in
specific instances by the Board of Directors of Getty Images or an appropriate
committee thereof.
SECTION 7.10. DIRECTOR AND OFFICER INDEMNIFICATION AND INSURANCE. (a) From
and after the Effective Time, Getty Images will cause the Surviving Corporation
to fulfill and honor in all respects the obligations of PhotoDisc pursuant to
any indemnification agreements between PhotoDisc and its directors and officers
existing prior to the date hereof. The Articles of Incorporation and By-laws of
the Surviving Corporation will contain the provisions with respect to
indemnification set forth in the Articles of Incorporation and By-laws of
PhotoDisc, which provisions will not be amended, repealed or otherwise modified
for a period of six years from the Effective Time in any manner that would
adversely affect the rights thereunder of individuals who, immediately prior to
the Effective Time, were directors, officers, employees or agents of PhotoDisc,
unless such modification is required by law.
(b) After the Effective Time, Getty Images will cause the Surviving
Corporation, to the fullest extent permitted under applicable law or under the
Surviving Corporation's Articles of Incorporation or By-laws, to indemnify and
hold harmless, each present director or officer of PhotoDisc (collectively, the
"PHOTODISC EXECUTIVES") against any costs or expenses (including attorneys'
fees), judgments, fines, losses, claims, damages, liabilities and amounts paid
in settlement in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, to the
extent arising out of or pertaining to any action or omission in his or her
capacity as a director or officer of PhotoDisc arising out of or pertaining to
the transactions contemplated by this Agreement for a period of six years after
the date hereof. In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time), (i) any
counsel retained by the PhotoDisc Executives for any period after the Effective
Time must be reasonably satisfactory to the Surviving Corporation and Getty
Images, (ii) after the Effective Time, Getty Images will cause the Surviving
Corporation to pay the reasonable fees and expenses of such counsel, promptly
after statements therefor are received, and (iii) Getty Images will cause the
Surviving Corporation to cooperate in the defense of any such matter; PROVIDED,
HOWEVER, that neither Getty Images nor the Surviving Corporation will be liable
for any settlement effected without its written consent; and PROVIDED FURTHER
that, in the event that any claim or claims for indemnification are asserted or
made within such six-year period, all rights to indemnification in respect of
any such claim or claims will continue until the disposition of any and all such
claims; and PROVIDED FURTHER that any determination required to be made with
respect to whether a PhotoDisc Executive's conduct complies with the standards
set forth under Washington Law, PhotoDisc's articles of incorporation or by-laws
or such agreements, as the case may be, shall be made by independent legal
counsel selected by the PhotoDisc Executive and reasonably acceptable to Getty
Images; and PROVIDED FURTHER that nothing in this Section 7.10 shall impair any
rights or obligations of any present or former employees, agents, directors or
officers of Getty Images. The PhotoDisc Executives as a group may retain only
one law firm (in addition to local counsel) to represent them with respect to
any single action unless there is, under applicable standards of professional
conduct, a conflict on any significant issue between the positions of any two or
more PhotoDisc Executives. In the event that PhotoDisc, the Surviving
Corporation or Getty Images or any of their respective successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers or conveys all or
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substantially all of its properties and assets to any person, then, and in each
such case, to the extent necessary to effectuate the purposes of this Section
7.10 proper provision shall be made so that the successors and assigns of Getty
Images and PhotoDisc assume the obligations set forth in this Section 7.10 and
none of the actions described in clause (i) or (ii) shall be taken until such
provision is made.
(c) For a period of three years after the Effective Time, Getty Images will
cause the Surviving Corporation to use its commercially reasonable efforts to
maintain in effect, if available, directors' and officers' liability insurance
covering those persons who are currently covered by PhotoDisc's directors' and
officers' liability insurance policy on terms comparable to those applicable to
the then current directors and officers of PhotoDisc; PROVIDED, HOWEVER, that in
no event shall the Surviving Corporation be required to expend pursuant to this
Section 7.10(c) more than an amount equal to 200% of the current annual premiums
paid by PhotoDisc for such insurance (which premiums PhotoDisc represents and
warrants to be $20,480 in the aggregate).
SECTION 7.11. BOARD OF DIRECTORS OF GETTY IMAGES. (a) The Board of
Directors of Getty Images will take all actions necessary to reconstitute the
Board of Directors of Getty Images as of the Effective Time in accordance with
Exhibit 7.11.
(b) The Board of Directors of Getty Images will take all actions necessary
to establish an Executive Committee of the Board of Directors as of the
Effective Time as described in Exhibit 7.08 and to appoint Mark Getty, Jonathan
Klein and Mark Torrance to such committee as of the Effective Time.
(c) The Board of Directors of Getty Images will take all actions necessary
to appoint Mark Getty and Mark Torrance as Co-Chairmen of the Board of Directors
as of the Effective Time.
SECTION 7.12. NAME OF GETTY IMAGES. As of the Effective Time, the name of
Getty Images will be changed to Getty Images, Inc.
SECTION 7.13. ASSUMPTION OF OBLIGATION TO PAY CASH AMOUNT TO HOLDERS OF
SERIES A PREFERRED STOCK. In accordance with Section IV(C)(6)(e) of the Articles
of Incorporation of PhotoDisc, Getty Images hereby assumes the obligation to pay
any Cash Amount (as defined in Section IV(C)(5)(a) of the Articles of
Incorporation of PhotoDisc) owing to the holders of shares of Series A Preferred
Stock pursuant to Section IV(C)(5)(a) of the Articles of Incorporation of
PhotoDisc as a result of the transactions contemplated by this Agreement. The
parties acknowledge that the amount of such cash payment shall be taken into
account in determining the Merger Consideration pursuant to Section 1.11.
SECTION 7.14. NO ACTIONS INCONSISTENT WITH TAX FREE STATUS. Getty Images,
Getty and PhotoDisc shall not (and, following the Effective Time, Getty Images
shall cause the Surviving Corporation not to) take any action with respect to
the capital stock, assets or liabilities of PhotoDisc that would cause the
Merger to fail to qualify as (i) a "reorganization" within the meaning of
Section 368(a) of the Code and (ii) when considered together with the Scheme of
Arrangement, a transfer of property qualifying under Section 351 of the Code.
Getty Images agrees to deliver to Heller Ehrman White & McAuliffe and Shearman &
Sterling effective as of the Closing Date, a certificate substantially in
compliance with IRS published advance ruling guidelines, with customary
exceptions and modifications thereto, to enable such firms to deliver the legal
opinions contemplated by Sections 9.02(d) and 9.03(f) thereof.
SECTION 7.15. ROLLOVER OF EXISTING REGISTRATION RIGHTS. Prior to the
Effective Time, Getty shall, in cooperation with Getty Images, use all
reasonable efforts to negotiate amendments to the registration rights agreements
to which Getty is a party to provide appropriately for the transactions
contemplated by this Agreement. No such amendment may grant to any Person
registration rights more favorable than the current rights of such Person,
except as otherwise contemplated by this Agreement.
SECTION 7.16. FURTHER ACTION. Each of the parties hereto shall use all
reasonable best efforts to take, or cause to be taken, all appropriate action,
do or cause to be done all things necessary, proper or advisable under
applicable Law, and execute and deliver such documents and other papers, as may
be
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required to carry out the provisions of this Agreement and consummate and make
effective the transactions contemplated by this Agreement.
ARTICLE VIII
TAX MATTERS
SECTION 8.01. ALLOCATION OF TAXES. For purposes of Section 3.25(a)(vi)
hereof, in the case of Taxes that are payable with respect to a taxable period
that begins before the Closing Date and ends after the Closing Date, the portion
of any such Tax that is allocable to the portion of the period ending on the
Closing Date shall be:
(a) in the case of Taxes that are either (i) based upon or related to
income or receipts, or (ii) imposed in connection with any sale or other
transfer or assignment of property (real or personal, tangible or
intangible) (other than conveyances occurring as a result of to this
Agreement), deemed equal to the amount which would be payable if the taxable
year ended with the Closing Date; and
(b) in the case of Taxes imposed on a periodic basis with respect to the
assets of PhotoDisc or any PhotoDisc Subsidiary, or otherwise measured by
the level of any item, deemed to be the amount of such Taxes for the entire
period (or, in the case of such Taxes determined on an arrears basis, the
amount of such Taxes for the immediately preceding period), multiplied by a
fraction the numerator of which is the number of calendar days in the period
ending on the Closing Date and the denominator of which is the number of
calendar days in the entire period, except to the extent that changes in the
assets or business of PhotoDisc following the Closing render such pro rata
allocation inappropriate.
SECTION 8.02. MISCELLANEOUS. (a) The Principal Stockholders, Getty Images
and Getty agree to treat all payments made by either of them to or for the
benefit of the other (including any payments to PhotoDisc or any PhotoDisc
Subsidiary) under the indemnity provisions of this Agreement and for any
misrepresentations or breaches of warranties or covenants as adjustments to the
Merger Consideration or as capital contributions for Tax purposes and that such
treatment shall govern for purposes hereof except to the extent that the Laws of
a particular jurisdiction provide otherwise, in which case such payments shall
be made in an amount sufficient to indemnify the relevant party on an after-Tax
basis.
(b) The representations and warranties contained in Section 3.25 shall
terminate at the close of business on the 120th day following the expiration of
the applicable statute of limitations with respect to the Tax liabilities in
question (giving effect to any waiver, mitigation or extension thereof).
(c) From and after the date of this Agreement, PhotoDisc shall not without
the prior written consent of Getty Images (which may, in its sole and absolute
discretion, withhold such consent) make, or cause or permit to be made, any Tax
election that would affect PhotoDisc or any PhotoDisc Subsidiary.
ARTICLE IX
CONDITIONS TO CLOSING
SECTION 9.01. MUTUAL CONDITIONS TO THE OBLIGATIONS TO EFFECT THE MERGER AND
THE SCHEME OF ARRANGEMENT. The obligations of Getty Images, PhotoDisc and
Merger Sub to effect the Merger, and the obligations of Getty Images and Getty
to effect the Scheme of Arrangement, shall be subject to the satisfaction or
waiver, on or prior to the Effective Time, of each of the following conditions:
(a) GETTY SHAREHOLDER APPROVAL. Getty shall have obtained all approvals
of holders of Getty Ordinary Shares necessary to approve this Agreement and
all the transactions contemplated hereby (including the Scheme of
Arrangement).
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(b) PHOTODISC STOCKHOLDER APPROVAL. PhotoDisc shall have obtained all
approvals of holders of shares of PhotoDisc Common Stock and Series A
Preferred Stock voting together as a single class necessary to approve this
Agreement and all the transactions contemplated hereby (including the
Merger).
(c) HIGH COURT APPROVAL. The High Court shall have approved the Scheme
of Arrangement and Getty shall have filed an office copy of the order of the
High Court under Section 425 of the Companies Act with the Registrar of
Companies of England and Wales.
(d) NASDAQ QUOTATION. The Getty Images Shares to be issued in the
Merger and the Scheme of Arrangement shall have been authorized for
quotation on the Nasdaq National Market, subject to official notice of
issuance.
(e) HSR ACT AND OTHER ANTITRUST FILINGS. The waiting period (and any
extension thereof) applicable to the Merger or the Transaction under the HSR
Act shall have been terminated or shall have expired and all other waiting
periods and approvals required under applicable competition laws shall have
been terminated, expired or obtained, as the case may be.
(f) SECURITIES LAW. The Form S-4 and the Registration Statement on Form
8-A to be filed by Getty Images shall have become effective under the
Securities Act and the Exchange Act, as applicable, and no stop order
suspending the effectiveness of such registration statements shall have been
issued by the SEC and no proceeding for that purpose shall then be
threatened by the SEC or shall have been initiated by the SEC and not
concluded or withdrawn, and all state securities or "blue sky"
authorizations necessary to carry out the transactions contemplated hereby
shall have been obtained and be in full force and effect.
(g) NO INJUNCTIONS OR RESTRAINTS, ILLEGALITY. No temporary restraining
order, preliminary or permanent injunction or other order issued by a court
or other Governmental Entity of competent jurisdiction shall be in effect
and have the effect of making the Merger or the Scheme of Arrangement
illegal or otherwise prohibiting consummation of the Merger or the Scheme of
Arrangement; PROVIDED, HOWEVER, that the provisions of this Section 9.01(f)
shall not be available to any party whose failure to fulfill its obligations
under this Agreement shall have been the cause of, or shall have resulted
in, such order or injunction.
(h) NO LITIGATION. There shall not be pending or overtly threatened any
suit, action, investigation or proceeding to which a Governmental Entity is
a party (i) seeking to restrain or prohibit the consummation of the Merger,
the Scheme of Arrangement or any of the other transactions contemplated by
this Agreement or seeking to obtain from Getty Images, Getty, PhotoDisc or
Merger Sub or any of their respective Subsidiaries any damages that are
material in relation to Getty and the Getty Subsidiaries, taken as a whole,
or PhotoDisc and the PhotoDisc Subsidiaries, taken as a whole, as
applicable, (ii) seeking to prohibit or limit the ownership or operation by
Getty Images, Getty, PhotoDisc or Merger Sub or any of their respective
Subsidiaries of any material portion of the business or assets of Getty and
the Getty Subsidiaries, taken as a whole, or PhotoDisc and the PhotoDisc
Subsidiaries taken as a whole, or seeking to require Getty Images, Getty,
PhotoDisc or Merger Sub or any of their respective subsidiaries to dispose
of or hold separate any material portion of the business or assets of Getty
and the Getty Subsidiaries, taken as a whole, or PhotoDisc and the PhotoDisc
Subsidiaries, taken as a whole, as a result of the Merger, the Scheme of
Arrangement or any of the other transactions contemplated by this Agreement,
(iii) seeking to prohibit Getty Images or any of its subsidiaries from
effectively controlling in any material respect the business or operations
of Getty and the Getty Subsidiaries, taken as a whole, or PhotoDisc and the
PhotoDisc Subsidiaries, taken as a whole, or (iv) which otherwise could have
a Material Adverse Effect on either Getty Images, Getty or PhotoDisc;
PROVIDED, HOWEVER, that the provisions of this Section 9.01(h) shall not be
available to any party whose failure to fulfill its obligations under this
Agreement shall have been the cause of, or shall have resulted in, such
suit, action, investigation or proceeding.
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(i) NEW GETTY IMAGES STOCK OPTION PLAN. The New Getty Images Stock
Option Plan shall have been adopted in accordance with Section 7.09.
(j) BOARD OF DIRECTORS OF GETTY IMAGES. The Board of Directors of Getty
Images as of the Effective Time shall have been reconstituted in accordance
with Section 7.11.
(k) STOCKHOLDERS' AGREEMENT. Each of Getty Images, PDI, Mark Torrance,
Getty Investments, Mark Getty, Jonathan Klein, October 1993 Trust and
Crediton Limited shall have entered into the Stockholders' Agreement having
the principal terms set forth in Exhibit 9.01(k); PROVIDED, HOWEVER, that
the provisions of this Section 9.01(k) shall not be available to any party
if such party (or (i) in the case of PhotoDisc, either of PDI or Mark
Torrance, or (ii) in the case of Getty, any of Getty Images, Getty
Investments, Mark Getty, Jonathan Klein, October 1993 Trust or Crediton
Limited) fails to enter into such agreement.
(l) REGISTRATION RIGHTS AGREEMENTS. (i) Each of Getty Images, PDI and
Mark Torrance shall have entered into the Registration Rights Agreement
having the principal terms set forth in Exhibit 9.01(l)(i); PROVIDED,
HOWEVER, that the provisions of this Section 9.01(l)(i) shall not be
available to any party if such party (or (i) in the case of PhotoDisc,
either of PDI or Mark Torrance, or (ii) in the case of Getty, Getty Images)
fails to enter into such agreement.
(ii) Getty Images and Getty Investments shall have entered into the
Registration Rights Agreement having the principal terms set forth in
Exhibit 9.01(l)(ii); PROVIDED, HOWEVER, that the provisions of this
Section 9.01(l)(ii) shall not be available to Getty Images if Getty
Images fails to enter into such agreement.
(m) EMPLOYMENT AGREEMENTS. Each of Mark Getty, Jonathan Klein and Mark
Torrance shall have entered into Employment Agreements with Getty Images
having the principal terms set forth in Exhibit 9.01(m); PROVIDED, HOWEVER,
that the provisions of this Section 9.01(m) shall not be available to any
party if such party (or (i) in the case of PhotoDisc, Mark Torrance, or (ii)
in the case of Getty, any of Getty Images, Mark Getty or Jonathan Klein)
fails to enter into such agreements.
(n) SIMULTANEOUS TRANSACTIONS. The Effective Time of the Merger and the
Scheme of Arrangement shall occur simultaneously.
SECTION 9.02. CONDITIONS TO OBLIGATIONS OF PHOTODISC TO EFFECT THE
MERGER. In addition, the obligations of PhotoDisc to effect the Merger shall be
subject to the satisfaction or waiver, on or prior to the Effective Time, of
each of the following additional conditions:
(a) REPRESENTATIONS AND WARRANTIES OF GETTY, GETTY IMAGES AND MERGER
SUB. The representations and warranties of Getty, Getty Images and Merger
Sub contained in this Agreement that are qualified as to materiality shall
be true and correct, and the representations and warranties of Getty, Getty
Images and Merger Sub contained in this Agreement that are not so qualified
shall be true and correct in all material respects, in each case as of the
date of this Agreement and, except to the extent that such representations
and warranties speak as of an earlier date, as of the Closing Date, as
though made on and as of the Closing Date, and PhotoDisc shall have received
a certificate signed on behalf of Getty, Getty Images and Merger Sub by the
chairman and chief executive officer of Getty, Getty Images and Merger Sub
to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF GETTY, GETTY IMAGES AND MERGER
SUB. Each of Getty, Getty Images and Merger Sub shall have performed or
complied in all material respects with all agreements and covenants required
to be performed by it under this Agreement at or prior to the Closing Date,
and PhotoDisc shall have received a certificate of the chairman and chief
executive officer of Getty to such effect.
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(c) NO MATERIAL ADVERSE EFFECT. No event or events shall have occurred,
or reasonably could be expected to occur, which, individually or in the
aggregate, have or reasonably could be expected to have a Material Adverse
Effect on Getty.
(d) TAX OPINION. PhotoDisc shall have received the opinion of Heller
Ehrman White & McAuliffe, counsel to PhotoDisc, to the effect that, on the
basis of the facts, representations and assumptions set forth in such
opinion, (i) the Merger will be treated for United States federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Code, (ii) each of Getty Images, PhotoDisc and Merger Sub will be a party to
that reorganization within the meaning of Section 368(b) of the Code and
(iii) no gain or loss will be recognized on the exchange of shares of
PhotoDisc Common Stock for the Merger Consideration, except that gain, if
any, shall be recognized to the extent of the Cash Consideration received,
which opinion shall be dated on or about the date that is two Business Days
prior to the Closing Date and which shall not have been withdrawn or
modified in any material respect as of the Closing Date. The issuance of
such opinion shall be conditioned on receipt of representation letters from
each of PhotoDisc, Getty and Getty Images as contemplated in Sections
3.25(e), 4.16 and 7.14 hereof, and from the Principal Stockholders as
contemplated in Section 2.09(b) of the Stockholders' Transaction Agreement.
Each such representation letter shall be dated on or before the date of such
opinion and shall not have been withdrawn or modified in any material
respect as of the Closing Date.
(e) LEGAL OPINION. PhotoDisc shall have received from each of Shearman
& Sterling and Clifford Chance a legal opinion, addressed to PhotoDisc and
dated the Closing Date, in form and substance reasonably satisfactory to
PhotoDisc.
SECTION 9.03. CONDITIONS TO OBLIGATIONS OF GETTY IMAGES AND GETTY TO EFFECT
THE SCHEME OF ARRANGEMENT. In addition, the obligations of Getty Images and
Getty to effect the Scheme of Arrangement shall be subject to the satisfaction
or waiver, on or prior to the Effective Time, of each of the following
additional conditions:
(a) REPRESENTATIONS AND WARRANTIES OF PHOTODISC. The representations
and warranties of PhotoDisc contained in this Agreement that are qualified
as to materiality shall be true and correct, and the representations and
warranties of PhotoDisc contained in this Agreement that are not so
qualified shall be true and correct in all material respects, in each case
as of the date of this Agreement and, except to the extent that such
representations and warranties speak as of an earlier date, as of the
Closing Date, as though made on and as of the Closing Date, and Getty shall
have received certificates to such effect signed on behalf of PhotoDisc by
the chairman and chief executive officer of PhotoDisc.
(b) PERFORMANCE OF OBLIGATIONS OF PHOTODISC. PhotoDisc shall have
performed or complied in all material respects with all agreements and
covenants required to be performed by it under this Agreement at or prior to
the Closing Date, and Getty shall have received certificates to such effect
signed on behalf of PhotoDisc by the chairman and chief executive officer of
PhotoDisc.
(c) STOCKHOLDERS' TRANSACTION AGREEMENT. (i) The Stockholders'
Transaction Agreement shall be in full force and effect and no Principal
Stockholder shall be in breach of or default under any material term of the
Stockholders' Transaction Agreement.
(ii) The representations and warranties of each Principal
Stockholder contained in the Stockholders' Transaction Agreement that are
qualified as to materiality shall be true and correct, and the
representations and warranties of each Principal Stockholder contained in
the Stockholders' Transaction Agreement that are not so qualified shall
be true and correct in all material respects, in each case as of the date
of this Agreement and, except to the extent that such representations and
warranties speak as of an earlier date, as of the Closing Date as though
made
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on and as of the Closing Date, and Getty shall have received certificates
to such effect signed by or on behalf of each Principal Stockholder.
(iii) Each Principal Stockholder shall have performed or complied in
all material respects with all agreements and covenants required to be
performed by it under the Stockholders' Transaction Agreement at or prior
to the Closing Date, and Getty shall have received certificates to such
effect signed by or on behalf of each Principal Stockholder.
(d) ESCROW AGREEMENT. The Escrow Agreement shall have been executed and
delivered by all of the Principal Stockholders. The Escrow Agreement shall
be in full force and effect and no party thereto shall be in material breach
of or default under the Escrow Agreement.
(e) NO MATERIAL ADVERSE EFFECT. No event or events shall have occurred,
or reasonably could be expected to occur, which, individually or in the
aggregate, have or reasonably could be expected to have a Material Adverse
Effect on PhotoDisc.
(f) TAX OPINION. Getty shall have received the opinion of Shearman &
Sterling, counsel to Getty, to the effect that, on the basis of the facts,
representations and assumptions set forth in such opinion, (i) the Scheme of
Arrangement will be treated for United States federal income tax purposes as
(x) a reorganization within the meaning of Section 368(a) of the Code and
(y) when considered together with the Merger, a transfer of property to a
corporation qualifying under Section 351 of the Code, (ii) each of Getty
Images and Getty will be a party to that reorganization within the meaning
of Section 368(b) of the Code and (iii) no gain or loss will be recognized
on the exchange of Getty Ordinary Shares for Getty Images Shares, which
opinion shall be dated on or about the date that is two Business Days prior
to the Closing Date and which shall not have been withdrawn or modified in
any material respect as of the Closing Date. The issuance of such opinion
shall be conditioned on receipt of representation letters from each of
PhotoDisc, Getty and Getty Images as contemplated in Sections 3.25(e), 4.16
and 7.14 hereof, and from the Principal Stockholders as contemplated in
Section 2.09(b) of the Stockholders' Transaction Agreement. Each such
representation letter shall be dated on or before the date of such opinion
and shall not have been withdrawn or modified in any material respect as of
the Closing Date.
(g) LEGAL OPINION. Getty shall have received from Heller Ehrman White &
McAuliffe a legal opinion, addressed to Getty and dated the Closing Date, in
form and substance reasonably satisfactory to Getty.
(h) RESIGNATIONS OF PHOTODISC'S DIRECTORS. Getty shall have received
the resignations, effective as of the Closing, of all the directors and
officers of PhotoDisc and each PhotoDisc Subsidiary, except for such persons
as shall have been designated in writing prior to the Closing by Getty to
PhotoDisc.
(i) ORGANIZATIONAL DOCUMENTS. Getty shall have received a copy of (i)
the Articles of Incorporation (or similar organizational documents), of
PhotoDisc and of each PhotoDisc Subsidiary, certified by the secretary of
state of the jurisdiction in which each such entity is incorporated or
organized, as of a date not earlier than five Business Days prior to the
Closing Date and accompanied by a certificate of the Secretary or Assistant
Secretary of each such entity, dated as of the Closing Date, stating that no
amendments have been made to such Articles of Incorporation (or similar
organizational documents) since such date, and (ii) the By-laws (or similar
organizational documents) of PhotoDisc and of each PhotoDisc Subsidiary,
certified by the Secretary or Assistant Secretary of each such entity.
(j) MINUTE BOOKS. Getty shall have received a copy of the minute books
and stock register of PhotoDisc and each PhotoDisc Subsidiary, certified by
their respective Secretaries or Assistant Secretaries as of the Closing
Date.
(k) RELEASE OF OBLIGATIONS. Getty Images shall have received the
general release and discharge from the Principal Stockholders referred to in
Section 2.04 of the Stockholders' Transaction Agreement in form and
substance satisfactory to Getty Images in its reasonable discretion.
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(l) REAL PROPERTY LEASE. PhotoDisc shall have entered into a lease with
Mark Torrance with respect to office space at 2013 Fourth Avenue, Seattle
Washington on the terms previously disclosed to Getty.
(m) GERMAN SUBSIDIARY. PhotoDisc shall have acquired all of the capital
stock of PhotoDisc Deutschland GmbH on terms reasonably acceptable to Getty
and Getty Images.
ARTICLE X
INDEMNIFICATION
SECTION 10.01. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the parties contained in this Agreement, the
representations and warranties of the parties to the Stockholders' Transaction
Agreement contained in the Stockholders' Transaction Agreement and all
statements contained in this Agreement and the Stockholders' Transaction
Agreement, the Exhibits to this Agreement and the Stockholders' Transaction
Agreement, the Disclosure Schedules and any certificate, financial statement or
interim financial statement delivered pursuant to this Agreement or the
Stockholders' Transaction Agreement (collectively, the "TRANSACTION DOCUMENTS")
shall survive the Closing until March 31, 1999; PROVIDED, HOWEVER, that the
representations and warranties dealing with Tax matters shall survive as
provided in Section 8.04(b) of this Agreement. Neither the period of survival
nor the liability of any party with respect to such party's representations and
warranties shall be reduced by any investigation made at any time by or on
behalf of any party. If written notice of a claim has been given prior to the
expiration of the applicable representations and warranties by a party to the
other parties, then the relevant representations and warranties shall survive as
to such claim, until such claim has been finally resolved.
SECTION 10.02. INDEMNIFICATION BY THE PRINCIPAL STOCKHOLDERS. Each of
Getty Images, Getty and their Affiliates (including, without limitation,
PhotoDisc and the PhotoDisc Subsidiaries), officers, directors, employees,
agents, successors and assigns (each a "GETTY IMAGES PARTY") shall be
indemnified and held harmless by the Principal Stockholders (who shall be
severally and not jointly liable) for any and all Liabilities, losses, damages,
diminution in value, claims, costs and expenses, interest, awards, judgments and
penalties (including, without limitation, reasonable attorneys' and consultants'
fees and expenses) actually suffered or incurred by them (hereinafter a "LOSS"),
arising out of or resulting from:
(a) the breach of any representation or warranty made by PhotoDisc or
such Principal Stockholder contained in the Transaction Documents; or
(b) the breach of any covenant or agreement by PhotoDisc or such
Principal Stockholder contained in the Transaction Documents.
To the extent that the undertakings of the Principal Stockholders set forth
in this Section 10.02 may be unenforceable, the Principal Stockholders shall
contribute the maximum amount that they are permitted to contribute under
applicable law to the payment and satisfaction of all Losses incurred by any
Getty Images Party.
SECTION 10.03. INDEMNIFICATION BY GETTY IMAGES AND GETTY. The stockholders
of PhotoDisc immediately prior to the Effective Time and their respective
Affiliates, officers, directors, employees, agents, successors and assigns (each
a "STOCKHOLDER PARTY") shall be indemnified and held harmless by Getty Images
and Getty (who shall be jointly and severally liable) for any and all Losses
arising out of or resulting from:
(a) the breach of any representation or warranty made by Getty Images,
Getty or Merger Sub contained in the Transaction Documents; or
(b) the breach of any covenant or agreement by Getty Images, Getty or
Merger Sub contained in the Transaction Documents.
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To the extent that the undertakings of Getty Images or Getty set forth in this
Section 10.03 may be unenforceable, Getty Images and Getty shall contribute the
maximum amount that it is permitted to contribute under applicable law to the
payment and satisfaction of all Losses incurred by any Stockholder Party.
SECTION 10.04. LIMITS ON INDEMNIFICATION. (a) Notwithstanding anything to
the contrary contained in this Agreement:
(i) the maximum aggregate amount of indemnifiable Losses arising out of
or resulting from the causes enumerated in Section 10.02 which may be
recovered:
(A) from any Principal Stockholder other than the Investors shall be
the amount equal to 20% of the value of the Merger Consideration to which
such Principal Stockholder is entitled pursuant to Section 1.11 of the
Merger Agreement (for purposes of this Section 10.04, Getty Images and
the Principal Stockholders (including the Investors) hereby acknowledge
and agree that the value of the Merger Consideration to which any
Principal Stockholder is entitled pursuant to Section 1.11 of the Merger
Agreement shall be equal to the sum of (1) the amount of cash to which
such Principal Stockholder is entitled pursuant to such Section 1.11 and
(2) the product of (x) the number of Getty Images Shares to which such
Principal Stockholder is entitled pursuant to such Section 1.11 and (y)
the Average Trading Price of Getty ADRs at Closing); and
(B) from any Investor shall be the amount equal to the number of
Escrow Shares deposited with the Escrow Agent and registered in the name
of such Investor pursuant to Section 1.12 multiplied by the Average
Trading Price of Getty ADRs at Closing; and
(ii) no indemnification payment by the Principal Stockholders with
respect to any indemnifiable Loss otherwise payable under Section 10.02
shall be payable until such time as all such indemnifiable Losses shall
aggregate to more than $1,500,000, at which time all such indemnifiable
Losses payable under such Section shall be payable.
(b) Notwithstanding anything to the contrary contained in this Agreement:
(i) the maximum aggregate amount of indemnifiable Losses arising out of
or resulting from the causes enumerated in Section 10.03 which may be
recovered from Getty Images and Getty, shall be the amount equal to 20% of
the aggregate value of the Merger Consideration to which all of the
Principal Stockholders are entitled pursuant to Section 1.11 of the Merger
Agreement; and
(ii) no indemnification payment by Getty Images or Getty with respect to
any indemnifiable Loss otherwise payable under Section 10.03 shall be
payable until such time as all such indemnifiable Losses shall aggregate to
more than $1,500,000, at which time all such indemnifiable Losses payable
under such Section shall be payable.
SECTION 10.05. INDEMNIFICATION PROCEDURES. (a) For purposes of this
Section 10.05, a party against which indemnification may be sought is referred
to as the "INDEMNIFYING PARTY" and the party which may be entitled to
indemnification is referred to as the "INDEMNIFIED PARTY".
(b) The obligations and Liabilities of Indemnifying Parties under this
Article X with respect to Losses arising from claims of any third party which
are subject to the indemnification provided for in this Article X ("THIRD PARTY
CLAIMS") shall be governed by and contingent upon the following additional terms
and conditions: if an Indemnified Party shall receive notice of any Third Party
Claim, the Indemnified Party shall give all Indemnifying Parties notice of such
Third Party Claim within 30 days of the receipt by the Indemnified Party of such
notice; PROVIDED, HOWEVER, that the failure to provide such notice shall not
release an Indemnifying Party from any of its obligations under this Article X
except to the extent that such Indemnifying Party is materially prejudiced by
such failure. The notice of claim shall describe in reasonable detail the facts
known to the Indemnified Party giving rise to such indemnification claim, and
the amount or good faith estimate of the amount of the Loss arising therefrom.
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If the Indemnifying Party acknowledges in writing its obligation to
indemnify the Indemnified Party hereunder against any Losses that may result
from such Third Party Claim, then the Indemnifying Party shall be entitled to
assume and control the defense of such Third Party Claim at its expense and
through counsel of its choice if it gives notice of its intention to do so to
the Indemnified Party within ten days of the receipt of such notice from the
Indemnified Party; PROVIDED, HOWEVER, that if there exists or is reasonably
likely to exist a conflict of interest that would make it inappropriate in the
judgment of the Indemnified Party, in its reasonable discretion, for the same
counsel to represent both the Indemnified Party and the Indemnifying Party, then
the Indemnified Party shall be entitled to retain its own counsel, in each
jurisdiction for which the Indemnified Party determines counsel is required, at
the expense of the Indemnifying Party. In the event that the Indemnifying Party
exercises the right to undertake any such defense against any such Third Party
Claim as provided above, the Indemnified Party shall cooperate with the
Indemnifying Party in such defense and make available to the Indemnifying Party,
at the Indemnifying Party's expense, all witnesses, pertinent records, materials
and information in the Indemnified Party's possession or under the Indemnified
Party's control relating thereto as is reasonably required by the Indemnifying
Party. Similarly, in the event the Indemnified Party is, directly or indirectly,
conducting the defense against any such Third Party Claim, the Indemnifying
Party shall cooperate with the Indemnified Party in such defense and make
available to the Indemnified Party, at the Indemnifying Party's expense, all
such witnesses, records, materials and information in the Indemnifying Party's
possession or under the Indemnifying Party's control relating thereto as is
reasonably required by the Indemnified Party. No such Third Party Claim may be
settled by any party conducting the defense against such claim without the prior
written consent of the other party unless the other party and its Affiliates is
released in full in connection with such settlement.
Except with respect to claims based on fraud by an individual Principal
Stockholder, Getty Images or Getty or claims for any equitable remedies
available under this Agreement, from and after the Closing, the exclusive remedy
of (i) the Getty Images Parties for breaches of representations or warranties of
PhotoDisc or any of the Principal Stockholders contained in the Transaction
Documents, of the non-performance by PhotoDisc or any of the Principal
Stockholders of any covenant agreement or obligation to be performed by any of
them under the Transaction Documents and for any and all liabilities, losses,
claims, costs or damages whatsoever relating to the Transaction Documents or the
transactions contemplated thereby and (ii) the Stockholder Parties for breaches
of representations and warranties of the Getty Images, Getty or Merger Sub
contained in the Transaction Documents, for the non-performance by Getty Images,
Getty or Merger Sub of any covenant, agreement or obligation to be performed by
any of them under the Transaction Documents and for any and all liabilities,
losses, claims, costs or damages whatsoever relating to the Transaction
Documents or the transaction contemplated thereby, shall be pursuant to the
indemnification provisions set forth in this Article X.
(c) The fees and expenses of the parties hereto incurred in connection with
any dispute submitted to a court and finally resolved by such court related to
indemnification under this Article X shall be borne by the parties to such
dispute in the same proportion that the aggregate amount of the claims in
dispute so submitted to the court that is unsuccessfully disputed by each such
party (as finally determined by such court) bears to the total amount of the
claims so submitted.
SECTION 10.06. DISTRIBUTIONS FROM ESCROW FUND. In the event that (a) a
Principal Stockholder shall not have objected to the amount claimed by Getty
Images for indemnification with respect to any Loss in accordance with the
procedures set forth in the Escrow Agreement or (b) such Principal Stockholder
shall have delivered notice of its disagreement as to the amount of any
indemnification requested by Getty Images and either (i) such Principal
Stockholder and Getty Images shall have, subsequent to the giving of such
notice, mutually agreed that such Principal Stockholder is obligated to
indemnify Getty Images for a specified amount and shall have so jointly notified
the Escrow Agent or (ii) a final nonappealable judgment shall have been rendered
by the court having jurisdiction over the matters relating to such claim by
Getty Images for indemnification from such Principal Stockholder and the Escrow
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Agent shall have received, in the case of clause (i) above, written instructions
from such Principal Stockholder and Getty Images or, in the case of clause (ii)
above, a copy of the final nonappealable judgment of the court, the Escrow Agent
shall deliver to Getty Images from the Escrow Fund (as defined in the Escrow
Agreement) any amount determined to be owed to Getty Images under this Article X
in accordance with the Escrow Agreement. The Principal Stockholders acknowledge
and agree that with respect to the Escrow Shares held by the Escrow Agent
pursuant to the Escrow Agreement, for purposes of determining the number of
Escrow Shares necessary to satisfy a Loss, each such Escrow Share shall be
valued at the Average Trading Price of Getty ADRs at Closing. Notwithstanding
anything to the contrary herein, in no event are the indemnification obligations
of the Principal Stockholders limited to the Escrow Shares or monies held in the
Escrow Fund; PROVIDED, HOWEVER, that all Losses for which the Principal
Stockholders are liable to indemnify the Getty Images Parties pursuant to
Section 10.02 shall be satisfied first out of the Escrow Shares or monies held
in the Escrow Fund. To the extent that any provision of this Section 10.06
conflicts with or is inconsistent with the terms and provisions of the Escrow
Agreement, which is to be substantially in the form of the Escrow Agreement
attached as Exhibit B to the Stockholders' Transaction Agreement attached
hereto, the terms of the Escrow Agreement shall control and govern. Except with
respect to claims based on fraud by an individual Investor, or claims for any
equitable remedies available under this Agreement, in no event shall the
Investors be liable for the satisfaction of Indemnification Items other than out
of their respective Escrow Shares.
ARTICLE XI
TERMINATION AND WAIVER
SECTION 11.01. TERMINATION. This Agreement may be terminated at any time
prior to the Closing:
(a) by Getty if, after the date hereof: (i) a Material Adverse Effect on
PhotoDisc shall have occurred; (ii) any material representation or warranty
of PhotoDisc or the Principal Stockholders contained in this Agreement or
the Stockholders' Transaction Agreement shall not have been true and correct
when made; (iii) PhotoDisc or the Principal Stockholders shall not have
complied with any material covenant or agreement to be complied with by it
and contained in this Agreement or the Stockholders' Transaction Agreement;
or (iv) PhotoDisc, any PhotoDisc Subsidiary or a Principal Stockholder makes
a general assignment for the benefit of creditors, or any proceeding shall
be instituted by or against a Principal Stockholder, PhotoDisc or any
PhotoDisc Subsidiary seeking to adjudicate any of them a bankrupt or
insolvent, or seeking liquidation, winding up or reorganization,
arrangement, adjustment, protection, relief or composition of its debts
under any Law relating to bankruptcy, insolvency or reorganization; or
(b) by PhotoDisc if, after the date hereof: (i) a Material Adverse
Effect on Getty shall have occurred; (ii) any material representation or
warranty of Getty, Getty Images or Merger Sub contained in this Agreement
shall not have been true and correct when made; (iii) Getty, Getty Images or
Merger Sub shall not have complied with any material covenant or agreement
to be complied with by it and contained in this Agreement; or (iv) Getty
makes a general assignment for the benefit of creditors, or any proceeding
shall be instituted by or against Getty seeking to adjudicate it a bankrupt
or insolvent, or seeking liquidation, winding up or reorganization,
arrangement, adjustment, protection, relief or composition of its debts
under any Law relating to bankruptcy, insolvency or reorganization; or
(c) by either Getty or PhotoDisc if the Closing shall not have occurred
by March 31, 1998; PROVIDED, HOWEVER, that the right to terminate this
Agreement under this Section 11.01(c) shall not be available to any party
whose failure to fulfill any obligation under this Agreement shall have been
the cause of, or shall have resulted in, the failure of the Closing to occur
on or prior to such date; or
(d) by either Getty or PhotoDisc in the event that any Governmental
Authority shall have issued an order, decree or ruling or taken any other
action restraining, enjoining or otherwise prohibiting the
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transactions contemplated by this Agreement and such order, decree, ruling
or other action shall have become final and nonappealable; or
(e) by Getty or PhotoDisc if the required approvals of the holders of
Getty Ordinary Shares or shares of PhotoDisc Common Stock or Series A
Preferred Stock contemplated by this Agreement shall not have been obtained
by reason of the failure to obtain the required vote upon a vote taken at a
meeting of shareholders duly convened therefor or at any adjournment thereof
(PROVIDED that the right to terminate this Agreement under this Section
11.01(e) shall not be available to any party where the failure to obtain
shareholder approval of such party shall have been caused by the action or
failure to act of such party in breach of this Agreement); or
(f) by PhotoDisc if the condition set forth in Section 9.01 (a) shall
not have been satisfied on or prior to the earlier of (i) January 31, 1998,
or (ii) the date 31 days after the Form S-4 is declared effective by the
SEC; or
(g) by PhotoDisc if, after the date hereof, there shall have occurred an
Extraordinary Corporate Event; or
(h) by the mutual written consent of Getty and PhotoDisc.
SECTION 11.02. EFFECT OF TERMINATION. (a) In the event of termination of
this Agreement as provided in Section 11.01, this Agreement shall forthwith
become void and there shall be no liability on the part of either party hereto
except (i) as set forth in Section 12.01 and (ii) that nothing herein shall
relieve either party from liability for any breach of this Agreement.
(b) The parties agree that if the Closing shall not have occurred by the
date specified in Section 11.01(c) as a result of the breach of any
representation, warranty or covenant of PhotoDisc, the PhotoDisc Subsidiaries or
the Principal Stockholders, on the one hand, contained in this Agreement or the
Stockholders' Transaction Agreement, or Getty Images, Getty or Merger Sub, on
the other hand, the breaching party (or PhotoDisc if the breaching party is a
Principal Stockholder) shall reimburse the non-breaching party for all
reasonable fees, costs and expenses incurred by such party in connection with
this Agreement and the transactions contemplated hereby. (This Section 11.02(b)
is not intended to constitute a liquidated damages provision.)
(c) Getty agrees that if this Agreement is terminated by PhotoDisc pursuant
to section 11.01(f), Getty shall reimburse PhotoDisc for all reasonable fees,
costs and expenses incurred by PhotoDisc in connection with this Agreement and
the transactions contemplated hereby. (This Section 11.02(c) is not intended to
constitute a liquidated damages provision.)
SECTION 11.03. WAIVER. Any party to this Agreement may (a) extend the time
for the performance of any of the obligations or other acts of the other party,
(b) waive any inaccuracies in the representations and warranties of the other
party contained herein or in any document delivered by any other party pursuant
hereto or (c) waive compliance with any of the agreements or conditions of the
other party contained herein. Any such extension or waiver shall be valid only
if set forth in an instrument in writing signed by the party to be bound
thereby. Any waiver of any term or condition shall not be construed as a waiver
of any subsequent breach or a subsequent waiver of the same term or condition,
or a waiver of any other term or condition, of this Agreement. The failure of
any party to assert any of its rights hereunder shall not constitute a waiver of
any of such rights.
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ARTICLE XII
GENERAL PROVISIONS
SECTION 12.01. EXPENSES. (a) Except as otherwise specified in this
Agreement, all costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and accountants, incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses, whether or not the Closing
shall have occurred.
(b) If the Closing shall occur, all costs and expenses of Robertson Stephens
& Co., Deloitte & Touche LLP, Heller Ehrman White & McAuliffe and Freshfields
and all other costs and expenses incurred by PhotoDisc in connection with this
Agreement, the Stockholders' Transaction Agreement, the Escrow Agreement and the
transactions contemplated hereby and thereby shall be shared equally between
PhotoDisc, on the one hand, and the holders of shares of PhotoDisc Common Stock
immediately prior to the Effective Time on the other hand (on a pro rata basis)
(such shared expenses being the "SHARED EXPENSES"). PhotoDisc and the Principal
Stockholders currently estimate that the total amount of the Shared
Expenses will be $2.2-2.6 million. Five days prior to the Closing, PhotoDisc
shall provide to Getty Images an updated estimate of the total amount of the
Shared Expenses (such estimated amount being the "CLOSING ESTIMATE"). The
Principal Stockholders' share of the amount equal to 120% of the Closing
Estimate (such adjusted amount being the "ADJUSTED CLOSING ESTIMATE") shall be
factored into the calculation of the Merger Consideration as provided in Section
1.11. A final accounting of the Shared Expenses will be made within 45 days
after the Closing. In the event that the final amount of the Shared Expenses
(the "FINAL EXPENSE AMOUNT") is greater than the Adjusted Closing Estimate, each
Principal Stockholder shall within 10 days of such final determination pay to
Getty Images such Principal Stockholder's pro rata share of 50% of the
difference between the Final Expense Amount and the Adjusted Closing Estimate.
In the event that the Final Expense Amount is less than the Adjusted Closing
Estimate, Getty Images shall within 10 days of such final determination pay to
each Principal Stockholder such Principal Stockholder's pro rata share of 50% of
the difference between the Adjusted Closing Estimate and the Final Expense
Amount.
SECTION 12.02. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by courier service, by cable, by facsimile, by telegram, by telex or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties at the following addresses (or at such other address for a
party as shall be specified in a notice given in accordance with this Section
12.02):
(a) if to Getty, Getty Images or Merger Sub:
Getty Communications plc
101 Bayham Street
London NW1 OAG England
Facsimile: (44171) 267-6540
Attention: Nick Evans-Lombe
with a copy to each of:
Clifford Chance
200 Aldersgate Street
London EC1A 4JJ England
Facsimile: (44171) 600-5555
Attention: Michael Francies
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Shearman & Sterling
555 California Street
San Francisco, California 94104
Facsimile: (415) 616-1199
Attention: Christopher D. Dillon
(b) if to PhotoDisc:
PhotoDisc, Inc.
2013 Fourth Avenue
4th Floor
Seattle, WA 98121
Facsimile: (206) 441-9379
Attention: Mark Torrance
with a copy to:
Heller Ehrman White & McAuliffe
6100 Columbia Center
701 Fifth Avenue
Seattle, Washington 98104
Telecopy: (206) 447-0849
Attention: Thomas S. Hodge
SECTION 12.03. PUBLIC ANNOUNCEMENTS. No party to this Agreement shall
make, or cause to be made, any press release or public announcement in respect
of this Agreement or the transactions contemplated hereby or otherwise
communicate with any news media without prior consent of the other party (except
to the extent that such disclosure is required by law or the rules of the Nasdaq
National Market), and, to the extent practicable, the parties shall cooperate as
to the timing and contents of any such press release or public announcement.
SECTION 12.04. HEADINGS. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 12.05. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any Law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
SECTION 12.06. ENTIRE AGREEMENT. This Agreement, the Stockholders'
Transaction Agreement and the Escrow Agreement constitute the entire agreement
of the parties hereto with respect to the subject matter hereof and thereof and
supersede all prior agreements and undertakings, both written and oral, among
Getty Images, Getty, PhotoDisc, Merger Sub and the Principal Stockholders with
respect to the subject matter hereof and thereof, including the letter agreement
dated August 15, 1997 between PhotoDisc and Getty; PROVIDED, HOWEVER, that the
letter agreement dated August 5, 1997 shall survive the execution of this
Agreement.
SECTION 12.07. ASSIGNMENT. This Agreement may not be assigned by operation
of law or otherwise without the express written consent of the other parties
hereto (which consent may be granted or withheld in the sole discretion of such
parties).
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SECTION 12.08. NO THIRD PARTY BENEFICIARIES. Except for the provisions of
Section 7.11 and Article X relating to indemnified parties, this Agreement shall
be binding upon and inure solely to the benefit of the parties hereto and their
permitted assigns, and nothing herein, express or implied, is intended to or
shall confer upon any other Person any legal or equitable right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 12.09. AMENDMENT. This Agreement may not be amended or modified
except (a) by an instrument in writing signed by, or on behalf of, the parties
hereto or (b) by a waiver in accordance with Section 11.03.
SECTION 12.10. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware applicable to
contracts executed in and to be performed entirely within that State. All
actions and proceedings arising out of or relating to this Agreement shall be
heard and determined in any Delaware state or federal court sitting in the State
of Delaware.
SECTION 12.11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
SECTION 12.12. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
ARTICLE XIII
DEFINITIONS
SECTION 13.01. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings:
"ACTION" means any claim, action, suit, arbitration, inquiry, proceeding or
investigation by or before any Governmental Authority.
"AFFILIATE" means, with respect to any specified Person, any other Person
that directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified Person.
"AGREEMENT" or "THIS AGREEMENT" means this Merger Agreement, dated as of
September 15, 1997, among Getty Images, Getty, PhotoDisc and Merger Sub
(including the Exhibits hereto and the Disclosure Schedules) and all amendments
hereto made in accordance with the provisions of Section 12.09.
"AVERAGE TRADING PRICE" means the average closing price of Getty ADRs or
Getty Images Shares, as specified, reported on the Nasdaq National Market (or
other principal securities market) during the specified period.
"BUSINESS" means the business of the commercialization of digital stock
photography images conducted by PhotoDisc and the PhotoDisc Subsidiaries and all
other business which prior to the date hereof has been conducted by PhotoDisc
and the PhotoDisc Subsidiaries.
"BUSINESS DAY" means any day that is not a Saturday, a Sunday or other day
on which banks are required or authorized by law to be closed in London,
England, Seattle, Washington or The City of New York.
"CODE" means the Internal Revenue Code of 1986, as amended through the date
hereof.
"CONTROL" (including the terms "CONTROLLED BY" and "UNDER COMMON CONTROL
WITH"), with respect to the relationship between or among two or more Persons,
means the possession, directly or indirectly or as
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trustee or executor, of the power to direct or cause the direction of the
affairs or management of a Person, whether through the ownership of voting
securities, as trustee or executor, by contract or otherwise, including, without
limitation, the ownership, directly or indirectly, of securities having the
power to elect a majority of the board of directors or similar body governing
the affairs of such Person.
"DISCLOSURE SCHEDULES" means the PhotoDisc Disclosure Schedule and the Getty
Disclosure Schedule.
"ENCUMBRANCE" means any security interest, pledge, mortgage, lien
(including, without limitation, environmental and tax liens), charge,
encumbrance, adverse claim, preferential arrangement or restriction of any kind,
including, without limitation, any restriction on the use, voting, transfer,
receipt of income or other exercise of any attributes of ownership.
"ENVIRONMENT" means surface waters, groundwaters, soil, subsurface strata
and ambient air.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXTRAORDINARY CORPORATE EVENT" means the occurrence of any of the following
events: (i) the acquisition by any person other than Getty Investments or any
Affiliate thereof (a "THIRD PARTY") of all or substantially all of the total
assets of Getty and the Getty Subsidiaries, taken as a whole; (ii) the
acquisition by a Third Party of 50% or more of the outstanding Getty Ordinary
Shares whether by tender, exchange offer or otherwise; (iii) the repurchase by
Getty or any of the Getty Subsidiaries of 50% or more of the outstanding Getty
Ordinary Shares; or (iv) Getty entering into an agreement that would result in
any of the actions set forth above.
"GETTY DISCLOSURE SCHEDULE" means the Getty Disclosure Schedule, dated as of
the date hereof, and delivered by Getty to PhotoDisc (copies of which PhotoDisc
shall make available to the Principal Stockholders upon request) simultaneously
with the execution of this Agreement and forming a part of this Agreement.
"GETTY LICENSED INTELLECTUAL PROPERTY" means all Intellectual Property
licensed or sublicensed to Getty or any Getty Subsidiary from a third party.
"GETTY OWNED INTELLECTUAL PROPERTY" means all Intellectual Property in and
to which Getty or any Getty Subsidiary holds right, title and interest.
"GETTY SUBSIDIARY" means a Subsidiary of Getty.
"GETTY'S ACCOUNTANTS" means Coopers & Lybrand, independent accountants of
Getty.
"GOVERNMENTAL AUTHORITY" means any United States federal, state or local or
any foreign government, governmental, regulatory or administrative authority,
agency or commission or any court, tribunal, or judicial or arbitral body.
"GOVERNMENTAL ORDER" means any order, writ, judgment, injunction, decree,
stipulation, determination or award entered by or with any Governmental
Authority.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder.
"INDEBTEDNESS" means, with respect to any Person, (a) all indebtedness of
such Person, whether or not contingent, for borrowed money, (b) all obligations
of such Person for the deferred purchase price of property or services, (c) all
obligations of such Person evidenced by notes, bonds, debentures or other
similar instruments, (d) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (e) all obligations of such Person as lessee under
leases that have been or should be, in accordance with U.S. GAAP, recorded as
capital leases, (f) all obligations, contingent or otherwise, of such Person
under acceptance, letter of credit or similar facilities, (g) all obligations of
such Person to
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purchase, redeem, retire, defease or otherwise acquire for value any capital
stock of such Person or any warrants, rights or options to acquire such capital
stock, valued, in the case of redeemable preferred stock, at the greater of its
voluntary or involuntary liquidation preference plus accrued and unpaid
dividends, (h) all Indebtedness of others referred to in clauses (a) through (f)
above guaranteed directly or indirectly in any manner by such Person, or in
effect guaranteed directly or indirectly by such Person, and (i) all
Indebtedness referred to in clauses (a) through (f) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Encumbrance on property (including, without
limitation, accounts and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such Indebtedness.
"INTELLECTUAL PROPERTY" means (a) inventions, whether or not patentable,
whether or not reduced to practice, and whether or not yet made the subject of a
pending patent application or applications, (b) ideas and conceptions of
potentially patentable subject matter, including, without limitation, any patent
disclosures, whether or not reduced to practice and whether or not yet made the
subject of a pending patent application or applications, (c) national and
multinational statutory invention registrations, patents, patent registrations
and patent applications (including all reissues, divisions, continuations,
continuations-in-part, extensions and reexaminations) and all rights therein
provided by international treaties or conventions and all improvements to the
inventions disclosed in each such registration, patent or application, (d)
trademarks, service marks, trade dress, logos, trade names and corporate names,
whether or not registered, including all common law rights, and registrations
and applications for registration thereof, and all rights therein provided by
international treaties or conventions, (e) copyrights (registered or otherwise)
and registrations and applications for registration thereof, and all rights
therein provided by international treaties or conventions, (f) moral rights
(including, without limitation, rights of paternity and integrity), and waivers
of such rights by others, (g) computer software, including, without limitation,
source code, operating systems and specifications, data, databases, files,
documentation and other materials related thereto, (h) trade secrets and
confidential, technical and business information, (i) technology (including
know-how and show-how), manufacturing and production processes and techniques,
research and development information, drawings, specifications, designs, plans,
proposals, technical data, copyrightable works, financial, marketing and
business data, pricing and cost information, business and marketing plans and
customer and supplier lists and information, (j) copies and tangible embodiments
of all of the foregoing, in whatever form or medium, (k) all rights to obtain
and rights to apply for patents, and to register trademarks and copyrights, and
(l) all rights to sue or recover and retain damages and costs and attorneys'
fees for present and past infringement of any of the foregoing.
"INVENTORIES" means all inventory, merchandise, goods, and materials related
to the Business maintained, held or stored by or for PhotoDisc or any PhotoDisc
Subsidiary on the Closing Date and any prepaid deposits for any of the same.
"INVESTORS" means Advent VII L.P., Advent Atlantic and Pacific III, L.P.,
Advent New York L.P., TA Venture Investors Limited Partnership, Geocapital III,
L.P., Geocapital IV, L.P., The Broadview Partners Group and J&B Venture Partners
I.
"IRS" means the Internal Revenue Service of the United States.
"KNOWLEDGE" means, (i) with respect to any matter in question in the case of
PhotoDisc, that knowledge of any of Mark Torrance, Bob Chamberlain, Bill Heston,
Heather Bell Redman, Chris Birkeland, Sally von Bargen and Natalie Angelillo,
and (ii) with respect to any matter in question in the case of Getty or Getty
Images, that knowledge of any of Mark Getty, Jonathan Klein, Nick Evans-Lombe,
Lawrence Gould and Simon Thornley.
"LAW" means any federal, state, local or foreign statute, law, ordinance,
regulation, rule, code, order, other requirement or rule of law.
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"LEASED REAL PROPERTY" means the real property leased by PhotoDisc or any
PhotoDisc Subsidiary, as tenant, together with, to the extent leased by
PhotoDisc or any PhotoDisc Subsidiary, all buildings and other structures,
facilities or improvements currently or hereafter located thereon, all fixtures,
systems, equipment and items of personal property of PhotoDisc or any Subsidiary
attached or appurtenant thereto, and all easements, licenses, rights and
appurtenances relating to the foregoing.
"LIABILITIES" means any and all debts, liabilities and obligations, whether
accrued or fixed, absolute or contingent, matured or unmatured or determined or
determinable, including, without limitation, those arising under any Law, Action
or Governmental Order and those arising under any contract, agreement,
arrangement, commitment or undertaking.
"MATERIAL ADVERSE EFFECT ON GETTY" means any circumstance, change in, effect
on Getty, any Getty Subsidiary or the business of Getty or the Getty
Subsidiaries that, individually or in the aggregate with any other
circumstances, changes in, or effects on, Getty, any Getty Subsidiary or the
business of Getty and the Getty Subsidiaries, is, or reasonably could be
expected to be, materially adverse to the business, operations, assets or
Liabilities, employee relationships, customer or supplier relationships, results
of operations or the condition (financial or otherwise) of Getty and its
Subsidiaries, taken as a whole.
"MATERIAL ADVERSE EFFECT ON PHOTODISC" means any circumstance, change in, or
effect on PhotoDisc, any PhotoDisc Subsidiary or the Business that, individually
or in the aggregate with any other circumstances, changes in, or effects on,
PhotoDisc, any PhotoDisc Subsidiary or the Business, is, or reasonably could be
expected to be, materially adverse to the business, operations, assets or
Liabilities, employee relationships, customer or supplier relationships, results
of operations or the condition (financial or otherwise) of PhotoDisc and the
PhotoDisc Subsidiaries, taken as a whole.
"OWNED REAL PROPERTY" means the real property owned by PhotoDisc or any
PhotoDisc Subsidiary, together with all buildings and other structures,
facilities or improvements currently or hereafter located thereon, all fixtures,
systems, equipment and items of personal property of PhotoDisc or any PhotoDisc
Subsidiary attached or appurtenant thereto and all easements, licenses, rights
and appurtenances relating to the foregoing.
"PDI" means PDI, L.L.C.
"PERMITTED ENCUMBRANCES" means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding shall have
been commenced: (a) liens for taxes, assessments and governmental charges or
levies not yet due and payable which are not in excess of $50,000 in the
aggregate; (b) Encumbrances imposed by law, such as materialmen's, mechanics',
carriers', workmen's and repairmen's liens and other similar liens arising in
the ordinary course of business securing obligations that (i) are not overdue
for a period of more than 30 days and (ii) are not in excess of $15,000 in the
case of a single property or $50,000 in the aggregate at any time; (c) pledges
or deposits to secure obligations under workers' compensation laws or similar
legislation or to secure public or statutory obligations; and (d) minor survey
exceptions, reciprocal easement agreements and other customary encumbrances on
title to real property that (i) were not incurred in connection with any
Indebtedness, (ii) do not render title to the property encumbered thereby
unmarketable and (iii) do not, individually or in the aggregate, materially
adversely affect the value or use of such property for its current and
anticipated purposes.
"PERSON" means any individual, partnership, firm, corporation, association,
trust, unincorporated organization or other entity, as well as any syndicate or
group that would be deemed to be a person under Section 13(d)(3) of the Exchange
Act.
"PHOTODISC COMMON STOCK WARRANTS" means (i) the Common Stock Warrant dated
January 1, 1995 issued to Mark Torrance with respect to 91,592 shares of
PhotoDisc Common Stock at an exercise price of $0.1575 per share, (ii) the
Common Stock Warrant dated January 20, 1995 issued to Mark Torrance with respect
to 500,880 shares of PhotoDisc Common Stock at an exercise price of $0.1250 per
share, and
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(iii) the Common Stock Warrant dated January 20, 1995 issued to Mark Callaghan
with respect to 76,000 shares of PhotoDisc Common Stock at an exercise price of
$0.1575 per share.
"PHOTODISC DISCLOSURE SCHEDULE" means the PhotoDisc Disclosure Schedule,
dated as of the date hereof, and delivered by PhotoDisc to Getty Images
simultaneously with the execution of this Agreement and forming a part of this
Agreement.
"PHOTODISC LICENSED INTELLECTUAL PROPERTY" means all Intellectual Property
licensed or sublicensed to PhotoDisc or any PhotoDisc Subsidiary from a third
party.
"PHOTODISC OWNED INTELLECTUAL PROPERTY" means all Intellectual Property in
and to which PhotoDisc or any PhotoDisc Subsidiary holds right, title and
interest.
"PHOTODISC SUBSIDIARY" means a Subsidiary of PhotoDisc.
"PHOTODISC'S ACCOUNTANTS" means Deloitte & Touche LLP, independent
accountants of PhotoDisc.
"REAL PROPERTY" means the Leased Real Property and the Owned Real Property.
"RECEIVABLES" means any and all accounts receivable, notes and other amounts
receivable by PhotoDisc or any PhotoDisc Subsidiary from third parties,
including, without limitation, customers, arising from the conduct of the
Business or otherwise before the Closing Date, whether or not in the ordinary
course, together with all unpaid financing charges accrued thereon.
"REGULATIONS" means the Treasury Regulations (including Temporary
Regulations) promulgated by the United States Department of Treasury with
respect to the Code or other federal tax statutes.
"RULE 145 AFFILIATES" means affiliates of PhotoDisc within the meaning of
Rule 145 under the Securities Act.
"SEC" means the U.S. Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SOFTWARE" means all computer software, including all source code, object
code, firmware, development tools, files, records and data, all media on which
any of the foregoing is recorded, and all documentation related to any of the
foregoing.
"SUBSIDIARIES" means any and all corporations, partnerships, joint ventures,
associations and other entities controlled by a party directly or indirectly
through one or more intermediaries.
"TAX" or "TAXES" means any and all taxes, fees, levies, duties, tariffs,
imposts, and other charges of any kind (together with any and all interest,
penalties, additions to tax and additional amounts imposed with respect thereto)
imposed by any government or taxing authority, including, without limitation:
taxes or other charges on or with respect to income, franchises, windfall or
other profits, gross receipts, property, sales, use, capital stock, payroll,
employment, social security, workers' compensation, unemployment compensation,
or net worth; taxes or other charges in the nature of excise, withholding, ad
valorem, stamp, transfer, value added, or gains taxes; license, registration and
documentation fees; and customs duties, tariffs, and similar charges.
"U.S. GAAP" means United States generally accepted accounting principles and
practices as in effect from time to time and applied consistently throughout the
periods involved.
SECTION 13.02. OTHER DEFINED TERMS. The following terms shall have the
following meanings defined for such terms in the Sections set forth below:
<TABLE>
<CAPTION>
TERM SECTION
- ----------------------------------------------------------------------------------- ---------
<S> <C>
Adjusted Closing Estimate 12.01
Aggregate Merger Consideration 10.04
</TABLE>
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<TABLE>
<CAPTION>
TERM SECTION
- ----------------------------------------------------------------------------------- ---------
<S> <C>
Articles of Merger 1.03
Assets 3.19(a)
Average Trading Price of Getty ADRs at Closing 1.11
Carlton recitals
Cash Consideration 1.11
Cash Value of Getty ADRs at Closing 1.11
City Code 2.01(a)
Closing 1.02
Closing Date 1.02
Closing Estimate 12.01
Companies Act recitals
Discounted Trading Price of Getty ADRs at Closing 1.11
Dissenting Shares 1.18
Effective Time 1.03
ERISA 3.22(a)
Escrow Agent recitals
Escrow Agreement recitals
Escrow Shares 1.13(a)
Final Expense Amount 12.01
Form S-4 3.10(a)
Getty recitals
Getty Class A Ordinary Shares recitals
Getty Class B Ordinary Shares recitals
Getty Court Meeting 2.01(b)
Getty Executive Scheme 2.02
Getty Financial Statements 4.07(b)
Getty Images recitals
Getty Images Options 1.17(d)
Getty Images Party 10.02
Getty Images Shares recitals
Getty Interim Financial Statements 4.07(b)
Getty Ordinary Shares recitals
Getty SEC Reports 4.06(a)
Getty Shareholder Circular 2.01(a)
Getty Shareholder Meetings 2.01(b)
High Court 2.01(a)
Indemnified Party 10.05(a)
Indemnifying Party 10.05(a)
IRS 3.22(a)
Liquidation Payment 1.12
Loss 10.02
Material Contracts 3.16(a)
Merger recitals
Merger Consideration 1.11
Merger Sub recitals
Plans 3.22(a)
PhotoDisc recitals
PhotoDisc Common Stock recitals
PhotoDisc Exchange Ratio 1.11
PhotoDisc Executives 7.11(b)
</TABLE>
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<TABLE>
<CAPTION>
TERM SECTION
- ----------------------------------------------------------------------------------- ---------
<S> <C>
PhotoDisc Financial Statements 3.08(a)
PhotoDisc Interim Financial Statements 3.08(a)
PhotoDisc Options 1.17
PhotoDisc Share Certificates 1.13(a)
PhotoDisc Stockholder Meeting 7.02
PhotoDisc Stock Option Plan 1.17
PhotoDisc Voting Agreement recitals
Principal Stockholders recitals
Reference Balance Sheet 3.09
Reference Balance Sheet Date 3.11
Returns 8.02(a)
Scheme of Arrangement recitals
Series A Preferred Stock 1.12
Series A-1 Preferred Stock 3.03(a)
Shared Expenses 12.01
Stock Consideration 1.11
Stockholders' Transaction Agreement recitals
Stockholder Party 10.03
Surviving Corporation 1.01
Transaction recitals
Transaction Documents 10.01
WARN 3.23(h)
WBCA recitals
</TABLE>
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IN WITNESS WHEREOF, each of Getty Images, Getty, PhotoDisc and Merger Sub
has duly executed, or has caused this Agreement to be duly executed by its duly
authorized representative, as of the date first written above.
<TABLE>
<S> <C> <C>
GETTY COMMUNICATIONS, (USA) INC.
By: /s/ MARK GETTY
-----------------------------------------
Title:
GETTY COMMUNICATIONS PLC
By: /s/ MARK GETTY
-----------------------------------------
Name:
Title:
PHOTODISC, INC.
By: /s/ MARK TORRANCE
-----------------------------------------
Title:
PRINT MERGER, INC.
By: /s/ MARK GETTY
-----------------------------------------
Name:
Title:
</TABLE>
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EXHIBIT A
STOCKHOLDERS' TRANSACTION AGREEMENT
(ATTACHED TO THIS PROSPECTUS AS ANNEX B.)
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EXHIBIT B
FORM OF ESCROW AGREEMENT
ESCROW AGREEMENT, dated as of , 1997 (this "AGREEMENT"), among
Getty Communications (USA), Inc., a Delaware corporation ("GETTY IMAGES"), the
stockholders (the "PRINCIPAL STOCKHOLDERS") of PhotoDisc, Inc., a Washington
corporation ("PhotoDisc"), identified on the signature pages of this Agreement,
Mark Torrance, as designated representative of the Principal Stockholders (the
"PRINCIPAL STOCKHOLDERS' REPRESENTATIVE"), and , a
(the "ESCROW AGENT").
W I T N E S S E T H:
WHEREAS, (i) Getty Images, Getty Communications plc, a public limited
company organized under the laws of England and Wales ("GETTY"), PhotoDisc and
Merger Sub, Inc., a Washington corporation ("MERGER SUB"), have entered into a
Merger Agreement dated September , 1997, a copy of which is attached hereto as
Exhibit A (the "MERGER AGREEMENT"; capitalized terms not defined herein have the
meanings ascribed to them in the Merger Agreement), and (ii) Getty Images and
the Principal Stockholders have entered into the Stockholders' Transaction
Agreement dated as of September , 1997, a copy of which is attached hereto as
Exhibit B (the "STOCKHOLDERS' TRANSACTION AGREEMENT");
WHEREAS, pursuant to the Merger Agreement, Merger Sub will merge (the
"MERGER") with and into PhotoDisc in accordance with the Business Corporation
Act of the State of Washington (the "WBCA") and upon the terms and subject to
the conditions set forth in the Merger Agreement;
WHEREAS, pursuant to the Merger, each issued and outstanding share of common
stock, par value $0.01 per share, of PhotoDisc ("PHOTODISC COMMON STOCK"), other
than shares owned directly or indirectly by Getty or by PhotoDisc, will be
converted into the right to receive a number of shares of common stock, par
value $0.01 per share, of Getty Images ("GETTY IMAGES SHARES") and an amount of
cash as set forth in the Merger Agreement;
WHEREAS, it is contemplated under the Merger Agreement that Getty Images
will deposit or cause to be deposited into escrow at Closing certificates
representing shares of Getty Images Shares (the "ESCROW SHARES") issued in
the name of the Principal Stockholders to be held and disbursed by the Escrow
Agent in accordance with Section 8 of this Agreement;
WHEREAS, a copy of the Merger Agreement has been delivered to the Escrow
Agent, and the Escrow Agent is willing to act as the Escrow Agent hereunder;
WHEREAS, the Escrow Agent will hold the Escrow Shares in Account No.
at , city, state, ABA No. (the "ESCROW ACCOUNT"); and
WHEREAS, pursuant to the Principal Stockholders' Transaction Agreement, each
of the Principal Stockholders has appointed the Principal Stockholders'
Representative to act on such Stockholder's behalf for purposes of this
Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein and in the Merger Agreement, and intending to be legally bound
hereby, the parties hereby agree as follows:
SECTION 1. APPOINTMENT AND AGREEMENT OF ESCROW AGENT. Getty Images and the
Principal Stockholders hereby appoint the Escrow Agent to serve as, and the
Escrow Agent hereby agrees to act as, escrow agent upon the terms and conditions
of this Agreement.
SECTION 2. ESTABLISHMENT OF THE ESCROW FUND. (a) Pursuant to Section
1.12(a)(ii) of the Merger Agreement, Getty Images shall deliver to the Escrow
Agent on the date hereof certificates representing
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the Escrow Shares. The Escrow Agent shall hold the Escrow Shares and all
dividends and other distributions made in respect of such shares (the "ESCROW
FUND") in escrow pursuant to this Agreement. The Escrow Shares shall be
registered in the name of the Principal Stockholders. On the date hereof, each
Principal Stockholder shall deliver (or cause his or her nominee to deliver) to
the Escrow Agent stock transfer powers duly executed in blank with respect to
the shares of Getty Images Shares issued to such Principal Stockholder and
deposited in the Escrow Fund.
(b) Each of Getty Images and the Principal Stockholders confirms to the
Escrow Agent and to each other that the Escrow Fund is free and clear of all
Encumbrances except as may be created by this Agreement and the Merger
Agreement.
SECTION 3. PURPOSE OF THE ESCROW FUND. The Escrow Shares will be deposited
with the Escrow Agent and held by the Escrow Agent to secure the indemnification
obligations of the Principal Stockholders contained in Section 2.01 of the
Stockholders' Transaction Agreement and Article X of the Merger Agreement.
SECTION 4. PRINCIPAL STOCKHOLDER PERCENTAGE INTEREST IN ESCROW
FUND. Attached hereto as Schedule A is a schedule listing each Principal
Stockholder and such Principal Stockholder's initial interest in the Escrow Fund
(expressed as a percentage, based on the number of shares of Getty Images Shares
delivered to the Escrow Agent at Closing on behalf of such Principal
Stockholder).
SECTION 5. PRINCIPAL STOCKHOLDER RIGHTS. (a) While any Escrow Shares are
held in escrow in the Escrow Fund, and pending the distribution thereof to Getty
Images or the Principal Stockholders, as the case may be, in connection with any
distributions from the Escrow Fund in accordance with Section 8 hereof, each
Principal Stockholder will have all rights with respect to the Escrow Shares
issued in such Principal Stockholder's name (including, without limitation, the
right to vote such shares as set forth in Section 5(b) below), except (i) the
right of possession thereof or (ii) the right to sell, assign, pledge,
hypothecate or otherwise dispose of such shares or any interest therein.
Principal Stockholders shall have the right to receive any dividends or other
distributions in respect thereof.
(b) Each Principal Stockholder shall have the right to exercise any voting
rights with respect to the Escrow Shares issued in such Principal Stockholder's
name. The Principal Stockholders' Representative (as defined below) shall direct
the Escrow Agent in writing as to the exercise of any voting rights by the
Principal Stockholders, and the Escrow Agent shall comply with any such
directions of the Principal Stockholders' Representative. In the absence of such
directions, the Escrow Agent shall not vote any of the Escrow Shares.
(c) Each Principal Stockholder shall be responsible for and shall pay and
discharge all taxes, assessments and governmental charges imposed on or with
respect to the Escrow Shares issued in such Principal Stockholder's name. The
Escrow Agent shall report to the United States Internal Revenue Service the
amount of cash dividends received by the Escrow Agent with respect to the Escrow
Fund as having been received by each Principal Stockholder in accordance with
the amount attributable to the Escrow Shares issued in such Principal
Stockholder's name.
SECTION 6. PRINCIPAL STOCKHOLDERS' REPRESENTATIVE. Each Principal
Stockholder hereby acknowledges and affirms (a) the appointment of Mark Torrance
as the Principal Stockholders' Representative and (b) the authority of the
Principal Stockholders' Representative to perform the actions specified in this
Agreement to be performed by the Principal Stockholders' Representative.
SECTION 7. SHARE VALUE. The parties hereto agree and acknowledge that, for
all purposes under this Agreement, each share of Getty Images Shares held in
escrow pursuant to this Agreement shall be valued at the Average Trading Price
of Getty ADRs at Closing (the "SHARE VALUE").
SECTION 8. PAYMENTS FROM THE ESCROW FUND. (a) If, at any time on or prior
to the Expiration Date (as defined below), a Getty Images Party shall deliver to
the Escrow Agent a certificate of such Getty
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Images Party, executed by an authorized officer of such Getty Images Party (a
"GETTY IMAGES PARTY'S CERTIFICATE"), which Getty Images Party's Certificate
shall:
(i) state that such Getty Images Party has paid or incurred a Loss (an
"INDEMNIFICATION ITEM");
(ii) state the aggregate amount of such Indemnification Item; and
(iii) specify in reasonable detail the nature and amount of each
individual Indemnification Item, including whether such Indemnification Item
results from a breach of representation or warranty or covenant of PhotoDisc
or a Principal Stockholder;
the Escrow Agent shall, promptly upon receipt of such Getty Images Party's
Certificate, deliver a copy of such Getty Images Party's Certificate to the
Principal Stockholders' Representative. For purposes of this Agreement, the
"EXPIRATION DATE" shall be March 31, 1999.
(b) If the Principal Stockholders' Representative shall object to any amount
claimed in connection with any Indemnification Item specified in any Getty
Images Party's Certificate, the Principal Stockholders' Representative shall,
within 15 Business Days after delivery by the Escrow Agent to the Principal
Stockholders' Representative of such Getty Images Party's Certificate, deliver
to the Escrow Agent a certificate, executed by the Principal Stockholders'
Representative (a "PRINCIPAL STOCKHOLDERS' CERTIFICATE"), (i) specifying each
such amount to which the Principal Stockholders' Representative objects and (ii)
specifying in reasonable detail the nature and basis for each such objection.
Promptly upon receipt of a Principal Stockholders' Certificate, the Escrow Agent
shall deliver a copy of such Principal Stockholders' Certificate to the Getty
Images Party. If the Escrow Agent shall not have received a Principal
Stockholders' Certificate objecting to the amount claimed with respect to an
Indemnification Item within 15 Business Days after delivery to the Principal
Stockholders' Representative of a Getty Images Party's Certificate specifying
such Indemnification Item, the Principal Stockholders shall be deemed to have
acknowledged the correctness of the amount claimed on such Getty Images Party's
Certificate with respect to such Indemnification Item, and the Escrow Agent
shall promptly thereafter transfer to the Getty Images Party, out of the Escrow
Fund (such transfer to be applied pro rata in accordance with each Stockholder's
percentage interest in the Escrow Fund) such number of shares of Getty Images
Shares equal to the lesser of (A) the amount claimed in the Getty Images Party's
Certificate with respect to such Indemnification Item divided by the Share Value
and (B) the number of shares of Getty Images Shares then remaining in the Escrow
Fund.
(c) If the Escrow Agent receives, within 15 Business Days after delivery to
the Principal Stockholders' Representative of a Getty Images Party's
Certificate, a Principal Stockholders' Certificate objecting to the amount
claimed with respect to any Indemnification Item specified in such Getty Images
Party's Certificate, the amount so objected to shall be held by the Escrow Agent
and shall not be released from the Escrow Fund except in accordance with either
(i) written instructions executed by an authorized officer of each of Getty
Images and the Principal Stockholders' Representative or (ii) the final
nonappealable judgment of a court having jurisdiction over the matters relating
to the claim by the Getty Images Party for indemnification from the Principal
Stockholders, promptly after which time the Escrow Agent shall transfer to the
Getty Images Party, out of the Escrow Fund such number of shares of Getty Images
Shares equal to the lesser of (A) the amount set forth in the written
instructions or in such judgment, as the case may be, divided by the Share Value
and (B) the number of shares of Getty Images Shares then remaining in the Escrow
Fund.
(d) Notwithstanding the limitations set forth in Section 8(a) of this
Agreement, following the Expiration Date, the Getty Images Party shall be
entitled to assert claims against the Escrow Fund under this Section 8 in
respect of all Losses that were included in determining the Reserved Amount (as
defined below).
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(e) For purposes of this Agreement, the "Reserved Amount" shall be equal to
the aggregate of the amounts claimed in all Getty Images Party's Certificates
delivered to the Escrow Agent prior to the Expiration Date (which claims shall
not have been resolved on or prior to the Expiration Date).
(i) If, on the Expiration Date, the Reserved Amount is less than the
product of the number of Escrow Shares then remaining in the Escrow Fund and
the Share Value (the "ESCROW FUND SHARES VALUE"), on the Expiration Date,
the Escrow Agent shall promptly liquidate all investments (other than shares
of Getty Images Stock) of the Escrow Fund and transfer to each Principal
Stockholder (x) by wire transfer in immediately available funds, the amount
in cash, if any, then remaining in the Escrow Fund and attributable to the
Escrow Shares issued in such Principal Stockholder's name and (y) the number
of shares of Getty Images Shares issued in such Principal Stockholder's name
then remaining in the Escrow Fund less such Principal Stockholder's
percentage interest of the Reserved Amount divided by the Share Value.
(ii) If, on the Expiration Date, the Reserved Amount is greater than the
Escrow Fund Shares Value, on the Expiration Date, the Escrow Agent shall
promptly liquidate all investments (other than shares of Getty Images Stock)
of the Escrow Fund and transfer to each Principal Stockholder, by wire
transfer in immediately available funds, the amount in cash, if any, then
remaining in the Escrow Fund and attributable to the Escrow Shares issued in
such Principal Stockholder's name less such Principal Stockholder's
percentage interest of the difference between the Reserved Amount and the
Escrow Fund Shares Value.
(f) With respect to indemnifiable Losses resulting from a breach of
representation or warranty or covenant of a Principal Stockholder and not from a
breach of representation or warranty or covenant of PhotoDisc, any Escrow Shares
transferred out of the Escrow Fund pursuant to Sections 8(b) or 8(c) shall be
transferred out of such Principal Stockholder's percentage interest in the
Escrow Fund and shall not be accounted against the interest of other Principal
Stockholders in the Escrow Fund.
(g) Upon the termination of this Agreement in accordance with Section 11,
the Escrow Agent shall promptly liquidate all investments (other than shares of
Getty Images Shares) of the Escrow Fund and transfer to each Principal
Stockholder (i) the shares of Getty Images Shares issued in such Principal
Stockholder's name then remaining in the Escrow Fund and (ii) by wire transfer
in immediately available funds, the amount in cash, if any, then remaining in
the Escrow Fund and attributable to the Escrow Shares issued in such Principal
Stockholder's name.
SECTION 9. RESERVATION OF GETTY IMAGES' RIGHTS. Subject to Section
10.05(c) of the Merger Agreement, the rights of Getty Images to receive
distributions from the Escrow Fund in respect to Indemnification Items shall be
without prejudice to any other rights Getty Images may have under the
Stockholders' Transaction Agreement or the Merger Agreement to seek indemnity
for Indemnification Items. Except with respect to claims based on fraud by an
individual Principal Stockholder, or claims for any equitable remedies available
under this Agreement, in no event shall the Investors (as defined in the Merger
Agreement) be liable for the satisfaction of Indemnification Items other than
out of their respective Escrow Shares.
SECTION 10. ALLOCATION OF ESCROW SHARES. (a) With respect to any Escrow
Shares distributed to the Principal Stockholders pursuant to Section 8 of this
Agreement, the Escrow Agent, the Principal Stockholders and Getty Images will
take such action as may be necessary: (i) to cause appropriate certificates to
be issued and delivered to the Principal Stockholders and (ii) to the extent
necessary if not all shares of Getty Images Shares have been distributed from
the Escrow Fund, to cause appropriate certificates to be issued to the Principal
Stockholders and delivered to the Escrow Agent representing the number of shares
of Getty Images Shares remaining in the Escrow Fund after such distribution to
the Principal Stockholders and to cause appropriate stock transfer powers, duly
executed in blank by the Principal Stockholders, to be delivered to the Escrow
Agent with respect to the shares of Getty Images Shares then remaining in the
Escrow Fund.
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(b) In the event Escrow Shares are distributed by the Escrow Agent to Getty
Images pursuant to Section 8 of this Agreement and, after such distribution,
shares of Getty Images Shares remain in the Escrow Fund, Getty Images, the
Principal Stockholders and the Escrow Agent will take such action as may be
necessary: (i) to cause appropriate certificates to be issued to the Principal
Stockholders and delivered to the Escrow Agent representing the number of shares
of Getty Images Shares remaining in the Escrow
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Fund after such distribution to Getty Images and (ii) to cause appropriate stock
transfer powers, duly executed in blank by the Principal Stockholders, to be
delivered to the Escrow Agent with respect to the shares of Getty Images Shares
then remaining in the Escrow Fund.
(c) Notwithstanding any of the provisions of Section 8 of this Agreement, in
each circumstance in which shares of Getty Images Shares are to be distributed
to Getty Images or the Principal Stockholders pursuant to this Agreement, the
number of shares of Getty Images Shares to be distributed shall be rounded down
to the nearest whole integer.
SECTION 11. MAINTENANCE OF THE ESCROW FUND; TERMINATION OF THE ESCROW
FUND. (a) The Escrow Agent shall continue to maintain the Escrow Fund until the
earlier of (i) the time at which there shall be no funds, shares of Getty Images
Shares or other property in such Escrow Fund and (ii) the termination of this
Agreement.
(b) Notwithstanding any other provision of this Agreement to the contrary,
at any time prior to the termination of the Escrow Fund, the Escrow Agent shall,
if so instructed in a writing signed by Getty Images and the Principal
Stockholders' Representative, pay from the Escrow Fund, as instructed, to the
Getty Images Party and the Principal Stockholders, as directed in such writing,
the number of shares of Getty Images Shares and the amount of cash or other
property so instructed.
SECTION 12. INVESTMENT OF ESCROW FUND. The Escrow Agent shall invest and
reinvest moneys on deposit in the Escrow Fund, unless joint written notice to
the contrary is received from Getty Images and the Principal Stockholders'
Representative, in any combination of the following: (a) readily marketable
direct obligations of the Government of the United States or any agency or
instrumentality thereof or readily marketable obligations unconditionally
guaranteed by the full faith and credit of the Government of the United States,
(b) insured certificates of deposit, or time deposits, with any commercial bank
that is a member of the Federal Reserve System and which issues (or the parent
of which issues) commercial paper rated as described in clause (c) below, is
organized under the laws of the United States or any State thereof and has
combined capital and surplus of at least $1 billion or (c) commercial paper in
an aggregate amount of no more than $1,000,000 per issuer outstanding at any
time, issued by any corporation organized under the laws of any State of the
United States, rated at least "Prime-1" (or the then equivalent grade) by
Moody's Investors Services, Inc. or "A-1" (or the then equivalent grade) by
Standard & Poors, Inc.
SECTION 13. ASSIGNMENT OF RIGHTS TO THE ESCROW FUND; ASSIGNMENT OF
OBLIGATIONS; SUCCESSORS. This Agreement may not be assigned by operation of Law
or otherwise without the express written consent of the other parties hereto
(which consent may be granted or withheld in the sole discretion of such other
parties); PROVIDED, HOWEVER, that Getty Images may assign this Agreement to an
Affiliate of Getty Images without the consent of the other parties. This
Agreement shall be binding upon and inure solely to the benefit of the parties
hereto and their permitted assigns.
SECTION 14. ESCROW AGENT. (a) Except as expressly contemplated by this
Agreement or by joint written instructions from Getty Images and the Principal
Stockholders' Representative, the Escrow Agent shall not sell, transfer or
otherwise dispose of in any manner all or any portion of the Escrow Fund, except
pursuant to an order of a court of competent jurisdiction.
(b) The duties and obligations of the Escrow Agent shall be determined
solely by this Agreement, and the Escrow Agent shall not be liable except for
the performance of such duties and obligations as are specifically set forth in
this Agreement.
(c) In the performance of its duties hereunder, the Escrow Agent shall be
entitled to rely upon any document, instrument or signature believed by it in
good faith to be genuine and signed by any party hereto or an authorized officer
or agent thereof, and shall not be required to investigate the truth or accuracy
of any statement contained in any such document or instrument. The Escrow Agent
may assume
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that any Person purporting to give any notice in accordance with the provisions
of this Agreement has been duly authorized to do so.
(d) The Escrow Agent shall not be liable for any error of judgment, or any
action taken, suffered or omitted to be taken, hereunder except in the case of
its negligence, bad faith or willful misconduct. The Escrow Agent may consult
with counsel of its own choice and shall have full and complete authorization
and protection for any action taken or suffered by it hereunder in good faith
and in accordance with the opinion of such counsel.
(e) The Escrow Agent shall have no duty as to the collection of dividends,
distributions or income on the Escrow Shares or any investments held in the
Escrow Fund or as to the preservation of any rights pertaining thereto, and
shall not be under any duty to give the Escrow Funds held by it hereunder any
greater degree of care than it gives its own similar property.
(f) As compensation for its services to be rendered under this Agreement,
for each year or any portion thereof, the Escrow Agent shall receive a fee in
the amount specified in Schedule B to this Agreement and shall be reimbursed
upon request for all expenses, disbursements and advances, including reasonable
fees of outside counsel, if any, incurred or made by it in connection with the
preparation of this Agreement and the carrying out of its duties under this
Agreement. All such fees and expenses shall be the responsibility of Getty
Images.
(g) Getty Images shall reimburse and indemnify the Escrow Agent for, and
hold it harmless against, any loss, liability or expense, including, without
limitation, reasonable attorneys' fees, incurred without negligence, bad faith
or willful misconduct on the part of the Escrow Agent arising out of, or in
connection with the acceptance of, or the performance of, its duties and
obligations under this Agreement.
(h) The Escrow Agent may at any time resign by giving 30 Business Days'
prior written notice of resignation to the Principal Stockholders'
Representative and Getty Images. The Principal Stockholders' Representative and
Getty Images may at any time jointly remove the Escrow Agent by giving 20
Business Days' written notice signed by each of them to the Escrow Agent. If the
Escrow Agent shall resign or be removed, a successor Escrow Agent, which shall
be a bank or trust company having its principal executive offices in San
Francisco or New York and assets in excess of $2 billion, and which shall be
reasonably acceptable to the Principal Stockholders' Representative, shall be
appointed by Getty Images by written instrument executed by the Principal
Stockholders' Representative and Getty Images and delivered to the Escrow Agent
and to such successor Escrow Agent and, thereupon, the resignation or removal of
the predecessor Escrow Agent shall become effective and such successor Escrow
Agent, without any further act, deed or conveyance, shall become vested with all
right, title and interest to all cash and property held hereunder of such
predecessor Escrow Agent, and such predecessor Escrow Agent shall, on the
written request of the Principal Stockholders' Representative, Getty Images or
the successor Escrow Agent, execute and deliver to such successor Escrow Agent
all the right, title and interest hereunder in and to the Escrow Fund of such
predecessor Escrow Agent and all other rights hereunder of such predecessor
Escrow Agent. If no successor Escrow Agent shall have been appointed within 20
Business Days of a notice of resignation by the Escrow Agent, the Escrow Agent's
sole responsibility shall thereafter be to hold the Escrow Fund until the
earlier of (i) its receipt of designation of a successor Escrow Agent, (ii) a
joint written instruction by the Principal Stockholders' Representative and
Getty Images and (iii) termination of this Agreement in accordance with its
terms.
(i) The Escrow Agent shall prepare and deliver to Getty Images and the
Principal Stockholders' Representative at the end of each calendar month prior
to termination of this Agreement a written account describing all transactions
with respect to the Escrow Fund during such calendar month.
(j) The Escrow Agent does not have any interest in the Escrow Fund deposited
hereunder but is serving as escrow holder only and having only possession
thereof. The Principal Stockholders shall pay or reimburse the Escrow Agent upon
request for any transfer taxes or other taxes relating to the Escrow Fund
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incurred in connection herewith and shall indemnify and hold harmless the Escrow
Agent from any amounts that it is obligated to pay in the way of such taxes. If
necessary under applicable law, any payments of income from the Escrow Fund
shall be subject to withholding regulations then in force with respect to United
States taxes. The parties hereto will provide the Escrow Agent with appropriate
W-9 forms for taxpayer identification, number certifications or W-8 forms for
non-resident alien certifications. It is understood that the Escrow Agent shall
be responsible for income reporting only with respect to income earned on
investment of funds which are a part of the Escrow Fund and is not responsible
for any other reporting. This Section 14(j) and Section 14(g) above shall
survive notwithstanding any termination of this Escrow Agreement or the
resignation of the Escrow Agent.
(k) The Escrow Agent makes no representation as to the validity, value,
genuineness or collectability of any security or other document or instrument
held by or delivered to it.
(l) The Escrow Agent shall not be called upon to advise any party as to the
wisdom in selling or retaining, or taking or refraining from taking any action
with respect to any securities or other property deposited hereunder.
(m) In the event of any disagreement between the other parties hereto
resulting in adverse claims or demands being made in connection with the Escrow
Fund, or in the event that the Escrow Agent in good faith is in doubt as to what
action it should take hereunder, the Escrow Agent shall be entitled to retain
the Escrow Fund until the Escrow Agent shall have received (i) a final
nonappealable order of a court having jurisdiction directing delivery of the
Escrow Fund or (ii) a written agreement executed by the other parties hereto
directing delivery of the Escrow Fund, in which event the Escrow Agent shall
disburse the Escrow Fund in accordance with such order, judgment or agreement.
Any court order shall be accompanied by a legal opinion of counsel for the
presenting party satisfactory to the Escrow Agent to the effect that said order
or judgment is final and nonappealable. The Escrow Agent shall act on such court
order or judgment and legal opinion without further question.
SECTION 15. TERMINATION. This Agreement shall terminate on the later of:
(a) the date on which there are no funds, shares of Getty Images Shares or other
property remaining in the Escrow Fund and (b) ten Business Days following the
date after the Expiration Date on which all claims made in Getty Images Party's
Certificates delivered to the Escrow Agent prior to the Expiration Date shall
have been resolved.
SECTION 16. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by courier service, by cable, by facsimile, by telegram, by telex or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties at the following addresses (or at such other address for a
party as shall be specified in a notice given in accordance with this Section
16):
(a) if to Getty Images:
c/o Getty Communications plc
101 Bayham Street
London NW1 0AG England
Facsimile: (44171) 267-6540
Attention: Nick Evans-Lombe
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with a copy to each of:
Clifford Chance
200 Aldersgate Street
London EC1A 4JJ England
Facsimile: (44171) 600-5555
Attention: Michael Francies
Shearman & Sterling
555 California Street
San Francisco, California 94104
Facsimile: (415) 616-1199
Attention: Christopher D. Dillon
(b) if to the Principal Stockholders' Representative:
c/o PhotoDisc, Inc.
2013 Fourth Avenue
4th Floor
Seattle, Washington 98121
Facsimile: (206) 441-9379
Attention: Mark Torrance
with a copy to:
Heller Ehrman White & McAuliffe
6100 Columbia Center
701 Fifth Avenue
Seattle, Washington 98104
Telecopy: (206) 447-0849
Attention: Thomas S. Hodge
(c) if to the Escrow Agent, to:
----------------------------------------
----------------------------------------
----------------------------------------
----------------------------------------
Facsimile:
------------------------------
Attention:
------------------------------
SECTION 17. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of [New York] [Delaware]
applicable to contracts executed in and to be performed entirely within that
state.
SECTION 18. AMENDMENTS. This Agreement may not be amended or modified
except (a) by an instrument in writing signed by, or on behalf of, the parties
hereto or (b) by a waiver in accordance with Section 19 of this Agreement.
SECTION 19. WAIVER. Any party to this Agreement may (a) extend the time
for the performance of any obligations or other acts of any other party hereto
or (b) waive compliance with any agreements or conditions contained herein. Any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed by the party to be bound thereby. Any waiver of any term or
condition shall not be construed as a waiver of any subsequent breach or a
subsequent waiver of the same term or condition, or as a waiver of any other
term or condition, of this Agreement. The failure of any party to assert any of
its rights hereunder shall not constitute a waiver of any of such rights.
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SECTION 20. SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of Law or public
policy, all other terms and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic and legal substance of
the transactions contemplated by this Agreement is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in a mutually acceptable
manner in order that the transactions contemplated hereby are consummated as
originally contemplated to the greatest extent possible.
SECTION 21. ENTIRE AGREEMENT. This Agreement, the Merger Agreement and the
Principal Stockholders' Transaction Agreement constitute the entire agreement of
the parties hereto with respect to the subject matter hereof and thereof and
supersede all prior agreements and undertakings, both written and oral, among
Getty Images, the Principal Stockholders and the Escrow Agent with respect to
the subject matter hereof and thereof.
SECTION 22. NO THIRD PARTY BENEFICIARIES. This Agreement shall be binding
upon and inure solely to the benefit of the parties hereto and their permitted
assigns, and nothing herein, express or implied, is intended to or shall confer
upon any other Person any legal or equitable right, benefit or remedy of any
nature whatsoever under or by reason of this Agreement.
SECTION 23. HEADINGS. The descriptive headings contained in this Agreement
are for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
SECTION 24. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by different parties hereto in separate counterparts, each of
which when executed shall be deemed to be an original but all of which when
taken together shall constitute one and the same agreement.
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IN WITNESS WHEREOF, each of Getty Images, the Principal Stockholders and the
Escrow Agent has duly executed, or has caused this Agreement to be duly executed
by its duly authorized representative, as of the date first written above.
<TABLE>
<S> <C> <C>
GETTY COMMUNICATIONS (USA), INC.
By:
-----------------------------------------
Name:
Title:
PDI, L.L.C.
By:
-----------------------------------------
Name: Mark Torrance
Title:
</TABLE>
<TABLE>
<S> <C>
---------------------------------------------
Mark Torrance
---------------------------------------------
Thomas D. Hughes
---------------------------------------------
Mark B. Callaghan
---------------------------------------------
Chris Birkeland
---------------------------------------------
Sally von Bargen
---------------------------------------------
Colleen Maloney
---------------------------------------------
Paul Shipman
J&B VENTURE PARTNERS I
By:
-----------------------------------------
Name:
Title:
ADVENT VII L.P.
By:
-----------------------------------------
Name:
Title:
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
ADVENT ATLANTIC AND PACIFIC III, L.P.
By:
-----------------------------------------
Name:
Title:
ADVENT NEW YORK L.P.
By:
-----------------------------------------
Name:
Title:
TA VENTURE INVESTORS LIMITED
PARTNERSHIP
By:
-----------------------------------------
Name:
Title:
GEOCAPITAL III, L.P.
By:
-----------------------------------------
Name:
Title:
GEOCAPITAL IV, L.P.
By:
-----------------------------------------
Name:
Title:
THE BROADVIEW PARTNERS GROUP
By:
-----------------------------------------
Name:
Title:
</TABLE>
<TABLE>
<S> <C>
---------------------------------------------
Mark Torrance, as Principal
Stockholders' Representative
</TABLE>
<TABLE>
<S> <C> <C>
[ESCROW AGENT]
By:
-----------------------------------------
Name:
Title:
</TABLE>
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<PAGE>
EXHIBIT 7.03(B)
FORM OF AFFILIATE LETTER FOR
AFFILIATES OF GETTY COMMUNICATIONS PLC
, 1997
Getty Communications (USA), Inc.
c/o Getty Communications plc
101 Bayham Street
London NW1 0AG England
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be deemed to be
an "affiliate" of Getty Communications plc, a public limited company organized
under the law of England and Wales ("GETTY"), as the term "affiliate" is defined
for purposes of paragraphs (c) and (d) of Rule 145 of the rules and regulations
(the "RULES AND REGULATIONS") of the Securities and Exchange Commission (the
"COMMISSION") under the Securities Act of 1933, as amended (the "Act"). Pursuant
to the terms of the Merger Agreement dated as of September 15, 1997 (the "MERGER
AGREEMENT") among Getty Communications (USA), Inc., a Delaware corporation
("GETTY IMAGES"), Getty, PhotoDisc, Inc., a Washington corporation
("PHOTODISC"), and Print Merger, Inc., a Washington corporation ("MERGER SUB"),
Getty Images and Getty will implement a Scheme of Arrangement (the "SCHEME OF
ARRANGEMENT") in accordance with Section 425 of the Companies Act of 1985 of the
United Kingdom upon the terms and subject to the conditions set forth therein.
Capitalized terms used in this letter without definition shall have the meanings
assigned to them in the Merger Agreement.
As a result of the Scheme of Arrangement, I may receive shares of common
stock, par value $0.01 per share, of Getty Images (the "GETTY IMAGES SHARES"). I
would receive such Getty Images Shares in exchange for shares (or upon exercise
of options for shares) owned by me of Class A ordinary shares, nominal value 1p
per share, of Getty ("GETTY CLASS A ORDINARY SHARES") and/or of Class B ordinary
shares, nominal value 1p per share, of Getty ("GETTY CLASS B ORDINARY SHARES",
and, together with the Getty Class A Ordinary Shares, the "GETTY ORDINARY
SHARES").
1. I represent, warrant and covenant to Getty Images that in the event I
receive any Getty Images Shares as a result of the Scheme of Arrangement:
(i) I shall not make any sale, transfer or other disposition of Getty
Images Shares in violation of the Act or the Rules and Regulations.
(ii) I have carefully read this letter and the Merger Agreement and
discussed the requirements of such documents and other applicable
limitations upon my ability to sell, transfer or otherwise dispose of the
Getty Images Shares, to the extent I felt necessary, with my counsel or
counsel for Getty.
(iii) I have been advised that the issuance of the Getty Images Shares to
me pursuant to the Scheme of Arrangement are exempt from registration has
been registered with the Commission pursuant to Section 3(a)(10) of the
Securities Act. However, I have also been advised that, because, at the time
the Scheme of Arrangement is submitted for a vote of the shareholders of
Getty, (A) I may be deemed to be an affiliate of Getty and (B) the
distribution by me of the Getty Images Shares has not been registered under
the Act, I may not sell, transfer or otherwise dispose of the Getty Images
Shares issued to me in the Scheme of Arrangement unless (1) such sale,
transfer or other disposition is made in conformity with the volume and
other limitations of Rule 145 promulgated by the Commission under the
Securities Act, (2) such sale, transfer or other disposition has been
registered under the Securities Act or (3) in the written opinion of counsel
reasonably acceptable to Getty
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<PAGE>
Images, such sale, transfer or other disposition is otherwise exempt from
registration under the Securities Act.
(iv) Except for any registration rights pursuant to a written agreement,
I understand that Getty Images is under no obligation to register the sale,
transfer or other disposition of the Getty Images Shares by me or on my
behalf under the Act or, except as provided in paragraph 2(i) below, to take
any other action necessary in order to make compliance with an exemption
from such registration available.
(v) I understand that there will be placed on the certificates for the
Getty Images Shares issued to me, or any substitutions therefor, a legend
stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN
A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE
SECURITIES ACT OF 1933 APPLIES. [THE SHARES REPRESENTED BY
THIS CERTIFICATE MAY ONLY BE TRANSFERRED IN ACCORDANCE
WITH THE TERMS OF AN AGREEMENT DATED [ ],
199[7] BETWEEN THE REGISTERED HOLDER HEREOF AND GETTY
COMMUNICATIONS (USA), INC. A COPY OF WHICH AGREEMENT IS ON
FILE AT THE PRINCIPAL OFFICES OF GETTY COMMUNICATIONS
(USA), INC.]"
(vi) I understand that, unless a sale or transfer is made in conformity
with the provisions of Rule 145, or pursuant to a registration statement,
Getty Images reserves the right to put the following legend on the
certificates issued to my transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE
ACQUIRED FROM A PERSON WHO RECEIVED SUCH SHARES IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE
SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN
ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE
IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE
MEANING OF THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD,
PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH
AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
Securities Act of 1933."
(vii) Execution of this letter should not be considered an admission on
my part that I am an "affiliate" of Getty as described in the first
paragraph of this letter, nor as a waiver of any rights I may have to object
to any claim that I am such an affiliate on or after the date of this
letter.
2. By Getty Images' acceptance of this letter, Getty Images hereby agrees
with me as follows:
(i) For so long as and to the extent necessary to permit me to sell the
Getty Images Shares pursuant to Rule 145 and, to the extent applicable, Rule
144 under the Act, Getty Images shall (A) use its reasonable efforts to (1)
file, on a timely basis, all reports and data required to be filed with the
Commission by it pursuant to Section 13 of the Securities Exchange Act of
1934, as amended (the "1934 ACT"), and (2) furnish to me upon request a
written statement as to whether Getty Images has complied with such
reporting requirements during the 12 months preceding any proposed sale of
the Getty Images Shares by me under Rule 145 and (B) otherwise use its
reasonable efforts to permit such sales pursuant to Rule 145 and Rule 144.
(ii) It is understood and agreed that certificates with the legends set
forth in paragraphs (v) and (vi) above will be substituted by delivery of
certificates without such legend if (A) one year shall have
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elapsed from the date the undersigned acquired the Getty Images Shares
received in the Merger and the provisions of Rule 145(d)(2) are then
available to the undersigned, (B) two years shall have elapsed from the date
the undersigned acquired the Getty Images Shares received in the Merger and
the provisions of Rule 145(d)(3) are then applicable to the undersigned or
(C) Getty Images has received either an opinion of counsel, which opinion
and counsel shall be reasonably satisfactory to Getty Images, or a "no
action" letter obtained by the undersigned from the staff of the Commission,
to the effect that the restrictions imposed by Rule 145 under the Act no
longer apply to the undersigned.
Very truly yours,
--------------------------------------
Name:
Agreed and accepted this day
of , 199[7], by
<TABLE>
<S> <C>
GETTY COMMUNICATIONS (USA), INC.
By: ---------------------------------------
Name:
Title:
</TABLE>
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EXHIBIT 7.08
SIGNIFICANT PROVISIONS OF
CERTIFICATE OF INCORPORATION
AND BY-LAWS OF
GETTY IMAGES AT CLOSING
<TABLE>
<S> <C>
BOARD OF DIRECTORS: NUMBER OF DIRECTORS: Getty Communications (USA), Inc.
("GETTY IMAGES") will have a board of directors (the
"BOARD") consisting of 10 persons (each a "DIRECTOR") or any
number as the Board may fix by the vote of a majority of the
entire Board. The Board will be staggered into three
classes: four Class I Directors (term expiring in 1998),
three Class II Directors (term expiring in 1999); three
Class III Directors (term expiring in 2000). Additional
directorships resulting from an increase in the number of
directors will be apportioned among the three classes.
ELECTION AND REMOVAL: Directors will be elected for a
three-year term and will hold office for the term for which
he was elected and until his successor is elected and has
qualified or until his or her earlier resignation or
removal. Directors in the class up for election in any given
year will be elected at the annual meeting of stockholders
by a plurality of the votes. Any director or the entire
Board may be removed only for cause.
VACANCIES: Vacancies on the Board by any reason, including
newly created directorships resulting from any increase in
the authorized number of directors, may be filled only by a
majority of the Directors then in office, although less than
a quorum, or by a sole remaining Director. A Director
elected to fill a vacancy will hold office until the
election of the class for which such director will have been
chosen and until his or her successor will have been chosen
and until his or her successor is duly elected and has
qualified or until his or her earlier resignation or
removal.
QUORUM; REQUIRED VOTE: A majority of the whole Board
constitutes a quorum and an action approved by the majority
of the Directors present at any meeting at which there is a
quorum will constitute an action of the Board.
ACTION BY UNANIMOUS WRITTEN CONSENT: Any action required or
permitted to be taken at any meeting of the Board or any
committee thereof may be taken without a meeting if all
members of the Board or committee consent in writing, and
such writing is filed with the Board or committee minutes.
REGULAR MEETINGS: Regular meetings of the Board may be fixed
by resolutions of the Board and will take place at such
date, time and place as will be designated from time to time
by the Board and stated in the notice of the meeting.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
SPECIAL MEETINGS; NOTICE: Special meetings of the Board must
be called by either of the Co-Chairmen, the Chief Executive
Officer, a majority of the directors, or stockholders
holding 15% or more of the then outstanding voting
securities of Getty Images. Notice of the meeting must (i)
state the time and place of the meeting and (ii) be mailed
two days prior to the meeting or sent to the director by
telegraph, cable, telex, telecopier, or by phone 48 hours
prior to the meeting.
COMPENSATION: The Board may fix the compensation, including
fees and expenses, of directors for their services.
LIABILITY OF DIRECTORS TO THE COMPANY: A Director will not
be liable to Getty Images or its stockholders for monetary
damages for breach of fiduciary duties, except for liability
which, by express provision of the Delaware General
Corporation Law (the "DGCL"), cannot be limited or
eliminated.
INDEMNIFICATION: To the fullest extent permitted by the
DGCL, Getty Images must indemnify and advance expenses to
any and all persons whom it will have power to indemnify
from and against any and all of the expenses, liabilities or
other matters referred to or covered by the DGCL. The
indemnification provisions contained in the DGCL are not
deemed exclusive of any other rights to which those
indemnified may be entitled under any Bylaw, agreement,
resolution of stockholders or disinterested directors, or
otherwise, and must continue as to or disinterested
directors, or otherwise, and must continue as to a person
who has ceased to be a director, officer, employee or agent,
both as to action in his official capacity and as to action
in another capacity while holding such office, and must
inure to the benefit of the heirs, executors and
administrators of such person.
Getty Images may maintain insurance, at its expense, to
protect itself and any Director, officer, employee or agent
of Getty Images against any liability, whether or not Getty
Images would have the right to indemnify such person under
the DGCL.
COMMITTEES OF THE BOARD: EXECUTIVE COMMITTEE: The Board shall establish an Executive
Committee which shall have all the powers and authority of
the Board in the management of the business and affairs of
Getty Images that may be properly delegated by the Board to
a committee of the Board.
OTHER COMMITTEES: In addition to the Executive Committee,
Committees of the Board will include audit and compensation
committees.
OFFICE OF THE CHAIRMAN: The Chairman shall have the power to call special meetings
of stockholders, to call special meetings of the Board and,
if present, to preside at all meetings of Stockholders and
all meetings of the Board. The Chairman shall perform all
duties incident to the office of Chairman of the Board and
all such other duties as may from time to time be assigned
to him by the Board or the By-laws. There may be appointed
two Co-Chairmen.
</TABLE>
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<TABLE>
<S> <C>
BLANK CHECK PREFERRED STOCK
PROVISION: The Board is authorized by resolution to provide for the
issue of all or any shares of Preferred Stock, in one or
more series, and to fix for each such series such voting
powers, designations, preferences and relative
participating, optional or special rights and such
qualifications, limitation or restrictions as will be stated
and expressed in the resolution(s) adopted by the Board and
as may be permitted by Delaware law. The Board may confer
upon any such series of Preferred Stock the right to elect
one or more Directors who will serve for such term and have
such voting powers, as will be stated in the resolution(s)
adopted by the Board.
STOCKHOLDERS: ANNUAL MEETINGS: The time and place of the annual meeting of
stockholders will be designated by the Board. At each such
annual meeting, Directors will be elected and any other
proper business may be transacted.
SPECIAL MEETINGS: Special meetings of the stockholders may
be called at any time by either of the Co-Chairmen of the
Board or the Chief Executive Officer and must be called only
by either of the Co-Chairmen of the Board or by the
Secretary at the request in writing of at least two-thirds
of the entire Board. Special meetings of stockholders may be
called by the recordholders of at least a majority of the
outstanding shares of common stock. The special meeting will
be held at such time and place as determined by the Board.
NOTICE OF MEETINGS: Notice of the place, date and hour of
each annual and special stockholders meeting must be given
to each stockholder entitled to vote at the meeting not less
than 10 nor more than 60 days prior to any stockholder
meeting. Notice of a special meeting must include the
purpose thereof and indicate who is calling the meeting.
NOTICE OF STOCKHOLDER PROPOSALS: At an annual meeting of the
stockholders, only such business will be conducted, and only
such proposals will be acted upon, as will have been
properly brought before the annual meeting. To be properly
brought, business must be
(i) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board;
(ii) otherwise properly brought before the meeting by or at
the direction of the Board; or
(iii) otherwise properly brought before the meeting by a
stockholder of Getty Images who provides a copy of the
Stockholder's Notice (as defined below) to the Secretary not
less than 60 days nor more than 90 days prior to the
meeting, provided, however, that if less than 35 days'
notice of the meeting is given, such Stockholder's Notice
must be delivered to the Secretary not later than the close
of the seventh day following the day on which the notice of
the meeting was mailed to the stockholders.
</TABLE>
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<TABLE>
<S> <C>
The "STOCKHOLDER'S NOTICE" will set forth as to each matter
the stockholder proposed to bring before the annual meeting
(v) a brief description of the proposal; (w) the name and
address of the stockholder proposing the business; (x) the
class and number of shares of Getty Images Common Stock
owned by the proposed stockholder; (y) the reason for
conducting such business at the annual meeting; and (z) any
material interest of the stockholder in such business.
NO ACTION OF STOCKHOLDERS BY WRITTEN CONSENT: No action
required or permitted to be taken at any meeting of
stockholders may be taken without a meeting and the power of
stockholders to consent in writing to the taking of any
action without a meeting is specifically denied.
QUORUM OF STOCKHOLDERS: The presence, in person or by proxy,
of the holders of a majority of the issued and outstanding
shares entitled to vote at the meeting constitutes a quorum
at all meetings of the stockholders.
VOTING: Stockholders entitled to vote at a meeting of the
stockholders may vote either in person or by proxy appointed
by an instrument in writing.
AMENDMENT OF ORGANIZATIONAL
DOCUMENTS: AMENDMENT OF CERTIFICATE OF INCORPORATION: Getty Images may
amend or repeal any provision of the Certificate of
Incorporation in any manner now or hereafter prescribe by
law. However, the following provisions of the Certificate of
Incorporation may be amended only by the favorable vote of
the holders of shares representing at least 80% of the stock
of Getty Images entitled to vote in the election of
directors, voting as one class:
(i) The provision restricting stockholder action by written
consent;
(ii) The provision setting the number and classification of
the Board, granting the Board the rights to fill any
vacancies and providing for the removal of Directors only
for cause;
(iii) The provision expressly authorizing the Board to amend
the Bylaws;
(iv) The provision regarding the limitation on liability and
indemnification of Directors; and
(v) The provision requiring the 80% vote of the stockholders
to amend or repeal certain provisions of the Certificate of
Incorporation.
AMENDMENT OF BYLAWS: The Bylaws may be amended, repealed or
new Bylaws adopted by the affirmative vote of at least
two-thirds of the entire Board.
SECTION 203 OF THE DELAWARE
GENERAL CORPORATION LAW: Getty Images shall not "opt out" of Section 203 (the
"BUSINESS COMBINATION STATUTE").
</TABLE>
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EXHIBIT 7.11
BOARD OF DIRECTORS OF GETTY IMAGES AS OF THE EFFECTIVE TIME
The Board of Directors of Getty Images, as of the Effective Time, shall
consist of the following persons:
Directors whose term shall expire at the first annual
meeting of stockholders after the Effective Time
- --------------------------------------------------------------------------------
Andrew Garb
Michael Green
Anthony Stone
Directors whose term shall expire at the second annual
meeting of stockholders after the Effective Time
- --------------------------------------------------------------------------------
Manny Fernandez
Christopher Sporborg
Director to be determined
Director to be determined
Directors whose term shall expire at the third annual
meeting of stockholders after the Effective Time
- --------------------------------------------------------------------------------
Mark Getty
Jonathan Klein
Mark Torrance
If prior to the Effective Time, any of Anthony Stone, Andrew Garb, Michael
Green, Manny Fernandez, Christopher Sporborg, Mark Getty or Jonathan Klein or
any other person designated by Getty shall decline or be unable to serve as a
director of Getty Images, Getty shall designate another person reasonably
acceptable to PhotoDisc.
If prior to the Effective Time, Mark Torrance shall decline or be unable to
serve as a director of Getty Images, PhotoDisc shall designate another person
reasonably acceptable to Getty.
Mark Torrance may propose to the Board of Directors of Getty Images
non-employees with appropriate industry experience to fill the two vacancies
indicated above. The Board of Directors of Getty Images shall consider any
proposed appointee in good faith. The directors to be determined may be
appointed before or after the Effective Time.
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EXHIBIT 9.01(k)
STOCKHOLDERS' AGREEMENT
<TABLE>
<S> <C>
PARTIES: Getty Communications (USA), Inc., a Delaware corporation
("GETTY IMAGES") and (a) Getty Investments L.L.C. ("GETTY
INVESTMENTS"), Mark Getty, Jonathan Klein, Crediton Limited
and October 1993 Trust (collectively, the "GETTY GROUP") and
(b) PDI, L.L.C. ("PDI"), Mark Torrance and Wade Torrance
(collectively, the "TORRANCE GROUP") (the"STOCKHOLDERS").
RESTRICTION ON TRANSFER: No Stockholder may sell, encumber or otherwise transfer his
shares of common stock, par value $0.01 per share, of Getty
Images ("GETTY IMAGES STOCK") except:
(i) to a Permitted Transferee (as defined below); or
(ii) pursuant to the terms of the Stockholders'
Agreement (the "AGREEMENT"); or
(iii) subject to any arrangements within their
respective "Groups" pursuant to a registered public
offering of shares in which, to the knowledge of the
selling Stockholder, no one person or "group" shall
purchase more than 5% of the then outstanding Common
Stock of Getty Images; or
(iv) subject to any arrangements within their
respective "Groups" sales within the Rule 144 volume
limitation.
"PERMITTED TRANSFEREE" is defined as (i) Getty Images or any
subsidiary of Getty Images; (ii) in the case of any
Stockholder who is a natural person, a person to whom Getty
Images Stock is transferred from such Stockholder by gift,
will or the laws of descent and distribution; (iii) any
other member of the Getty Group or the Torrance Group, as
the case may be; or (iv) any "affiliate" of any Stockholder
including, without limitation, any trust, partnership or
limited liability company a Stockholder controls or is a
beneficiary of or which is a member of any Stockholder and
any beneficiary of any such trust.
RIGHT OF FIRST REFUSAL: OFFER TO SELL: If any Stockholder (the "PROSPECTIVE SELLER")
receives from a person, other than a Permitted Transferee or
another Stockholder (a "THIRD PARTY"), a bona fide offer to
purchase any or all of such Prospective Seller's Getty
Images Stock (the "OFFERED SHARES") for cash or other
consideration, and such Prospective Seller desires to sell
the Offered Shares to such Third Party, the Prospective
Seller must provide written notice (the "OFFER NOTICE") of
such offer to Getty Images and the other Stockholders
constituting the Stockholders group in which the Prospective
Seller does not belong (the "OTHER STOCKHOLDERS").
</TABLE>
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<TABLE>
<S> <C>
The receipt of an Offer Notice shall constitute an offer (an
"OFFER") by such Prospective Seller to sell to the
recipients of such Offer Notice all of the Offered Shares at
the price per share of Getty Images Stock at which the sale
to the Third Party is proposed to be made (the "OFFER
PRICE") in cash. Such Offer is irrevocable for 10 days after
receipt of such Offer Notice.
ACCEPTANCE: Subject to the priorities set forth below, Getty
Images and the Other Stockholders may accept the Offer as to
any or all of the Offered Shares by giving written notice
("NOTICE OF ACCEPTANCE") to the Prospective Seller within 10
days after receipt of the Offer Notice. If the Prospective
Seller has not received Notices of Acceptances for all of
the Offered Shares within five business days prior to the
expiration of the 10 day period, the Prospective Seller will
notify each accepting party of such fact and provide each
accepting party an opportunity to submit an additional
Notice of Acceptance for the remaining Offered Shares with
such 10 day period.
ORDER OF PRIORITY: Getty Images and the Other Stockholders
are entitled to accept the Offer in the following order:
(i) Getty Images may accept any or all of the offered
shares; and
(ii) If Getty Images does not accept the Offer for all
the Offered Shares, each Other Stockholder (including in
the case of Getty Investments, its members) may accept
such Offer, and in the event of acceptances for more
than 100% of the Offered Shares, such acceptances shall
be scaled down on a pro rata basis.
PURCHASE OF OFFERED SHARES: The sale of the Offered Shares
must be consummated no later than 20 days after receipt of
the latest Notice of Acceptance by the Prospective Seller
SALE TO THIRD PARTY: The Prospective Seller has the right to
reject any or all the Notices of Acceptance and sell all,
but not less than all, the Offered Shares to the Third Party
if:
(i) the Prospective Seller has not received Notices of
Acceptance as to all the Offered Shares prior to the
expiration of the 10 day period following the receipt of
the Offer Notice by Getty Images and the Other
Stockholders; or
(ii) if an Accepting Party fails to consummate the
purchase of the Offered Stock, other than as result of
the Prospective Seller's fault, (a "FAILED PURCHASE"),
and neither Getty Images or the Other Stockholders are
prepared to purchase the Offered Shares from the Failed
Purchase within five business days of receiving notice
of such Failed Purchase.
</TABLE>
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<TABLE>
<S> <C>
Sale of the Offered Shares to the Third Party must (A) be
consummated within 90 days after receipt of the Offer Notice
by Getty Images and the Other Stockholders and (B) at a
price per share at or greater than the Offer Price. If the
sales are not consummated within the 90 day period, the
Prospective Seller may not give another Offer Notice for 90
days from the last day of such 90 day period.
TERMINATION OF OBLIGATIONS AND RIGHTS RELATING TO RIGHT OF
FIRST REFUSAL: The obligations and rights of the
Stockholders relating to the rights of first refusal will be
terminated when the Getty Group or the PDI Group, as the
case may be, and any of such Group's Permitted Transferees
collectively own fewer than the greater of (i) 3,000,000
Shares of Getty Images Stock; and (ii) such number of Shares
of Getty Images Stock as is equal to 2% or less of the then
outstanding Getty Images Stock.
IMPROPER SALE: Any sale, encumbrance or other transfer of Getty Images
Stock not in compliance with the Agreement will be null and
void.
With regard to Permitted Transfers, each Stockholder will
only sell, encumber or otherwise transfer his Getty Images
Stock pursuant to a Permitted Transfer unless the
prospective transferee (the "PROSPECTIVE TRANSFEREE"):
OBLIGATION OF TRANSFEREES:
(i) executes and delivers to Getty Images and each
other Stockholder an agreement whereby such Prospective
Transferee confirms that he is a "Stockholder" for
purposes of the Agreement and agrees to be bound by the
terms of the Agreement; and
(ii) delivers to Getty Images an opinion of counsel
stating that the agreement delivered by the Prospective
Transferee is a legal, valid and binding obligation of
such Prospective Transferee enforceable against such
Prospective Transferee in accordance with its terms.
AGREEMENT NOT TO SELL: Until the earlier of (i) the date that is six months from
the date of the Agreement and (ii) the time of the
effectiveness of a registration statement filed by the
Company pursuant to which stockholders (including Getty
Investments) of the Company sell shares of Getty Images
Stock, each of the Stockholders shall not sell any shares;
PROVIDED, HOWEVER, that, during such period, the Getty Group
or the Torrance Group, as the case may be, may each sell up
to 200,000 shares pursuant to Rule 144.
</TABLE>
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<TABLE>
<S> <C>
As of the date of the Agreement, each of Torrance Group and
Getty Group, shall have the right to appoint one director
(each with an initial term to expire in 1998) (the "1998
Class"). Torrance Group and Getty Group shall each have the
right to appoint a person to be a director in the 1998 Class
when such class of directors is subject to an election;
PROVIDED, HOWEVER, that such right shall terminate with
respect to either Torrance Group or Getty Group once
Torrance Group and Getty Group, as the case may be, owns
fewer than the greater of (i) 3,000,000 shares of Getty
Images Stock and (ii) such number of shares of Getty Images
Stock as is equal to 2% of the then outstanding shares, and
PROVIDED, FURTHER, so long as Mark Torrance is an employee
of Getty Images and a member of the Board, Torrance Group's
rights to appoint or nominate shall not be in effect.
RIGHT TO NOMINATE DIRECTORS:
For so long as Getty Group has the right to appoint one
director, it shall also have the right to appoint from among
the directors of Getty Images, the Chairman of Getty Images,
PROVIDED, HOWEVER, that for so long as either Mark Torrance
or Mark Getty are Co-Chairman of the Board such right shall
not be in effect.
NOMINATION OF CHAIRMAN:
Simultaneous with the execution of the Agreement, the
Relationship Agreement between Getty Communications plc and
Getty Investments shall be terminated except with respect to
the non-competition agreement contained therein.
TERMINATION OF PRIOR RIGHTS:
GOVERNING LAW: Delaware
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EXHIBIT 9.01(l)(i)
SIGNIFICANT TERMS OF PDI L.L.C. REGISTRATION RIGHTS AGREEMENT
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PARTIES: Getty Communications (USA), Inc., a Delaware corporation
("GETTY IMAGES"), and PDI, L.L.C. and Mark Torrance (the
"STOCKHOLDERS").
DEMAND REGISTRATION: Stockholders have the right (a "DEMAND RIGHT") to require
Getty Images to file a registration statement with respect
to all or a portion of the Stockholders' shares of common
stock, par value $0.01 per share, of Getty Images (the
"SHARES"), subject to the provisions set forth below.
NUMBER OF DEMAND RIGHTS: The Stockholders have three "long
form" registration and two "short form" registration Demand
Rights. If the Stockholders withdraw a Demand Right prior to
the effective time of the demanded registration, the
Stockholders' will not forfeit the Demand Right if the
withdrawal was due to:
(i) A material adverse change affecting Getty Images;
(ii) Notification by Getty Images of an intention to
file a registration statement.
MINIMUM NUMBER OF SHARES TO BE REGISTERED IN A "LONG FORM"
REGISTRATION: Stockholders may exercise a "long form" Demand
Right only if the aggregate number of Shares covered by the
"long form" Demand Right is greater than such number of
Shares equal to [25%] of the aggregate Shares owned by the
Stockholders as of the Effective Time.
MINIMUM NUMBER OF SHARES TO BE REGISTERED IN A "SHORT FORM"
REGISTRATION: Stockholders may exercise a "short form"
Demand Right only if the aggregate number of Shares covered
by any such Demand Right is greater than [350,000] shares.
EFFECTIVENESS PERIOD FOR "SHORT FORM" REGISTRATIONS: Getty
Images shall keep effective a "short form" registration
statement until the earlier of (a) the disposition of all
the Shares registered thereto and (b) the expiration of the
90 day period commencing on the first day of the
effectiveness of such registration.
POSTPONEMENT OF THE REGISTRATION: Getty Images may postpone,
for a period of 60 days, the Stockholders' demand for
registration if:
(i) such Demand Right interferes with a pending or
contemplated financing, acquisition, corporate
reorganization or similar transaction;
(ii) Getty Images will be filing within 30 days a
registration statement pertaining to a public offering
of the securities in which the Stockholders are entitled
to participate;
(iii) such Demand Right would adversely affect a
pending or contemplated sale of securities by Getty
Images;
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(iv) such Demand Right would require the disclosure of
material nonpublic information of Getty Images; or
(v) Getty Images is subject to existing contractual
obligations to its underwriters not to engage in a
public offering.
Upon a change or termination of the circumstances creating
the right to postpone the demanded registration, Getty
Images must proceed promptly with the Stockholders'
registration, whether or not the postponement period has
elapsed.
Getty Images shall not exercise such right more than twice
per year.
SUBSEQUENT DEMANDS: No Demand Right may be exercised within
one year of the date of the termination of the effectiveness
of the registration of the Shares covered by a previous
Demand Right.
PIGGY-BACK REGISTRATION: The Stockholders have the right to have any or all of their
Shares included in any registration by Getty Images (a
"PIGGY-BACK RIGHT"). The exercise of a Piggy-Back Right does
not forfeit a Demand Right.
LIMITATIONS: Getty Images may limit any and all of the
Shares from being included in the registration on a pro rata
basis with all other participating Stockholders if the
inclusion (in the reasonable judgment of the managing
underwriter of such offering) of all Shares requested to be
registered would:
(i) materially and adversely affect the price of the
securities registered; or
(ii) result in a greater amount of securities being
offered than the market could reasonably absorb.
SELECTING THE UNDERWRITER: Getty Images has the right to select (after consultation
with the Stockholders) the investment bank and manager to
administer any offering made pursuant to the Agreement,
provided that such managing underwriter must be of
recognized international standard.
REGISTRATION EXPENSES: "REGISTRATION EXPENSES" include, but are not limited to:
(i) Fees and disbursements of counsel for Getty
Images;
(ii) Fees and disbursements of one counsel for the
Stockholders;
(iii) Accounting fees (including the expenses for any
special audits or "cold comfort" letters);
(iv) Listing Fees; and
(v) Other ancillary expenses, including word
processing, duplication, printers', filing fees,
messenger and delivery expenses.
RESPONSIBLE PARTY: Except as provided below, Getty Images
will pay all Registration Expenses related to each Demand
Right and each Piggy-Back Right.
LIMITATION OF EXPENSES: Getty Images will not be required to
pay any underwriting discounts and commissions related to
the sale of the Shares.
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INDEMNIFICATION: FOR THE STOCKHOLDERS: Getty Images will indemnify and hold
the Stockholders, their underwriter and agents harmless
against any claim arising from any untrue statement or
omission of a material fact contained in the registration
statement or prospectus, except if such untrue statement or
omission:
(i) is made in reliance on a written statement from
the Stockholders, their underwriter or agents; or
(ii) results from the Stockholders' failure to respond
to any request for information concerning themselves or
their proposed manner of disposition of Shares.
FOR GETTY IMAGES: The Stockholders will indemnify and hold
Getty Images, its underwriter and agents harmless against
any claim arising from an untrue statement or omission:
(i) due to Getty Images' reliance on any written
statement from the Stockholders, their underwriter or
agents; or
(ii) that results from the Stockholders' failure to
respond to any request for information concerning
themselves or their proposed manner of disposition of
Shares.
TERMINATION OF REGISTRATION
RIGHTS: Both Demand Rights and Piggy-Back Rights terminate on the
earlier of:
(i) immediately, once all Shares can be sold within a
three month period under the volume limitation of Rule
144 of the Securities Act; or
(ii) on the 15th anniversary of the date of the
Agreement, regardless of the Shares' tradeability.
TRANSFER OF REGISTRATION
RIGHTS: The Stockholders may not transfer their rights under the
Agreement without the written consent of Getty Images,
except a Stockholder can transfer such Stockholder's right
without Getty Images' consent in the following circumstances
to a Permitted Transferee (defined as a person to whom the
Shares are transferred from a Stockholder by will or the
laws of descent and distribution or pursuant the terms of
the operating agreement governing PDI L.L.C.).
A transfer of a Stockholder's rights under the Agreement
will not effectively transfer such rights until:
(i) Such Stockholder has notified Getty Images of such
transfer, whether or not Getty Images' consent to such
transfer is necessary; and
(ii) The prospective transferee has agreed in writing
to be bound to the provisions of the Agreement.
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EXHIBIT 9.01(L)(II)
SIGNIFICANT TERMS OF
GETTY INVESTMENTS REGISTRATION RIGHTS AGREEMENT
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PARTIES: Getty Communications (USA), Inc., a Delaware corporation
("GETTY IMAGES"), and Getty Investments LLC (the
"STOCKHOLDER").
DEMAND REGISTRATION: Stockholder has the right (a "DEMAND RIGHT") to require
Getty Images to file a registration statement with respect
to all or a portion of the Stockholder's shares of common
stock, par value $0.01 per share, of Getty Images (the
"SHARES"), subject to the provisions set forth below.
NUMBER OF DEMAND RIGHTS: The Stockholder has five "long
form" registration Demand Rights. If the Stockholder
withdraws a Demand Right prior to the effective time of the
demanded registration, the Stockholder will not forfeit the
Demand Right if the withdrawal was due to:
(i) A material adverse change affecting Getty Images;
(ii) Notification by Getty Images of an intention to
file a registration statement.
MINIMUM NUMBER OF SHARES TO BE REGISTERED IN A
REGISTRATION:The Stockholder may exercise its Demand Right
only if the aggregate number of Shares covered by the Demand
Right is greater than [850,000].
POSTPONEMENT OF THE REGISTRATIONV: Getty Images may
postpone, for a period of 60 days, the Stockholder's demand
for registration if:
(i) such Demand Right interferes with a pending or
contemplated financing, acquisition, corporate
reorganization or similar transaction;
(ii) Getty Images will be filing within 30 days a
registration statement pertaining to a public offering
of the securities in which the Stockholder is entitled
to participate;
(iii) such Demand Right would adversely affect a
pending or contemplated sale of securities by Getty
Images;
(iv) such Demand Right would require the disclosure of
material nonpublic information of Getty Images; or
(v) Getty Images is subject to existing contractual
obligations to its underwriters not to engage in a
public offering.
Upon a change or termination of the circumstances creating
the right to postpone the demanded registration, Getty
Images must proceed promptly with the Stockholder's
registration, whether or not the postponement period has
elapsed.
Getty Images shall not exercise such right more than twice
per year.
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SUBSEQUENT DEMANDS: No Demand Right may be exercised within
one year of the date of the termination of the effectiveness
of the registration of the Shares covered by a previous
Demand Right.
PIGGY-BACK REGISTRATION: The Stockholder has the right to have any or all of their
Shares included in any registration by Getty Images (a
"PIGGY-BACK RIGHT"). The exercise of a Piggy-Back Right does
not forfeit a Demand Right.
LIMITATIONS: Getty Images may limit any and all of the
Shares from being included in the registration on a pro rata
basis with all other participating Stockholders if the
inclusion (in the reasonable judgment of the managing
underwriter of such offering) of all Shares requested to be
registered would:
(i) materially and adversely affect the price of the
securities registered; or
(ii) result in a greater amount of securities being
offered than the market could reasonably absorb.
SELECTING THE UNDERWRITER: Getty Images has the right to select (after consultation
with the Stockholder) the investment bank and manager to
administer any offering made pursuant to the Agreement,
provided that such managing underwriter must be of
recognized international standard.
REGISTRATION EXPENSES: "REGISTRATION EXPENSES" include, but are not limited to:
(i) Fees and disbursements of counsel for Getty
Images;
(ii) Fees and disbursements of one counsel for the
Stockholder;
(iii) Accounting fees (including the expenses for any
special audits or "cold comfort" letters);
(iv) Listing Fees; and
(v) Other ancillary expenses, including word
processing, duplication, printers', filing fees,
messenger and delivery expenses.
RESPONSIBLE PARTY: Except as provided below, Getty Images
will pay all Registration Expenses related to each Demand
Right and each Piggy-Back Right.
LIMITATION OF EXPENSES: Getty Images will not be required to
pay any underwriting discounts and commissions related to
the sale of the Shares.
INDEMNIFICATION: FOR THE STOCKHOLDER: Getty Images will indemnify and hold
the Stockholder, its underwriter and agents harmless against
any claim arising from any untrue statement or omission of a
material fact contained in the registration statement or
prospectus, except if such untrue statement or omission:
(i) is made in reliance on a written statement from
the Stockholder, its underwriter or agents; or
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(ii) results from the Stockholder's failure to respond
to any request for information concerning itself or its
proposed manner of disposition of Shares.
FOR GETTY IMAGES: The Stockholder will indemnify and hold
Getty Images, its underwriter and agents harmless against
any claim arising from an untrue statement or omission:
(i) due to Getty Images' reliance on any written
statement from the Stockholder, its underwriter or
agents; or
(ii) that results from the Stockholder's failure to
respond to any request for information concerning itself
or its proposed manner of disposition of Shares.
TERMINATION OF REGISTRATION
RIGHTS: Both Demand Rights and Piggy-Back Rights terminate on the
earlier of:
(i) immediately, once all Shares can be sold within a
three month period under the volume limitation of Rule
144 of the Securities Act; or
(ii) on the 15th anniversary of the date of the
Agreement, regardless of the Shares' tradeability.
TRANSFER OF REGISTRATION
RIGHTS: The Stockholder may not transfer its rights under the
Agreement without the written consent of Getty Images,
except the Stockholder can transfer its right without Getty
Images' consent in the following circumstances to a
Permitted Transferee (defined as a person to whom the Shares
are transferred from the Stockholder by will or the laws of
descent and distribution or pursuant the terms of the
operating agreement governing Getty Investments LLC).
A transfer of the Stockholder's rights under the Agreement
will not effectively transfer such rights until:
(i) The Stockholder has notified Getty Images of such
transfer, whether or not Getty Images' consent to such
transfer is necessary; and
(ii) The prospective transferee has agreed in writing
to be bound to the provisions of the Agreement.
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EXHIBIT 9.01(M)(I)
EMPLOYMENT AGREEMENT
FOR
MARK GETTY
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Term: Initial fixed period of two years from 1 January 1998, continuing
thereafter until terminated by either party giving to the other no
less than twelve months notice in writing, no notice to be given so as
to expire prior to 31 December 2000.
Position: Co-Chairman (with Mark Torrance). Duties at all times consistent with
the position of such a Co-Chairman subject to existing exceptions for
Getty family interests. Mark Getty shall be required to devote all of
his business time and attention to the affairs of Getty Images.
Authority: Equal responsibility with Co-Chairman and CEO for: financial
performance of Getty Images; management of the shareholders;
developing strategic alliances and partnerships and maximizing the
commercial benefits from them; communications to both internal and
external audience and external relationship with business, industry
and academic communities; strategic leadership; and provision of
visible leadership and direction to the front line ("Hearts and
Minds").
Joint responsibility with Co-Chairman for: chairing the Board of
Directors and managing relationships with members (Mr. Getty will
Chair the first two meetings and subsequently the Chair of meetings
rotate between the two Co-Chairman); and provide leadership and
direction for R&D function of the Company. Mr. Getty will have special
emphasis for acquisitions (including of collections) and corporate
development and Mr. Torrance will have special emphasis for technology
and corporate culture.
Membership on Board
and Committees: Member of the Board of Directors, one of only three members of the
Executive Committee, Member of the Strategy Committee, entitled to
attend meetings of all other committees, e.g. Audit and Compensation.
Remuneration: $275,000 per annum, to be reviewed (upwards only) annually on 1 April
of each year in line with market equivalents. Annual bonus of up to
50% of salary [bonus scheme to be agreed and to be subject to the
achievement of the performance targets set by the Board for such year.
Criteria for achievement of bonus will be established by the
Compensation Committee. In the event Mr. Getty ceases to be employed
by Getty Images other than for Cause (as defined below) or by reason
of his voluntary resignation other than for Good Reason (as defined
below) then he shall be entitled to receive a lump sum payment equal
to the unpaid remuneration and maximum bonuses over the greater of the
remainder of the term of the contract and two years.
In the event of a change of control of Getty Images Mr. Getty shall
have the right to cease to be employed by Getty Images and shall be
entitled to receive a lump sum payment equal to the unpaid
remuneration and maximum bonuses over the greater of the remainder of
the term of the contract and two years.
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In the above circumstances Mr. Getty will be entitled to continuation
in Getty Images benefit plans for the greater of (i) two years and
(ii) the then remaining whole and partial years in the Term.
Severance payments and benefits shall not subject to mitigation,
setoff or offset.
Termination Terms: "Cause" means (i) wilful, material and repeated non-performance of Mr.
Getty's duties to Getty Images (other than by reason of illness or
disability) after notice from the Board of such failure and Mr.
Getty's non-performance and continued wilful, material and repeated
non-performance after such notice, (ii) the commission by Mr. Getty of
a felony or common law fraud or (iii) any other material breach by Mr.
Getty of any material term of the Agreement.
"Good Reason" means (i) an adverse and material change to Mr. Getty's
duties, titles or reporting responsibilities, (ii) a material breach
of any term of the Agreement, (iii) a reduction in Mr. Getty's base
salary or bonus opportunity or the failure of the Company to pay Mr.
Getty any material amount of compensation when due or (iii) a
relocation of Mr. Getty's principal business location without his
prior written consent.
Share Options: Existing options to be rolled over into Getty Images shares on the
same terms as other Getty options.
"Deal" options over 75,000 Getty Images shares, (equivalent to 150,000
Getty shares) issued at closing at market price of Getty Images shares
at closing, vest in full after one year.
Getty Images options over 500,000 Getty Images shares, (equivalent to
1,000,000 Getty shares) issued at closing at market price at closing,
first 25% vest at first anniversary of grant and thereafter vest
rateably each month over the following three years.
In the event of Mr. Getty ceasing to be an employee of the group for
any reason then he shall be entitled to retain all options as if he
had remained an employee and vesting shall be accelerated.
Pension Scheme and
Life Insurance: Getty Images shall pay for the sole benefit of Mr. Getty the amount of
20% of salary per year by equal monthly contributions in arrears into
his personal pension scheme or at Mr. Getty's option shall pay him the
same sum as extra remuneration.
Life assurance cover which in the event of Mr. Getty's death during
the continuance of his employment to pay a lump sum equal to the
greater of $750,000 and four times his then annual rate of salary
Benefits.
Benefits: Mark Getty, wife and children under the age of 18 years membership of
the British United Provident Association providing benefits at London
Teaching Hospital rates or of such other private medical expenses
insurance scheme providing equivalent benefits.
Membership of Getty Images' permanent health insurance plan or payment
for personal phi plan at Mr. Getty's discretion.
A car of such make and model as the Board shall decide is suitable for
Mr. Getty compatible with his status in Getty Images for his sole use
during the continuance of his employment in respect of which Getty
Images shall pay or reimburse Mr. Getty all standing and running
costs.
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The installation, rental and unit charges attributable to a dedicated
business telephone line at his home.
The purchase, line, rental and unit charges attributable to a mobile
telephone.
Provision of a fax machine and modem installed at Mr. Getty's home and
a suitable desktop and laptop computer and all ancillary equipment and
maintenance.
Annually the cost of his membership of or subscriptions to the
internet and such professional bodies and/or journals as are
appropriate to his duties under this Agreement.
Mr. Getty will participate in each long-term incentive program
established by Getty Images for its senior executives in a manner
consistent with his position with Getty Images.
Mr. Getty will be entitled to participate in all pension, welfare and
fringe benefit programs generally available to executives of Getty
Images.
Expenses: All reasonable traveling accommodation entertainment and other similar
out-of-pocket expenses wholly exclusively and necessarily incurred by
him in or about the performance of his duties.
Holidays: In addition to the usual public and bank holidays, thirty working
days' paid holiday in each holiday year of Getty Images which is the
calendar year to be taken at such times as shall have been approved by
the Board.
Incapacity: Continuance of payment of salary (inclusive of any statutory sick pay
or social security benefits to which he may be entitled) during any
periods of absence from work due to sickness, injury or other
incapacity up to a maximum of twenty six weeks in aggregate in any
period of 52 consecutive weeks.
Termination of
Employment: The employment may be terminated by Getty Images forthwith without
notice or payment in lieu of notice if Mr. Getty:
Commits any serious or persistent breach of non-observance of any of
the terms, conditions or stipulations contained in this Agreement.
Is guilty of any serious negligence or gross misconduct in
connection with or affecting the business or affairs of Getty Images
or any Associated Company for which he is required to perform
duties.
Is convicted of an arrestable criminal offence (other than an
offence under road traffic legislation in the United Kingdom or
elsewhere for which a non-custodial penalty is imposed).
Is adjudged bankrupt or makes any arrangement or composition with
his creditors or has an interim order made against him pursuant to
Section 252 of the Insolvency Act 1986
Is or become prohibited by law from being a director.
Absence from work due to sickness injury or other incapacity for
periods in excess of six months in aggregate in any period of twelve
consecutive months Getty Images may terminate employment by giving
to Mark Getty not less than six months' notice in writing expiring
at any time.
Covenants: Non-competition and non solicitation for period of employment and for
12 months after cease to be an employee.
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A termination by Getty Images without Cause or a resignation for Good
Reason the covenants do not apply.
Disciplinary and
Grievance
Procedures: For statutory purposes there is no formal disciplinary procedure but
expected to maintain the highest standards of integrity and behavior.
Governing law: Delaware.
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EXHIBIT 9.01(M)(II)
EMPLOYMENT AGREEMENT
FOR
JONATHAN KLEIN
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Term: Initial fixed period of two years from 1 January 1998,
continuing thereafter until terminated by either party
giving to the other no less than twelve months notice in
writing, no notice to be given so as to expire prior to 31
December 2000.
Position: Sole Group Chief Executive (the most senior executive
officer of the Group), all employees of the Group report
directly or indirectly to CEO other than the joint Chairmen.
CEO reports to Executive Committee (and to full Board).
Duties at all times consistent with the position of such a
sole CEO. Jonathan Klein shall be required to devote all of
his business time and attention to the affairs of Getty
Images.
Contracts: Employment contract with Getty Images to provide Mr. Klein's
services in the UK for [50%] of the package described below.
Constancy contract with Crediton to provide Mr. Klein's
services outside the UK for [50%] of the package described
below.
All rights and obligations to be in respect of combined
contracts. Total package to be full time employment as
described below Apportionment between the two contracts to
be determined by advisors.
Authority: Equal responsibility with Co-Chairmen for: financial
performance of Getty Images; management of the
shareholders;developing strategic alliances and partnerships
and maximizing the commercial benefits from them;
communications to both internal and external audience and
external relationship with business; industry and academic
communities; strategic leadership; and provision of visible
leadership and direction to the front line ("Hearts and
Minds").
Sole responsibility for: day to day operational management
of the wholegroup; provision of operational direction to the
Management Committee (including talking, setting performance
standards, including sales targets, etc.) and oversight of
corporate operations, sales, marketing and finance;
management of the Management Committees (includes "roadblock
busting") and professional development of the direct
reports.
Membership on Board and
Committees: Member of the Board of Directors, one of only three members
of the Executive Committee, Member of the Strategy
Committee, entitled to attend meetings of all other
committees, e.g. Audit and Compensation.
Remuneration: $325,000 per annum, to be reviewed (upwards only) annual on
1 April of each year in line with market equivalents.
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Annual bonus of up to 60% of salary bonus scheme to be
agreed and to be subject to the achievement of the
performance targets set by the Board for such year. Criteria
for achievenment of bonuses will be established by the
Compensation Committee.
In the event Mr. Klein ceases to be employed by Getty Images
other than for Cause (as defined below) or by reason of his
voluntary resignation other than for Good Reason (as defined
below) then he shall be entitled to receive a lump sum
payment equal to the unpaid remuneration and maximum bonuses
over the greater of the remainder of the term of the
contract and two years.
In the event of a change of control of Getty Images, Mr.
Klein shall have the right to cease to be employed by Getty
Images and shall be entitled to receive a lump sum payment
equal to the unpaid remuneration and maximum bonuses over
the greater of the remainder of the term of the contract and
two years.
In the above circumstances Mr. Klein will be entitled to
continuation in Getty Images benefit plans for the greater
of (i) two years and (ii) the then remaining whole and
partial years in the Term.
Severance payments and benefits shall not be subject to
mitigation, setoff or offset.
Termination Terms: "Cause" means (i) wilful, material and repeated
non-performance of Mr. Klein's duties to Getty Images (other
than by reason of illness or disability) after notice from
the Board of such failure and Mr. Klein's non-performance
and continue wilful, material and repeated non-performance
after such notice, (ii) the commission by Mr. Klein of a
felony or common law fraud or (iii) any other material
breach by Mr. Klein of any material term of the Agreement.
"Good Reason" means (i) an adverse and material change to
Mr. Klein's duties, titles or reporting responsibilities,
(ii) a material breach of any term of the Agreement, (iii) a
reduction in Mr. Klein's base salary or bonus opportunity or
the failure of Getty Images to pay Mr. Klein any material
amount of compensation when due or (iv) a relocation of Mr.
Klein's principal business location without his prior
written consent.
Share Options: Existing options to be rolled over into Getty Images shares
on the same terms as other Getty Options.
"Deal" options over 75,000 Getty Images shares, (equivalent
to 150,000 Getty shares) issued at closing at market price
of Getty Images shares at closing, vest in full after one
year.
Getty Images options over 500,000 Getty Images shares,
(equivalent to 1,000,000 Getty shares) issued at closing at
market price at closing, first 25% vest at first anniversary
of grant and thereafter vest rateably each month over the
following three years.
In the event of Mr. Klein ceasing to be an employee of the
group for any reason then he shall be entitled to retain all
options as if he had remained an employee and vesting shall
be accelerated.
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Pension Scheme and Life
Insurance: Getty Images shall pay for the sole benefit of Mr. Klein the
amount of 20% of salary per year by equal monthly
contributions in arrears into his person pension scheme or
at Mr. Klein's option shall pay him the same sum as extra
remuneration.
Life assurance cover which in the event of Mr. Klein's death
during the continuance of his employment to apply a lump sum
equal to the greater of L750,000 and four times his then
annual rate of salary.
Benefits: Jonathan Klein, wife and children under the age of 18 years
membership of the British United Provident Association
providing benefits at London Teaching Hospital rates or of
such other private medical expense insurance scheme
providing equivalent benefits.
Membership of Getty Images's permanent health insurance plan
or payment for personal phi plan at Mr. Klein's discretion.
A car of such make and model as the Board shall decide is
suitable for Mr. Klein compatible with his status in Getty
Images for his sole use during the continuance of his
employment in respect of which Getty Images shall pay or
reimburse Mr. Klein all standing an running costs.
The installation, rental and unit charge attributable to a
dedicated business telephone line at his home.
The purchase, line, rental and unit charges attributable to
a mobile telephone.
Provision of a fax machine and modem installed at Mr.
Klein's home and a suitable desktop and laptop computer and
all ancillary equipment and maintenance.
Annually the cost of his membership of or subscriptions to
the internet and such professional bodies and/or journals as
are appropriate to his duties under this Agreement.
Mr. Klein will participate in each long-term incentive
program established by Getty Images for its senior
executives in a manner consistent with his position with
Getty Images.
Mr. Klein will be entitled to participate in all pension,
welfare and fringe benefit programs generally available to
executives of Getty Images.
Expenses: All reasonable traveling accommodation entertainment and
other similar out-of-pocket expenses wholly exclusively and
necessarily incurred by him in or about the performance of
his duties.
Holidays: In addition to the usual public and bank holidays, thirty
working days' paid holiday in each holiday year of Getty
Images which is the calendar year to be taken at such times
as shall have been approved by the Board.
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Incapacity: Continuance of payment of salary (inclusive of any statutory
sick pay or social security benefits to which he may be
entitled) during any periods of absence from work due to
sickness injury or other incapacity up to a maximum of
twenty six weeks in aggregate in any period of 52
consecutive weeks.
Termination of Employment: The employment may be terminated by Getty Images forthwith
without notice or payment in lieu of notice if Mr. Klein:
Commits any serious or persistent breach of non-observance
of any of the terms, conditions or stipulations contained in
this Agreement.
Is guilty of any serious negligence or gross misconduct in
connection with or affecting the business or affairs of
Getty Images or any Associated Company for which he is
required to perform duties.
Is convicted of an arrestable criminal offence (other than
an offence under road traffic legislation in the United
Kingdom or elsewhere for which a non-custodial penalty is
imposed).
Is adjudged bankrupt or makes any arrangement or composition
with his creditors or has an interim order made against
him pursuant to Section 252 of the Insolvency Act 1986.
Is or become prohibited by law from being a director.
Absence from work due to sickness injury or other incapacity
for periods in excess of six months in aggregate in any
period of twelve consecutive months Getty Images may
terminate employment by giving to Mr. Klein not less than
six months' notice in writing expiring at any time.
Covenants: Non-competition and non solicitation for period of
employment and for 12 months after cease to be an employee.
A termination by Getty Images without Cause or a resignation
for Good Reason the covenants do not apply.
Disciplinary and Grievance
Procedures: For statutory purposes there is no formal disciplinary
procedure but expected to maintain the highest standards of
integrity and behavior.
Governing law: Delaware.
</TABLE>
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<PAGE>
EXHIBIT 9.01(M)(III)
EMPLOYMENT AGREEMENT
FOR
MARK TORRANCE
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Term: Initial fixed period of two years from 1 January 1998,
continuing thereafter until terminated by either party
giving to the other no less than twelve months notice in
writing, no notice to be given so as to expire prior to 31
December 2000.
Position: Co-Chairman (with Mark Getty). Duties at all times
consistent with the position of such a Co-Chairman. Mark
Torrance shall be required to devote all of his business
time and attention to the affairs of Getty Images.
Authority: Equal responsibility with Co-Chairman and CEO for: financial
performance of Getty Images; management of the shareholders;
developing strategic alliances and partnerships and
maximizing the commercial benefits from them; communications
to both internal and external audience and external
relationship with business, industry and academic
communities; strategic leadership; and provision of visible
leadership and direction to the front line ("Hearts and
Minds").
Joint responsibility with Co-Chairman for: chairing the
Board of Directors and managing relationships with members
(Mr. Getty will Chair the first two meetings and
subsequently the Chair of meetings rotate between the two
Co-Chairman); and provide leadership and direction for R&D
function of the Company. Mr. Getty will have special
emphasis for acquisitions (including of collections) and
corporate development and Mr. Torrance will have special
emphasis for technology and corporate culture.
Membership on Board and
Committees: Member of the Board of Directors, one of only three members
of the Executive Committee, Member of the Strategy
Committee, entitled to attend meetings of all other
committees, e.g. Audit and Compensation.
Remuneration: $275,000 per annum, to be reviewed (upwards only) annually
on 1 April of each year in line with market equivalents.
Annual bonus of up to 50% of salary [bonus scheme to be
agreed and to be subject to the achievement of the
performance targets set by the Board for such year. Criteria
for achievement of bonus will be established by the
Compensation Committee. In the event Mr. Torrance ceases to
be employed by Getty Images other than for Cause (as defined
below) or by reason of his voluntary resignation other than
for Good Reason (as defined below) then he shall be entitled
to receive a lump sum payment equal to the unpaid
remuneration and maximum bonuses over the greater of the
remainder of the term of the contract and two years.
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In the event of a change of control of Getty Images Mr.
Torrance shall have the right to cease to be employed by
Getty Images and shall be entitled to receive a lump sum
payment equal to the unpaid remuneration and maximum bonuses
over the greater of the remainder of the term of the
contract and two years.
In the above circumstances Mr. Torrance will be entitled to
continuation in Getty Images benefit plans for the greater
of (i) two years and (ii) the then remaining whole and
partial years in the Term.
Severance payments and benefits shall not subject to
mitigation, setoff or offset.
Termination Terms: "Cause" means (i) wilful, material and repeated
non-performance of Mr. Torrance's duties to Getty Images
(other than by reason of illness or disability) after notice
from the Board of such failure and Mr. Torrance's
non-performance and continued wilful, material and repeated
non-performance after such notice, (ii) the commission by
Mr. Torrance of a felony or common law fraud or (iii) any
other material breach by Mr. Torrance of any material term
of the Agreement.
"Good Reason" means (i) an adverse and material change to
Mr. Torrance's duties, titles or reporting responsibilities,
(ii) a material breach of any term of the Agreement, (iii) a
reduction in Mr. Torrance's base salary or bonus opportunity
or the failure of the Company to pay Mr. Torrance any
material amount of compensation when due or (iii) a
relocation of Mr. Torrance's principal business location
without his prior written consent.
Share Options: Existing options to be rolled over into Getty Images shares
on the same terms as other Getty options.
"Deal" options over 75,000 Getty Images shares, (equivalent
to 150,000 Getty shares) issued at closing at market price
of Getty Images shares at closing, vest in full after one
year.
Getty Images options over 500,000 Getty Images shares,
(equivalent to 1,000,000 Getty shares) issued at closing at
market price at closing, first 25% vest at first anniversary
of grant and thereafter vest rateably each month over the
following three years.
In the event of Mr. Torrance ceasing to be an employee of
the group for any reason then he shall be entitled to retain
all options as if he had remained an employee and vesting
shall be accelerated.
Pension Scheme and Life
Insurance: Getty Images shall pay for the sole benefit of Mr. Torrance
the amount of 20% of salary per year by equal monthly
contributions in arrears into his personal pension scheme or
at Mr. Torrance's option shall pay him the same sum as extra
remuneration.
Life assurance cover which in the event of Mr. Torrance's
death during the continuance of his employment to pay a lump
sum equal to the greater of $750,000 and four times his then
annual rate of salary Benefits.
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Benefits: Mark Torrance, wife and children under the age of 18 years
membership of the British United Provident Association
providing benefits at London Teaching Hospital rates or of
such other private medical expenses insurance scheme
providing equivalent benefits.
Membership of Getty Images' permanent health insurance plan
or payment for personal phi plan at Mr. Torrance's
discretion.
A car of such make and model as the Board shall decide is
suitable for Mr. Torrance compatible with his status in
Getty Images for his sole use during the continuance of his
employment in respect of which Getty Images shall pay or
reimburse Mr. Torrance all standing and running costs.
The installation, rental and unit charges attributable to a
dedicated business telephone line at his home.
The purchase, line, rental and unit charges attributable to
a mobile telephone.
Provision of a fax machine and modem installed at Mr.
Torrance's home and a suitable desktop and laptop computer
and all ancillary equipment and maintenance.
Annually the cost of his membership of or subscriptions to
the internet and such professional bodies and/or journals as
are appropriate to his duties under this Agreement.
Mr. Torrance will participate in each long-term incentive
program established by Getty Images for its senior
executives in a manner consistent with his position with
Getty Images.
Mr. Torrance will be entitled to participate in all pension,
welfare and fringe benefit programs generally available to
executives of Getty Images.
Expenses: All reasonable traveling accommodation entertainment and
other similar out-of-pocket expenses wholly exclusively and
necessarily incurred by him in or about the performance of
his duties.
Holidays: In addition to the usual public and bank holidays, thirty
working days' paid holiday in each holiday year of Getty
Images which is the calendar year to be taken at such times
as shall have been approved by the Board.
Incapacity: Continuance of payment of salary (inclusive of any statutory
sick pay or social security benefits to which he may be
entitled) during any periods of absence from work due to
sickness, injury or other incapacity up to a maximum of
twenty six weeks in aggregate in any period of 52
consecutive weeks.
Termination of Employment: The employment may be terminated by Getty Images forthwith
without notice or payment in lieu of notice if Mr. Torrance:
Commits any serious or persistent breach of non-observance
of any of the terms, conditions or stipulations contained in
this Agreement.
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Is guilty of any serious negligence or gross misconduct in
connection with or affecting the business or affairs of
Getty Images or any Associated Company for which he is
required to perform duties.
Is convicted of an arrestable criminal offence (other than
an offence under road traffic legislation in the United
Kingdom or elsewhere for which a non-custodial penalty is
imposed).
Is adjudged bankrupt or makes any arrangement or composition
with his creditors or has an interim order made against
him pursuant to Section 252 of the Insolvency Act 1986
Is or become prohibited by law from being a director.
Absence from work due to sickness injury or other incapacity
for periods in excess of six months in aggregate in any
period of twelve consecutive months Getty Images may
terminate employment by giving to Mark Torrance not less
than six months' notice in writing expiring at any time.
Covenants: Non-competition and non solicitation for period of
employment and for 12 months after cease to be an employee.
A termination by Getty Images without Cause or a resignation
for Good Reason the covenants do not apply.
Disciplinary and Grievance
Procedures: For statutory purposes there is no formal disciplinary
procedure but expected to maintain the highest standards of
integrity and behavior.
Governing law: Delaware.
</TABLE>
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<PAGE>
ANNEX B
CONFORMED COPY
------------------------
STOCKHOLDERS' TRANSACTION AGREEMENT
---------------
AMONG
GETTY COMMUNICATIONS (USA), INC.,
PRINCIPAL STOCKHOLDERS OF PHOTODISC, INC.
AND
MARK TORRANCE, AS
PRINCIPAL STOCKHOLDERS' REPRESENTATIVE
DATED AS OF SEPTEMBER 15, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
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<C> <S> <C>
ARTICLE I
REPRESENTATIONS AND WARRANTIES
OF EACH PRINCIPAL STOCKHOLDER
1.01. Authority of Principal Stockholder................................................................ 1
1.02. Execution and Delivery by Principal Stockholder................................................... 2
1.03. No Conflicts of Principal Stockholder............................................................. 2
1.04. Ownership of Shares and Options................................................................... 2
1.05. No Litigation Involving Principal Stockholder..................................................... 2
1.06. Brokers........................................................................................... 3
ARTICLE II
ADDITIONAL AGREEMENTS
2.01. Acknowledgment and Approval of Merger Agreement................................................... 3
2.02. Confidentiality................................................................................... 3
2.03. Non-Competition................................................................................... 4
2.04. Release of Obligations............................................................................ 4
2.05. No Solicitation or Negotiation.................................................................... 5
2.06. Regulatory and Other Authorizations; Notices and Consents......................................... 5
2.07. Notice of Developments............................................................................ 5
2.08. Cooperation with Respect to Preparation of Form S-4, Getty Images Prospectus and Getty Shareholder
Circular.......................................................................................... 6
2.09. Affiliate and Tax Letters......................................................................... 6
2.10. Principal Stockholders' Representative............................................................ 6
2.11. Use of Intellectual Property...................................................................... 7
2.12. Escrow Agreement.................................................................................. 8
2.13. Appointment of Agent for Service of Process....................................................... 8
2.14. Conversion of Series A Preferred Stock............................................................ 8
2.15. Amendment of Series A Preferred Stock Registration Rights......................................... 8
2.16. Further Action.................................................................................... 8
ARTICLE III
TERMINATION AND WAIVER
3.01. Termination....................................................................................... 9
3.02. Effect of Termination............................................................................. 9
3.03. Waiver............................................................................................ 9
ARTICLE IV
GENERAL PROVISIONS
4.01. Expenses.......................................................................................... 9
4.02. Notices........................................................................................... 9
4.03. Public Announcements.............................................................................. 10
4.04. Headings.......................................................................................... 10
4.05. Severability...................................................................................... 10
4.06. Entire Agreement.................................................................................. 10
4.07. Assignment........................................................................................ 10
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B-(i)
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
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SECTION PAGE
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<C> <S> <C>
4.08. No Third Party Beneficiaries...................................................................... 10
4.09. Amendment......................................................................................... 11
4.10. Governing Law..................................................................................... 11
4.11. Counterparts...................................................................................... 11
4.12. Specific Performance.............................................................................. 11
ARTICLE V
DEFINITIONS
5.01. Certain Defined Terms............................................................................. 11
5.02. Other Defined Terms............................................................................... 12
</TABLE>
EXHIBITS
<TABLE>
<S> <C>
A Merger Agreement
B Form of Escrow Agreement
2.09(a) Form of Affiliate Letter
2.09(b) Form of Tax Matters Letter
</TABLE>
B-(ii)
<PAGE>
STOCKHOLDERS' TRANSACTION AGREEMENT, dated as of September 15, 1997, among
Getty Communications (USA), Inc., a Delaware corporation ("GETTY IMAGES"), the
stockholders (the "PRINCIPAL STOCKHOLDERS") of PhotoDisc, Inc., a Washington
corporation ("PHOTODISC"), identified on the signature pages of this Agreement
and Mark Torrance, as designated representative of the Principal Stockholders.
W I T N E S S E T H:
WHEREAS, simultaneously with the execution and delivery of this Agreement,
Getty Images, Getty Communications plc, a public limited company organized under
the laws of England and Wales ("GETTY"), PhotoDisc and Print Merger, Inc., a
Washington corporation and wholly owned subsidiary of Getty Images ("MERGER
SUB"), are entering into the Merger Agreement dated the date hereof, a copy of
which is attached hereto as Exhibit A (the "MERGER AGREEMENT");
WHEREAS, pursuant to the Merger Agreement, Merger Sub will merge (the
"MERGER") with and into PhotoDisc in accordance with the Business Corporation
Act of the State of Washington (the "WBCA") and upon the terms and subject to
the conditions set forth in the Merger Agreement;
WHEREAS, pursuant to the Merger, each issued and outstanding share of common
stock, par value $0.01 per share, of PhotoDisc ("PHOTODISC COMMON STOCK"), other
than shares owned directly or indirectly by Getty or by PhotoDisc, will be
converted into the right to receive a number of shares of common stock, par
value $0.01 per share, of Getty Images ("GETTY IMAGES SHARES") and an amount of
cash as set forth in Article I of the Merger Agreement;
WHEREAS, as an inducement to Getty Images, Getty and Merger Sub to enter
into the Merger Agreement, Getty Images desires that each of the Principal
Stockholders agrees, and each of the Principal Stockholders hereby does agree,
to make certain representations, warranties, covenants, indemnities and
agreements in connection with the Merger;
WHEREAS, as an inducement to Getty Images, Getty and Merger Sub to enter
into the Merger Agreement, Getty Images desires that each of the Principal
Stockholders agrees, and each of the Principal Stockholders hereby does agree,
to enter into, on or prior to the closing of the Merger, an escrow agreement
(the "ESCROW AGREEMENT") among Getty Images, the Principal Stockholders and an
escrow agent (the "ESCROW AGENT") substantially in the form attached hereto as
Exhibit B;
WHEREAS, certain of the Principal Stockholders have entered into voting
agreements with Getty Images, dated the date hereof (the "VOTING AGREEMENTS"),
with respect to the Merger Agreement and the transactions contemplated thereby;
and
WHEREAS, unless otherwise defined herein, capitalized terms used herein
shall have the meanings ascribed to such terms in the Merger Agreement;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, indemnities and agreements set forth
herein, and in consideration of the parties thereto entering into the Merger
Agreement, the parties hereto hereby agree as follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES
OF EACH PRINCIPAL STOCKHOLDER
As an inducement to Getty Images, Getty and Merger Sub to enter into the
Merger Agreement, each of the Principal Stockholders, severally and not jointly,
hereby represents and warrants to Getty Images, Getty and Merger Sub as follows:
SECTION 1.01. AUTHORITY OF PRINCIPAL STOCKHOLDER. Such Principal
Stockholder has all necessary capacity, power and authority to enter into this
Agreement and the Escrow Agreement, to carry out such Stockholder's obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby.
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SECTION 1.02. EXECUTION AND DELIVERY BY PRINCIPAL STOCKHOLDER. (a) The
execution and delivery of this Agreement and the Escrow Agreement by such
Principal Stockholder, the performance by such Principal Stockholder of its
obligations hereunder and thereunder and the consummation by such Principal
Stockholder of the transactions contemplated hereby and thereby have been duly
authorized by all requisite action on the part of such Principal Stockholder.
(b) This Agreement has been, and upon its execution the Escrow Agreement
shall have been, duly executed and delivered by such Principal Stockholder, and
(assuming due authorization, execution and delivery by the other parties hereto
and thereto) this Agreement constitutes, and upon its execution the Escrow
Agreement will constitute, a legal, valid and binding obligation of such
Principal Stockholder enforceable against such Principal Stockholder in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally and except that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before which any
proceeding therefor may be brought.
SECTION 1.03. NO CONFLICTS OF PRINCIPAL STOCKHOLDER. Assuming that all
consents, approvals, authorizations and other actions described in Section 3.07
of the Merger Agreement have been obtained and all filings and notifications
listed in Section 3.07 of the PhotoDisc Disclosure Schedule have been made,
except as set forth in Section 1.03 of the Principal Stockholder Disclosure
Schedule, the execution, delivery and performance of this Agreement and the
Escrow Agreement by such Principal Stockholder do not and will not (a) violate,
conflict with or result in the breach of any provision of the charter or by-laws
(or similar organizational documents) of such Principal Stockholder (if
applicable), (b) conflict with or violate (or cause an event which reasonably
could be expected to have a material adverse effect on such Principal
Stockholder as a result of) any Law or Governmental Order applicable to such
Principal Stockholder or any of the assets, properties or businesses of such
Principal Stockholder or (c) conflict with, result in any material breach of,
constitute a default (or event which, with the giving of notice or lapse of
time, or both, would become a default) under, require any consent under, or give
to others any rights of termination, amendment, acceleration, suspension,
revocation or cancellation of, or result in the creation of any Encumbrance on
any of such Principal Stockholder's shares of PhotoDisc Common Stock or Series A
Preferred Stock or on any of the assets or properties of such Principal
Stockholder pursuant to, any material note, bond, mortgage or indenture,
contract, agreement, lease, sublease, license, permit, franchise or other
instrument or arrangement to which such Principal Stockholder is a party or by
which any of the shares of PhotoDisc Common Stock or Series A Preferred Stock of
such Principal Stockholder or assets or properties of such Principal Stockholder
is bound or affected.
SECTION 1.04. OWNERSHIP OF SHARES AND OPTIONS. Such Principal Stockholder
owns of record and beneficially, free and clear of all Encumbrances, (i) the
number of shares of PhotoDisc Common Stock or Series A Preferred Stock set forth
opposite the name of such Principal Stockholder in Section 3.03(d) of the
PhotoDisc Disclosure Schedule and (ii) the number and type of options to
purchase shares of PhotoDisc Common Stock set forth opposite the name of such
Principal Stockholder in Section 3.03(e) of the PhotoDisc Disclosure Schedule.
There are no options, warrants, convertible securities or other rights,
agreements, arrangements or commitments of any character relating to such shares
of PhotoDisc Common Stock or Series A Preferred Stock or options. Except as set
forth in Section 3.03 of the PhotoDisc Disclosure Schedule or the Voting
Agreement dated as of the date hereof among Getty Images and certain of the
Principal Stockholders, there are no voting trusts, stockholder agreements,
proxies or other agreements or understandings in effect with respect to the
voting or transfer of any such shares of PhotoDisc Common Stock or Series A
Preferred Stock or options.
SECTION 1.05. NO LITIGATION INVOLVING PRINCIPAL STOCKHOLDER. Such
Principal Stockholder is not a party to, or, to the best knowledge of such
Principal Stockholder, has not been threatened with, any litigation or judicial,
administrative or arbitration proceeding which is likely to delay materially or
prevent the consummation of the transactions contemplated hereby or by the
Merger Agreement or have a material adverse effect upon the ability of such
Principal Stockholder to perform such Principal Stockholder's obligations
hereunder.
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SECTION 1.06. BROKERS. Except for Robertson Stephens & Co., no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the transactions contemplated by this Agreement
or by the Merger Agreement based upon arrangements made by or on behalf of such
Principal Stockholder. The fees and expenses of Robertson Stephens & Co. shall
be borne as provided in Section 12.01 of the Merger Agreement.
ARTICLE II
ADDITIONAL AGREEMENTS
SECTION 2.01. ACKNOWLEDGMENT AND APPROVAL OF MERGER AGREEMENT. Each
Principal Stockholder hereby acknowledges and agrees that it has received a copy
of the Merger Agreement and that it has reviewed and understands the terms
thereof. Each Principal Stockholder hereby agrees to be bound by the terms of
the Merger Agreement and accepts and assumes the obligations of such Principal
Stockholder under Article X and Section 12.01 of the Merger Agreement.
SECTION 2.02. CONFIDENTIALITY. Except in connection with the performance
of duties or services on behalf of Getty Images, each Principal Stockholder
agrees to, and (if applicable) shall cause its agents, representatives,
Affiliates (other than in the case of a limited partnership, the limited
partners thereof), employees, officers and directors to: (i) treat and hold as
confidential (and not disclose or provide access to any Person other than Getty
Images and its agents, representatives, Affiliates, employees, officers and
directors) all information relating to trade secrets, patent and trademark
applications, product development, price, customer and supplier lists, pricing
and marketing plans, policies and strategies, details of client and consultant
contracts, operations methods, product development techniques, business
acquisition plans, new personnel acquisition plans and all other confidential
information with respect to the Business, PhotoDisc and each PhotoDisc
Subsidiary, (ii) in the event that such Principal Stockholder or any such agent,
representative, Affiliate, employee, officer or director becomes legally
compelled to disclose any such information, provide Getty Images with prompt
written notice of such requirement so that Getty Images, PhotoDisc or any
PhotoDisc Subsidiary may seek a protective order or other remedy or waive
compliance with this Section 2.02, (iii) in the event that such protective order
or other remedy is not obtained, or Getty Images waives compliance with this
Section 2.02, furnish only that portion of such confidential information which
is legally required to be provided and exercise its best efforts to obtain
assurances that confidential treatment will be accorded such information and
(iv) promptly furnish (prior to, at, or as soon as practicable following, the
Closing) to PhotoDisc or Getty Images any and all copies (in whatever form or
medium) of all such confidential information then in the possession of such
Principal Stockholder or any of such Principal Stockholder's agents,
representatives, Affiliates, employees, officers and directors and destroy any
and all additional copies then in the possession of such Principal Stockholder
or any of such Principal Stockholder's agents, representatives, Affiliates,
employees, officers and directors of such information and of any analyses,
compilations, studies or other documents prepared, in whole or in part, on the
basis thereof; PROVIDED, HOWEVER, that this sentence shall not apply to any
information that, (A) at the time of disclosure, is available publicly and was
not disclosed in breach of this Agreement by such Principal Stockholder or such
Principal Stockholder's agents, representatives, Affiliates, employees, officers
or directors, (B) must be disclosed under applicable laws of regulations or
judicial or administrative proceedings (subject to clauses (ii) and (iii) above)
or (C) shall be disclosed to such Principal Stockholder's legal or financial
advisors who need to know such information in connection with advising such
Principal Stockholder as to his legal rights and obligations. Each Principal
Stockholder agrees and acknowledges that remedies at law for any breach of its
obligations under this Section 2.02 are inadequate and that in addition thereto
Getty Images shall be entitled to seek equitable relief, including injunction
and specific performance, in the event of any such breach. With respect to
Investors (as defined in section 2.03(e)), the provisions of this section shall
not apply to limited partners of such Investor.
SECTION 2.03. NON-COMPETITION. (a) For a period of three (3) years after
the Closing (the "RESTRICTED PERIOD"), no Principal Stockholder shall engage,
directly or indirectly, in any business anywhere in the world that manufactures,
produces or supplies products or services of the kind manufactured,
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<PAGE>
produced or supplied by the Business, PhotoDisc or any PhotoDisc Subsidiary as
of the Closing Date or, without the prior written consent of Getty Images,
directly or indirectly, own an interest in, manage, operate, join, control, lend
money or render financial or other assistance to or participate in or be
connected with, as an officer, employee, partner, stockholder, consultant or
otherwise, any Person that competes with Getty Images, the Business, PhotoDisc
or any PhotoDisc Subsidiary in manufacturing, producing or supplying products or
services of the kind manufactured, produced or supplied by the Business,
PhotoDisc or any PhotoDisc Subsidiary as of the Closing; PROVIDED, HOWEVER,
that, for the purposes of this Section 2.03, ownership of securities having no
more than two percent of the outstanding voting power of any competitor which
are listed on any national securities exchange or traded actively in the
national over-the-counter market shall not be deemed to be in violation of this
Section 2.03 so long as the Person owning such securities has no other
connection or relationship with such competitor.
(b) As a separate and independent covenant, each Principal Stockholder
agrees with Getty Images that, for a period of three (3) years following the
Closing, such Principal Stockholder will not in any way, directly or indirectly,
for the purpose of conducting or engaging in any business that manufactures,
produces or supplies products or services of the kind manufactured, produced or
supplied by the Business, PhotoDisc or any PhotoDisc Subsidiary as of the
Closing, call upon, solicit, advise or otherwise do, or attempt to do, business
with any customers of the Business, PhotoDisc or any PhotoDisc Subsidiary with
whom the Business, PhotoDisc, any PhotoDisc Subsidiary or such Principal
Stockholder had any dealings during the period of time in which PhotoDisc was an
Affiliate of such Principal Stockholder, or take away or interfere or attempt to
interfere with any custom, trade, business or patronage of the Business,
PhotoDisc or any PhotoDisc Subsidiary, or interfere with or hire any officers,
employees, representatives or agents of the Business, PhotoDisc or any PhotoDisc
Subsidiary, or induce or attempt to induce any of them to leave the employ of
PhotoDisc or any PhotoDisc Subsidiary or violate the terms of their contracts,
or any employment arrangements, with PhotoDisc or any PhotoDisc Subsidiary.
(c) The Restricted Period shall be extended with respect to any Principal
Stockholder by the length of any period during which such Principal Stockholder
is in breach of the terms of this Section 2.03.
(d) The Principal Stockholders acknowledge that the covenants of the
Principal Stockholders set forth in this Section 2.03 are an essential element
of this Agreement and that, but for the agreements of the Principal Stockholders
to comply with these covenants, Getty Images and Getty would not have entered
into this Agreement or the Merger Agreement. Each Principal Stockholder
acknowledges that this Section 2.03 constitutes an independent covenant and
shall not be affected by performance or nonperformance of any other provision of
this Agreement by Getty Images. Each Principal Stockholder has independently
consulted with its counsel and after such consultation agrees that the covenants
set forth in this Section 2.03 are reasonable and proper.
(e) Notwithstanding anything to the contrary in this Section 2.03: (i) each
of Advent VII L.P., Advent Atlantic and Pacific III, L.P., Advent New York L.P.,
TA Venture Investors Limited Partnership, Geocapital III, L.P., Geocapital IV,
L.P., The Broadview Partners Group and J&B Venture Partners I (each such Person
being an "Investor"), all of whom are signatories to this Agreement, shall not
be bound in any manner by the provisions of this Section 2.03; and (ii) with
respect to each of Thomas D. Hughes, Mark Callaghan, Colleen Maloney and Paul
Shipman, the periods set forth in each of Sections 2.03(a) and 2.03(b) shall be
two (2) years.
SECTION 2.04. RELEASE OF OBLIGATIONS. The Principal Stockholders covenant
and agree, on or prior to the Closing, to execute and deliver to PhotoDisc, for
the benefit of PhotoDisc and each PhotoDisc Subsidiary, a general release and
discharge, in form and substance satisfactory to Getty Images, releasing and
discharging PhotoDisc and each PhotoDisc Subsidiary from any and all obligations
to the Principal Stockholders accruing prior to the Closing, except (i)
obligations arising under written agreements between such Principal Stockholder
and PhotoDisc or any PhotoDisc Subsidiary, (ii) obligations owed to such
Principal Stockholder in such Principal Stockholder's capacity as a director,
officer, employee or consultant to PhotoDisc or any PhotoDisc Subsidiary,
including any rights to indemnification from PhotoDisc or any
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PhotoDisc Subsidiary for acting in such capacity or (iii) any obligations to
maintain director and officer liability insurance.
SECTION 2.05. NO SOLICITATION OR NEGOTIATION. Each Principal Stockholder
agrees that, between the date of this Agreement and the earlier of (i) the
Closing and (ii) the termination of this Agreement, neither such Principal
Stockholder nor any of the respective Affiliates, officers, directors,
representatives or agents of such Principal Stockholder will (a) solicit,
initiate, consider, encourage or accept any other proposals or offers from any
Person (1) relating to any acquisition or purchase of all or any portion of the
capital stock of PhotoDisc or any PhotoDisc Subsidiary or assets of PhotoDisc or
any PhotoDisc Subsidiary, (2) to enter into any business combination with
PhotoDisc or any PhotoDisc Subsidiary or (3) to enter into any other
extraordinary business transaction involving or otherwise relating to PhotoDisc
or any PhotoDisc Subsidiary or (b) participate in any discussions,
conversations, negotiations and other communications regarding, or furnish to
any other Person any information with respect to, or otherwise cooperate in any
way, assist or participate in, facilitate or encourage any effort or attempt by
any other Person to seek to do any of the foregoing. Each Principal Stockholder
immediately shall cease and cause to be terminated all existing discussions,
conversations, negotiations and other communications with any Persons conducted
heretofore with respect to any of the foregoing. Each Principal Stockholder
shall notify Getty Images promptly if any such proposal or offer, or any inquiry
or other contact with any Person with respect thereto, is made and shall, in any
such notice to Getty Images, indicate in reasonable detail the identity of the
Person making such proposal, offer, inquiry or contact and the terms and
conditions of such proposal, offer, inquiry or other contact. Each Principal
Stockholder agrees not to, without the prior written consent of Getty Images,
release any Person from, or waive any provision of, any confidentiality or
standstill agreement to which such Principal Stockholder is a party with respect
to information related to PhotoDisc, any PhotoDisc Subsidiary or the Business.
Each Principal Stockholder hereby covenants and agrees, severally and not
jointly, that such Principal Stockholder shall not, and shall not offer or agree
to, sell, transfer, tender, assign, hypothecate or otherwise dispose of, or
create or permit to exist any security interest, lien, claim, pledge, option,
right of first refusal, agreement, limitation on such Principal Stockholder's
voting rights, charge or other encumbrance of any nature whatsoever with respect
to the Shares now owned or that may hereafter be acquired by such Principal
Stockholder at any time prior to the termination of this Agreement.
SECTION 2.06. REGULATORY AND OTHER AUTHORIZATIONS; NOTICES AND
CONSENTS. (a) Each Principal Stockholder shall cooperate fully with Getty
Images, Getty, PhotoDisc and Merger Sub in promptly seeking to obtain all
authorizations, consents, orders and approvals of all Governmental Authorities
and officials that may be or become necessary for such Principal Stockholder's
execution and delivery of, the performance of such Principal Stockholder's
obligations pursuant to, and the consummation of the transactions contemplated
by, this Agreement and the Merger Agreement.
(b) Such Principal Stockholder knows of no reason why all the consents,
approvals and authorizations necessary for the consummation of the transactions
contemplated hereby will not be received.
SECTION 2.07. NOTICE OF DEVELOPMENTS. Prior to the Closing, each Principal
Stockholder shall promptly notify Getty Images in writing of all events,
circumstances, facts and occurrences arising subsequent to the date of this
Agreement which come to the attention of such Principal Stockholder which could
reasonably be expected to result in any material breach of a representation or
warranty or covenant of the Principal Stockholders in this Agreement or the
Merger Agreement or which could have the effect of making any representation or
warranty of the Principal Stockholders in this Agreement or the Merger Agreement
untrue or incorrect in any material respect; PROVIDED, HOWEVER, that no such
notification shall affect in any manner the representations, warranties,
covenants or agreements of the parties (or remedies with respect thereto,
including, without limitation, the right to indemnification under Article X of
the Merger Agreement) or the conditions to the obligations of the parties under
the Merger Agreement.
SECTION 2.08. COOPERATION WITH RESPECT TO PREPARATION OF FORM S-4, GETTY
IMAGES PROSPECTUS AND GETTY SHAREHOLDER CIRCULAR. (a) Each Principal
Stockholder shall cooperate fully with Getty Images, Getty
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and PhotoDisc in the preparation of the Form S-4, the Getty Images Prospectus
and the Getty Shareholder Circular. Each Principal Stockholder shall furnish to
Getty Images and Getty in writing such information regarding such Principal
Stockholder as Getty Images or Getty may from time to time reasonably request
for purposes of the Form S-4, the Getty Images Prospectus or the Getty
Shareholder Circular. Each Principal Stockholder shall notify Getty Images and
Getty as promptly as practicable of any inaccuracy or change in information
previously furnished by such Principal Stockholder to Getty Images or Getty or
of the occurrence of any event, in either case as a result of which any of the
Form S-4, the Getty Images Prospectus or the Getty Shareholder Circular contains
or would contain an untrue statement of a material fact regarding such Principal
Stockholder or omits to state any material fact regarding such Principal
Stockholder required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and shall promptly furnish to Getty Images or Getty any additional
information required to correct and update any previously furnished information,
or required so that the Form S-4, the Getty Images Prospectus or the Getty
Shareholder Circular shall not contain, with respect to such Principal
Stockholder, an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
(b) Each Principal Stockholder shall severally and not jointly indemnify and
hold harmless Getty Images, Getty and each of their directors and officers, and
each person, if any, who controls Getty Images or Getty within the meaning of
the Securities Act, against any Losses to which Getty Images, Getty or any such
director, officer or controlling person may become subject, under the Securities
Act or otherwise, insofar as such Losses arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Form S-4, the Getty Images Prospectus or the Getty Shareholder Circular
(including any amendments or supplements thereto) or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in the Form
S-4, Getty Images Prospectus or Getty Shareholder Circular, or amendments or
supplements thereto, in reliance upon and in conformity with written information
furnished by such Principal Stockholder expressly for use in connection with
such document.
SECTION 2.09. AFFILIATE AND TAX LETTERS. Prior to the Closing Date, each
Principal Stockholder identified by PhotoDisc as being Rule 145 Affiliates of
PhotoDisc pursuant to Section 7.02(a) of the Merger Agreement shall execute and
deliver to Getty Images on or prior to the Closing Date a written agreement
substantially in the form attached hereto as Exhibit 2.09(a). Each Principal
Stockholder hereby agrees to execute the representation letter in the form
attached hereto as Exhibit 2.09(b) on or before the Closing date, which shall
speak as of the Closing Date and shall not have been withdrawn or modified in
any material respect as of the Closing Date.
SECTION 2.10. PRINCIPAL STOCKHOLDERS' REPRESENTATIVE. Each Principal
Stockholder hereby appoints Mark Torrance (such Person and any successor or
successors being the "PRINCIPAL STOCKHOLDERS' REPRESENTATIVE") as such Principal
Stockholder's attorney-in-fact and representative to act on behalf of such
Principal Stockholder and to take any and all actions required or permitted to
be taken by such Principal Stockholder or the Principal Stockholders'
Representative under this Agreement, the Merger Agreement or the Escrow
Agreement, including, without limitation, (i) to do any and all things and to
execute any and all documents or other papers, in such Principal Stockholder's
name, place and stead, in any way that each such Principal Stockholder could do
if personally present, in connection with this Agreement, the Merger Agreement
and the Escrow Agreement and the transactions contemplated hereby or thereby,
(ii) to amend, cancel or extend, or waive the terms of, this Agreement, the
Merger Agreement, the Escrow Agreement or any ancillary agreement and (iii) to
act on behalf of such Principal Stockholder with respect to any claims
(including the settlement thereof) made by Getty Images or the Principal
Stockholders for indemnification pursuant to Article X of the Merger Agreement
and with respect to any actions to be taken by the Principal Stockholders'
Representative pursuant to the terms of the Escrow Agreement. In
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the event that the Principal Stockholders' Representative becomes unable or
unwilling to continue in his capacity as Principal Stockholders' Representative
under this Agreement, the holders of 75% of the shares held by the Principal
Stockholders of PhotoDisc Common Stock outstanding immediately prior to the
Effective Time shall promptly appoint a successor Principal Stockholders'
Representative, who shall be reasonably acceptable to Getty Images. All
references herein to the "Principal Stockholders' Representative" shall include
any such successor Principal Stockholders' Representative. The Principal
Stockholders hereby consent to the taking by the Principal Stockholders'
Representative of any and all actions and the making of any decisions required
or permitted to be taken by him under this Agreement, the Merger Agreement or
the Escrow Agreement, subject to the limitations set forth in this Section 2.10.
The Principal Stockholders shall be bound by all actions taken by the Principal
Stockholders' Representative in his capacity thereof, except for any action that
conflicts with the limitation set forth in the final sentence of this Section
2.10. Getty Images shall be entitled to rely, as being binding upon each
Principal Stockholder, upon any document or other paper believed by it to be
genuine and correct and to have been signed or sent by the Principal
Stockholders' Representative, and Getty Images shall not be liable to any of the
Principal Stockholders for any action taken or omitted to be taken by it in such
reliance. All reasonable fees and expenses of the Principal Stockholders'
Representative shall be paid by the Principal Stockholders. Getty Images shall
in no event incur any liability for (i) any such fees or expenses or (ii) any
losses, damages or expenses arising from or related to, directly or indirectly,
any action (or failure to act) by the Principal Stockholders' Representative.
The Principal Stockholders' Representative shall promptly, and in any event
within five business days, provide written notice to each of the initial
Principal Stockholders of any action on behalf of any of them by the Principal
Stockholders' Representative pursuant to the authority delegated to the
Principal Stockholders' Representative under this Section 2.10 (including,
without limitation, actions in connection with any of the Tranaction Documents).
Principal Stockholders' Representative shall at all times act in his or her
capacity as Principal Stockholders' Representative in a manner that the
Principal Stockholders' Representative believes to be in the best interst of the
Principal Stockholders. Notwithstanding anything to the countrary herein or in
the Transactions Documents, (a) the Principal Stockholders' Representative is
not authorized to, and shall not, accept on behalf of any Principal Stockholder
any Merger Consideration to which such Principal Stockholder is entitled under
the Merger Agreement and (b) the Principal Stockholders' Representative shall
not in any manner exercise, or seek to exercise, any voting power whatsoever
with respect to shares of capital stock of PhotoDisc or Getty Images now or
herinafter owned of record or beneficially by a Principal Stockholder unless
such Principal Stockholders' Representative is expressly authorized to do so in
a writing signed by such Principal Stockholder, which references this Section
2.10.
SECTION 2.11. USE OF INTELLECTUAL PROPERTY. Each Principal Stockholder
acknowledges that from and after the Closing, the name "PhotoDisc" and all
similar or related names, marks and logos (all of such names, marks and logos
being the "PHOTODISC NAMES") shall be owned by PhotoDisc or a PhotoDisc
Subsidiary, that none of the Principal Stockholders nor any of their Affiliates
shall have any rights in the PhotoDisc Names, and that neither such Principal
Stockholder nor any of the Affiliates of such Principal Stockholder will contest
the ownership or validity of any rights of Getty Images, PhotoDisc or any
Subsidiary in or to the PhotoDisc Names. From and after the Closing, neither
such Principal Stockholder nor any of the Affiliates of such Principal
Stockholder shall use any of the Owned Intellectual Property or any of the
Licensed Intellectual Property. With respect to Investors, the provisions of
this section shall not apply to limited partners of such Investor or any entity
in which an Investor, together with its Affiliates, holds less than 50% of the
outstanding equity securities.
SECTION 2.12. ESCROW AGREEMENT. Prior to the Closing, each Principal
Stockholder and Getty Images shall enter into an Escrow Agreement with the
Escrow Agent substantially in the form of Exhibit B hereto. Pursuant to the
terms of the Escrow Agreement, Getty Images shall deposit the Escrow Shares with
the Escrow Agent to be distributed in accordance with the terms of the Escrow
Agreement.
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SECTION 2.13. APPOINTMENT OF AGENT FOR SERVICE OF PROCESS. Each Principal
Stockholder hereby irrevocably appoints the Principal Stockholders'
Representative as its agent to receive service of process or other legal summons
for purposes of any suit, action or proceeding brought with respect to this
Agreement, the Merger Agreement, the Escrow Agreement or the transactions
contemplated hereby or thereby and the Principal Stockholders' Representative
hereby accepts such appointment.
SECTION 2.14. CONVERSION OF SERIES A PREFERRED STOCK. Each Principal
Stockholder that owns shares of Series A Preferred Stock agrees that, subject to
the consummation of the Merger and effective immediately prior to the Effective
Time, such shares of Series A Preferred Stock shall automatically be converted
into Shares of PhotoDisc Common Stock.
SECTION 2.15. AMENDMENT OF SERIES A PREFERRED STOCK REGISTRATION
RIGHTS. Each Principal Stockholder that owns shares of Series A Preferred Stock
agrees that, conditional on Closing and effective as of the Effective Time, the
Series A Preferred Stock Purchase Agreement dated as of June 28, 1996 among
PhotoDisc and the holders of Series A Preferred Stock (the "SERIES A AGREEMENT")
will be amended, without further action of any party thereto, as follows:
(a) the fourth sentence of subsection 7.3(b) thereof shall be amended by
deletion of the following text:
and provided further that if such offering is other than the first
registered offering of the Company's securities to the public or is not an
Other Principal Stockholder Demand Offering, the underwriter may not limit
the Registrable Securities to be included in such offering to less than 30%
of the securities included therein (based on aggregate market values).
(b) Section 7.11 shall be amended to read as follows:
7.11. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after
the date hereof, the Company shall not, without the prior written consent of
the Holders of not less than a majority of the Registrable Securities then
held by Holders, enter into any agreement with any holder or prospective
holder of any securities of the Company which would allow such holder or
prospective holder to include such securities in any registration filed
under Section 7.2 or 7.4 hereof, unless, under the terms of such agreement,
such holder or prospective holder may include such securities in any
registration only to the extent that the inclusion of his securities will
not reduce the amount of the Registrable Securities of the Holders which is
included.
(c) the covenants set forth in Section 6 of the Series A Agreement shall
terminate and be of no force and effect.
Conditional on Closing and effective as of the Effective Time, Getty Images
shall assume the obligations of PhotoDisc under the Series A Agreement. In all
other respects, the Series A Agreement will remain in full force and effect.
SECTION 2.16. FURTHER ACTION. Each of the parties hereto shall use all
reasonable best efforts to take, or cause to be taken, all appropriate action,
do or cause to be done all things necessary, proper or advisable under
applicable Law, and execute and deliver such documents and other papers, as may
be required to carry out the provisions of this Agreement and the Merger
Agreement and to consummate and make effective the transactions contemplated by
this Agreement and the Merger Agreement.
ARTICLE III
TERMINATION AND WAIVER
SECTION 3.01. TERMINATION. (a) This Agreement shall terminate upon the
termination of the Merger Agreement in accordance with its terms.
(b) This Agreement may be terminated at any time prior to the Closing by the
mutual written consent of Getty Images and the Principal Stockholders'
Representative.
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SECTION 3.02. EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 3.01, this Agreement shall forthwith become
void and there shall be no liability on the part of any party hereto except (a)
as set forth in Section 4.01 and (b) that nothing herein shall relieve any party
from liability for any breach of this Agreement.
SECTION 3.03. WAIVER. Any party to this Agreement may (a) extend the time
for the performance of any of the obligations or other acts of another party,
(b) waive any inaccuracies in the representations and warranties of another
party contained herein or in any document delivered by any other party pursuant
hereto or (c) waive compliance with any of the agreements or conditions of
another party contained herein. Any such extension or waiver shall be valid only
if set forth in an instrument in writing signed by the party to be bound
thereby. Any waiver of any term or condition shall not be construed as a waiver
of any subsequent breach or a subsequent waiver of the same term or condition,
or a waiver of any other term or condition, of this Agreement. The failure of
any party to assert any of its rights hereunder shall not constitute a waiver of
any of such rights.
ARTICLE IV
GENERAL PROVISIONS
SECTION 4.01. EXPENSES. Except as otherwise specified in this Agreement,
all costs and expenses, including, without limitation, fees and disbursements of
counsel, financial advisors and accountants, incurred in connection with this
Agreement and the transactions contemplated hereby shall be borne as provided in
Section 12.01 of the Merger Agreement.
SECTION 4.02. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by courier service, by cable, by facsimile, by telegram, by telex, or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties at the following addresses (or at such other address for a
party as shall be specified in a notice given in accordance with this Section
4.02):
(a) if to Getty Images:
c/o Getty Communications plc
101 Bayham Street
London NW1 0AG England
Facsimile: (44171) 267-6540
Attention: Nick Evans-Lombe
with a copy to each of:
Clifford Chance
200 Aldersgate Street
London EC1A 4JJ England
Facsimile: (44171) 600-5555
Attention: Michael Francies
Shearman & Sterling
555 California Street
San Francisco, California 94104
Facsimile: (415) 616-1199
Attention: Christopher D. Dillon
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(b) if to any Principal Stockholder or the Principal Stockholders'
Representative:
c/o PhotoDisc, Inc.
2013 Fourth Avenue
4th Floor
Seattle, Washington 98121
Facsimile: (206) 441-9379
Attention: Mark Torrance
with a copy to:
Heller Ehrman White & McAuliffe
6100 Columbia Center
701 Fifth Avenue
Seattle, Washington 98104
Telecopy: (206) 447-0849
Attention: Thomas S. Hodge
SECTION 4.03. PUBLIC ANNOUNCEMENTS. No party to this Agreement shall make,
or cause to be made, any press release or public announcement in respect of this
Agreement or the transactions contemplated hereby or otherwise communicate with
any news media without the prior consent of the other party (except to the
extent that such disclosure is required by law or the rules of the Nasdaq
National Market), and, to the extent practicable, the parties shall cooperate as
to the timing and contents of any such press release or public announcement.
SECTION 4.04. HEADINGS. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 4.05. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any Law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
SECTION 4.06. ENTIRE AGREEMENT. This Agreement, the Merger Agreement and
the Escrow Agreement constitute the entire agreement of the parties hereto with
respect to the subject matter hereof and thereof and supersede all prior
agreements and undertakings, both written and oral, among Getty Images, Getty,
PhotoDisc, Merger Sub and the Principal Stockholders with respect to the subject
matter hereof and thereof, including the letter agreement dated August 15, 1997
between PhotoDisc and Getty; PROVIDED, HOWEVER, that the letter agreement dated
August 5, 1997 shall survive the execution of this Agreement.
SECTION 4.07. ASSIGNMENT. This Agreement may not be assigned by operation
of law or otherwise without the express written consent of the other parties
hereto (which consent may be granted or withheld in the sole discretion of such
parties).
SECTION 4.08. NO THIRD PARTY BENEFICIARIES. Except for the provisions of
Article II as they inure to the benefit of Getty and the Getty Images Parties,
this Agreement shall be binding upon and inure solely to the benefit of the
parties hereto and their permitted assigns and nothing herein, express or
implied, is intended to or shall confer upon any other Person any legal or
equitable right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.
SECTION 4.09. AMENDMENT. This Agreement may not be amended or modified
except (a) by an instrument in writing signed by, or on behalf of, the parties
hereto or (b) by a waiver in accordance with Section 3.03.
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SECTION 4.10. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware applicable to
contracts executed in and to be performed entirely within that state. All
actions and proceedings arising out of or relating to this Agreement shall be
heard and determined in any Delaware state or federal court sitting in the State
of Delaware.
SECTION 4.11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
SECTION 4.12. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement were
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
ARTICLE V
DEFINITIONS
Section 5.01. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings:
"AGREEMENT" or "THIS AGREEMENT" means this Stockholders' Transaction
Agreement, dated as of September 15, 1997, among Getty Images and the
Principal Stockholders (including the Exhibits hereto and the Disclosure
Schedules) and all amendments hereto made in accordance with the provisions
of Section 4.09.
"KNOWLEDGE" means, with respect to any matter in question in the case of
a Principal Stockholder, that knowledge of such Principal Stockholder if
such Principal Stockholder is a natural person or that knowledge of any
director or officer of such Principal Stockholder if such Principal
Stockholder is not a natural person.
"PRINCIPAL STOCKHOLDER DISCLOSURE SCHEDULE" means the Principal
Stockholder Disclosure Schedule attached hereto, dated as of the date
hereof, and delivered by the Principal Stockholders to Getty Images
simultaneously with the execution of this Agreement and forming a part of
this Agreement.
Section 5.02. OTHER DEFINED TERMS. The following terms shall have the
following meanings defined for such terms in the Sections set forth below:
<TABLE>
<CAPTION>
TERM SECTION
- ------------------------------------------------------------------------------------ ---------
<S> <C>
Escrow Agent........................................................................ recitals
Escrow Agreement.................................................................... recitals
Getty............................................................................... recitals
Merger.............................................................................. recitals
Merger Agreement.................................................................... recitals
Merger Sub.......................................................................... recitals
Getty Images........................................................................ recitals
Getty Images Shares................................................................. recitals
PhotoDisc........................................................................... recitals
PhotoDisc Common Stock.............................................................. recitals
PhotoDisc Names..................................................................... 2.11
Principal Stockholders.............................................................. recitals
Restricted Period................................................................... 2.03(a)
Series A Agreement.................................................................. 2.15
Principal Stockholders' Representative.............................................. 2.10
Voting Agreements................................................................... recitals
WBCA................................................................................ recitals
</TABLE>
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IN WITNESS WHEREOF, each of Getty Images and the Principal Stockholders has
duly executed, or has caused this Agreement to be duly executed by its duly
authorized representative, as of the date first written above.
<TABLE>
<S> <C> <C>
GETTY COMMUNICATIONS (USA), INC.
By: /s/ MARK GETTY
-----------------------------------------
Name:Mark Getty
Title:
PDI, L.L.C.
By: /s/ MARK TORRANCE
-----------------------------------------
Name: Mark Torrance
Title:
/s/ MARK TORRANCE
---------------------------------------------
Mark Torrance, as Principal Stockholder
/s/ THOMAS D. HUGHES
---------------------------------------------
Thomas D. Hughes
/s/ MARK B. CALLAGHAN
---------------------------------------------
Mark B. Callaghan
/s/ CHRIS BIRKELAND
---------------------------------------------
Chris Birkeland
/s/ SALLY VON BARGEN
---------------------------------------------
Sally von Bargen
/s/ COLLEEN MALONEY
---------------------------------------------
Colleen Maloney
/s/ PAUL SHIPMAN
---------------------------------------------
Paul Shipman
J&B VENTURE PARTNERS I
By: /s/ JOHN KYRZANOWSKI
-----------------------------------------
Name: John Kyrzanowski
Title: General Partner
</TABLE>
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<TABLE>
<S> <C> <C>
ADVENT VII, L.P.
By: /s/ MICHAEL C. CHILD
-----------------------------------------
Name: Michael C. Child
Title: Authorized Signator
ADVENT ATLANTIC AND PACIFIC III, L.P.
By: /s/ MICHAEL C. CHILD
-----------------------------------------
Name: Michael C. Child
Title: Authorized Signator
ADVENT NEW YORK L.P.
By: /s/ MICHAEL C. CHILD
-----------------------------------------
Name: Michael C. Child
Title: Authorized Signator
TA VENTURE INVESTORS LIMITED
PARTNERSHIP
By: /s/ MICHAEL C. CHILD
-----------------------------------------
Name: Michael C. Child
Title: Authorized Signator
GEOCAPITAL III, L.P.
By: /s/ RICHARD VINES
-----------------------------------------
Name: Richard Vines
Title: General Partner
GEOCAPITAL IV, L.P.
By: /s/ RICHARD VINES
-----------------------------------------
Name: Richard Vines
Title: General Partner
THE BROADVIEW PARTNERS GROUP
By: /s/ PETER MOONEY
-----------------------------------------
Name: Peter Mooney
Title: Chief Financial Officer
/s/ MARK TORRANCE
---------------------------------------------
Mark Torrance, as Principal
Stockholders' Representative
</TABLE>
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EXHIBITS A
MERGER AGREEMENT
(ATTACHED TO THIS PROSPECTUS AS ANNEX A.)
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EXHIBITS B
FORM OF ESCROW AGREEMENT
(ATTACHED AS AN EXHIBIT TO THE
MERGER AGREEMENT ATTACHED HERETO AS ANNEX A.)
B-15
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EXHIBIT 2.09(a)
FORM OF AFFILIATE LETTER
(ATTACHED AS AN EXHIBIT TO THE
MERGER AGREEMENT ATTACHED HERETO AS ANNEX A.)
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EXHIBIT 2.09(B)
FORM OF TAX MATTERS LETTER
, 1997
Shearman & Sterling
555 California Street
San Francisco, CA 94104
Heller Ehrman White & McAuliffe
333 Bush Street, Suite 3100
San Francisco, California 94104
Ladies and Gentlemen:
In connection with the opinion to be delivered by you pursuant to the Merger
Agreement, dated September 15, 1997, among Getty Communications (USA), Inc., a
Delaware corporation ("GETTY IMAGES"), Getty Communications plc, a public
limited company organized under the laws of England and Wales ("GETTY"),
PhotoDisc, Inc., a Washington corporation ("PHOTODISC"), and Print Merger, Inc.,
a Washington corporation and a wholly owned subsidiary of Getty Images ("MERGER
SUB") (the "MERGER AGREEMENT"; capitalized terms not defined herein have the
meaning ascribed to them in the Merger Agreement), each of the undersigned, who
is a shareholder of PhotoDisc (each a "SHAREHOLDER"), certifies after due
inquiry as follows:
1. Such Shareholder owns that number or shares of PhotoDisc Common
Stock or PhotoDisc Series A Preferred Stock set forth below.
2. Such Shareholder has not agreed to and has no present plan or
intention, directly or indirectly, to (i) sell, exchange, pledge, transfer
by gift or otherwise dispose of, (ii) substantially reduce the risk of loss
or the opportunity for gain (by a short sale, a hedging transaction, an
equity swap arrangement or otherwise) from the holding of, or (iii) enter
into any option, contract or other arrangement with respect to the sale,
exchange, pledge, gift or other disposition of (each of the foregoing, a
"DISPOSITION"), any Getty Images Shares received in the merger contemplated
by the Merger Agreement (the "MERGER").
3. No Shareholder will take any position on any federal, state or local
income or franchise tax return, or take any other tax reporting position,
that is inconsistent with the treatment of the Merger as a "reorganization"
within the meaning of Section 368(a) or a "transfer to a corporation
controlled by the transferor" within the meaning of Section 351 of the
Internal Revenue Code of 1986, as amended (the "CODE"), unless otherwise
required by a "determination" as defined in Code Section 1313(a)(1) or
similar provisions of applicable state or local income or franchise tax law.
The foregoing representations will be true and accurate as of the Effective
Time of the Merger. The undersigned expressly consents to your reliance on the
contents of this letter in rendering your opinion referred to above.
This letter may be executed in two or more counterparts, each of which is
deemed to be an original, but all of which together shall constitute one and the
same document.
<TABLE>
<S> <C>
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Shareholder Number and Class of Shares Owned
</TABLE>
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ANNEX C
15 September, 1997
The Board of Directors
Getty Communications plc
101 Bayham Street
London
NW1 0AG
Dear Sirs:
Getty Communications plc ("Getty"), Getty Communications (USA), Inc. ("Getty
Images"), a Delaware corporation, PhotoDisc, Inc. ("PhotoDisc"), a Washington
corporation and Merger Sub, Inc., a Washington corporation and wholly owned
subsidiary of Getty Images (the "Merger Sub"), expect to enter into a merger
agreement dated as of today (the "Agreement"). Pursuant to the Agreement, the
implementation of which will be contingent on stockholder approval by Getty and
PhotoDisc stockholders, Merger Sub shall merge with and into PhotoDisc and a
Scheme of Arrangement (the "Scheme of Arrangement") in accordance with Section
425 of the Companies Act of 1985 of the United Kingdom will be implemented (the
"Merger"), whereas each share of PhotoDisc common stock issued and outstanding
immediately prior to the effective time of the Merger will be converted into
shares of common stock of Getty Images and an amount of cash as described in
Section 1.11 of the Agreement, together the common stock and cash representing
the total consideration ("Total Consideration"), and each issued and outstanding
Class A ordinary share and each issued and outstanding Class B ordinary share of
Getty immediately prior to the effective time of the Merger (together the "Getty
Ordinary Shares") will be cancelled and reissued to Getty Images and, in
consideration of the Getty Ordinary Shares, Getty Images will allot to the
former holders of such Getty Ordinary Shares one Getty Images' share for every
two Getty Ordinary Shares so cancelled. You have requested our opinion as to
whether the Total Consideration is fair, from a financial point of view, to
Getty.
BT Alex. Brown International, a division of Bankers Trust International PLC
("BT Alex. Brown"), together with its affiliated company, BT Alex. Brown
Incorporated, is engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, private
placements and valuations for estate, corporate and other purposes. We have
acted as financial advisor to the Board of Directors of Getty in connection with
the transaction described above and will receive a fee for our services which is
contingent upon the consummation of the Merger. BT Alex. Brown Incorporated also
served as the lead-managing underwriter in Getty's July 1996 initial public
offering of the American Depositary Shares of Getty. BT Alex. Brown Incorporated
maintains a market in the American Depositary Shares of Getty and regularly
publishes research reports regarding the media industry and the businesses and
securities of Getty and other publicly owned companies in the media industry. In
the ordinary course of business, BT Alex. Brown Incorporated may actively trade
the securities of Getty for our own account and the account of our customers
and, accordingly, may at any time hold a long or short position in securities of
Getty.
In connection with this opinion, we have reviewed certain publicly available
financial information and other information concerning PhotoDisc and Getty and
certain internal analyses and other information furnished to us by PhotoDisc and
Getty. We have also held discussions with the members of the senior managements
of PhotoDisc and Getty regarding the businesses and prospects of their
respective companies and the joint prospects of a combined company. In addition,
we have (i) reviewed the reported prices and trading activity for the common
stock of Getty, (ii) compared certain financial and stock market information for
Getty with similar information for certain other companies whose securities are
publicly
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<PAGE>
traded, (iii) reviewed the financial terms of certain recent business
combinations which we deemed comparable in whole or in part, (iv) reviewed the
terms of the Agreement and certain related documents, and (v) performed such
other studies and analyses and considered such other factors as we deemed
appropriate.
We have not independently verified the information described above and for
purposes of this opinion have assumed the accuracy, completeness and fairness
thereof. With respect to the information relating to the prospects of PhotoDisc
and Getty, we have assumed that such information reflects the best currently
available judgments and estimates of the managements of PhotoDisc and Getty as
to the likely future financial performances of their respective companies and of
the combined entity. We have not considered the implication of contemplated
changes in Getty's existing option plans or option grants that may be made to
Getty employees at the time or near the time of this transaction closing. In
addition, we have not made nor been provided with an independent evaluation or
appraisal of the assets of PhotoDisc and Getty, nor have we been furnished with
any such evaluations or appraisals. Our opinion is based on market, economic and
other conditions as they exist and can be evaluated as of the date of this
letter.
Our advisory services and the opinion expressed herein were prepared for the
use of the Board of Directors of Getty and do not constitute a recommendation to
Getty's stockholders as to how they should vote at the stockholders' meeting in
connection with the Merger. We hereby consent, however, to the inclusion of this
opinion as an exhibit to any proxy or registration statement distributed in
connection with the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the Total Consideration is fair, from a financial point of
view, to Getty.
Very truly yours,
BT ALEX. BROWN INTERNATIONAL
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<PAGE>
ANNEX D
September 13, 1997
Board of Directors
PhotoDisc, Inc.
2013 Fourth Avenue, Fourth Floor
Seattle, WA 98121
Members of the Board:
You have asked our opinion with respect to the fairness to the shareholders of
PhotoDisc, Inc. ("PhotoDisc" or the "Company"), from a financial point of view
and as of the date hereof, of the Net Purchase Price (as defined below) to be
paid in the acquisition directly or indirectly of the entire share capital of
PhotoDisc by Getty Images, Inc. ("Getty Images"), a Delaware corporation which
will acquire all issued and outstanding Class A and B ordinary shares of Getty
Communications plc ("Getty") in exchange for one Getty Images share for every
two Getty shares. Pursuant to the Agreement and Plan of Merger, dated as of
September 15, 1997 among the Company, Getty Images, Getty and Print Merger, Inc.
("Print Merger"), a wholly owned subsidiary of Getty Images (the "Agreement"),
Print Merger shall be merged with and into PhotoDisc (the "Merger"). PhotoDisc
shall be the surviving corporation and the separate existence of Print Merger
shall cease. In exchange for all outstanding Company common stock, Series A
preferred stock, options and warrants, Getty Images will pay consideration
comprised of a cash payment to the holders of Series A preferred stock plus
12,400,000 shares of Getty Images common stock (the "Purchase Price") less the
number of shares obtained by dividing half of the transaction-related expenses
incurred by PhotoDisc plus the amount of the cash payment to the holders of
Series A preferred stock, by the average of closing prices for Getty ADRs on the
NASDAQ for the 10 trading day period prior to closing (the "Net Purchase
Price"). The Net Purchase Price shall be paid in the form of a cash payment to
holders of PhotoDisc Series A preferred stock, 80% of the remainder in the form
of Getty Images common stock and 20% in cash calculated at a 10% discount to the
average of closing prices for Getty ADRs on the NASDAQ for the 10 trading day
period prior to closing. If such average of closing prices is less than $12.00
per share, there shall be no 10% discount. The terms and conditions of the
Merger are set out more fully in the Agreement.
For purposes of this opinion we have: (i) reviewed financial information on
PhotoDisc and Getty furnished to us by PhotoDisc and Getty, including certain
PhotoDisc internal financial analyses and forecasts prepared by the management
of PhotoDisc; (ii) reviewed publicly available information; (iii) held
discussions with the managements of PhotoDisc and Getty concerning the
businesses, past and current business operations, financial condition and future
prospects of both companies, independently and combined; (iv) reviewed the
Agreement; (v) reviewed the stock price and trading history of Getty; (vi)
prepared a pro-forma merger analysis for the combination of PhotoDisc and Getty;
(vii) prepared a relative contribution analysis for PhotoDisc and Getty; (viii)
reviewed the valuations of publicly traded companies that we deemed comparable
to PhotoDisc; (ix) compared the financial terms of the Merger with other
transactions that we deemed relevant; (x) prepared a discounted cash flow
analysis of PhotoDisc; and (xi) made such other studies and inquiries, and
reviewed such other data, as we deemed relevant.
In connection with rendering our opinion, however, we have not independently
verified any of the foregoing information and have assumed that all such
information is complete and accurate in all material respects. Furthermore, we
did not obtain any independent appraisal of the properties or assets and
liabilities of PhotoDisc or of any of its subsidiaries, nor were we furnished
with any such evaluations or
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appraisals. With respect to the financial and operating forecasts (and the
assumptions and bases therefor) of PhotoDisc that we have reviewed, we have
assumed that such forecasts have been reasonably prepared and reflect the best
available estimates and judgments of PhotoDisc management and that such
projections and forecasts will be realized in the amounts and in the time
periods currently estimated by the management of PhotoDisc. We have relied upon
estimates and judgments of PhotoDisc and Getty management as to the future
financial performance of PhotoDisc. We have also assumed that the Merger will be
accounted for as a "purchase of equity" under GAAP. In addition, we have assumed
that the transaction-related expenses incurred by PhotoDisc will be reasonable.
While we believe that our review, as described within, is an adequate basis for
the opinion that we express, this opinion is necessarily based upon market,
economic, and other conditions that exist and can be evaluated as of the date of
this letter, and on information available to us as of the date hereof. Finally,
we express no opinion as to the value of any employee or non-competition
agreements or arrangements entered into in connection with the Agreement or the
Merger.
Robertson, Stephens & Company LLC ("RS&Co.") has provided certain investment
banking services to PhotoDisc, having been selected as an underwriter for the
proposed initial public offering of shares of common stock of PhotoDisc.
Additionally, in the ordinary course of business, RS&Co. may trade Getty
securities for our own account and the account of our customers and,
accordingly, may at any time hold a long or short position in Getty securities.
This opinion is for the Board of Directors of PhotoDisc and may not be used,
quoted or referred to except with the express prior written consent of RS&Co.
Based upon and subject to the foregoing considerations, it is our opinion, that,
as of the date hereof, the Net Purchase Price is fair to the shareholders of
PhotoDisc from a financial point of view.
Very truly yours,
ROBERTSON, STEPHENS & COMPANY LLC
By: Robertson, Stephens & Company
Group, L.L.C.
-------------------------------------------------------------------------
Authorized Signatory
D-2
<PAGE>
ANNEX E
CHAPTER 23B.13 OF THE WASHINGTON BUSINESS CORPORATION ACT
DISSENTERS' RIGHTS
23B.13.010 DEFINITIONS
(1) As used in this chapter:
(2) "Corporation" means the issuer of the shares held by a dissenter before the
corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(3) "Fair value," with respect to a dissenter's shares, means the value of the
shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(4) "Fair value," with respect to a dissenter's shares, means the value of the
shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(5) "Record shareholder" means the person in whose name shares are registered in
the records of a corporation or the beneficial owner of shares to the extent
of the rights granted by a nominee certificate on file with a corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial shareholder.
[1989 C 165 Section 140.]
23B.13.020 RIGHT TO DISSENT
(1) A shareholder is entitled to dissent from, and obtain payment of the fair
value of the shareholder's shares in the event of, any of the following
corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party (i)
if shareholder approval is required for the merger by RCW 23B.11.030,
23B.11.080, or the articles of incorporation and the shareholder is
entitled to vote on the merger, or (ii) if the corporation is a
subsidiary that is merged with its parent under RCW 23B.11.040;
(b) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or substantially all, of the
property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to
court order or a sale for cash pursuant to a plan by which all or
substantially all of the net proceeds of the sale will be distributed to
the shareholders within one year after the date of sale;
(d) An amendment of the articles of incorporation that materially reduces
the number of shares owned by the shareholders to a fraction of a share
if the fractional share so created is to be acquired for cash under RCW
23B.06.040; or
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(e) Any corporate action taken pursuant to a shareholder vote to the extent
the articles of incorporation, by laws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for the shareholder's
shares under this chapter may not challenge the corporate action creating
the shareholder's entitlement unless the action fails to comply with the
procedural requirements imposed by this title, RCW 25.10.900 through
25.10.955, the articles of incorporation, or the bylaws, or is fraudulent
with respect to the shareholder or the corporation.
(3) The right of a dissenting shareholder to obtain payment of the fair value of
the shareholder's shares shall terminate upon the occurrence of any one of
the following events:
(a) The proposed corporate action is abandoned or rescinded;
(b) A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
(c) The shareholder's demand for payment is withdrawn with the written
consent of the corporation.
[1991 c 269 Section 37.1989 c 165 Section 141.]
23B.13.030 DISSENT OF NOMINEES AND BENEFICIAL OWNERS
(1) A record shareholder may assert dissenters' rights as to fewer than all
shares registered in the shareholder's name only if the shareholder dissents
with respect to all shares beneficially owned by any other person and
notifies the corporation in writing of the name and address of each person
on whose behalf the shareholder asserts dissenters' rights. The rights of a
partial dissenter under this subsection are determined as if the shares as
to which the dissenter dissents and the dissenter's other shares were
registered in the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares held on
the beneficial shareholder's behalf only if:
(a) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder does so with respect to all shares of which
such shareholder is the beneficial shareholder or over which such
shareholder has power to direct the vote.
[1989 c 165 Section 142.]
23B.13.200 NOTICE OF DISSENTERS' RIGHTS
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholder's meeting, the meeting
notice must state that shareholders are or may be entitled to assert
dissenters' rights under this chapter and be accompanied by a copy of this
chapter.
(2) If corporation action creating dissenters' rights under RCW 23B.13.020 is
taken without a vote of shareholders, the corporation, within ten days after
the effective date of such corporate action, shall notify in writing all
shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in RCW 23B.13.220.
[1989 c 165 Section 143.]
23B.13.210 NOTICE OF INTENT TO DEMAND PAYMENT
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, a shareholder
who wishes to assert dissenters' rights must (a) deliver to the corporation
before the vote is taken written notice of the shareholder's intent to
demand payment for the shareholder's shares if the proposed action is
effected, and (b) not vote such shares in favor of the proposed action.
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(2) A shareholder who does not satisfy the requirements of subsection (1) of
this section is not entitled to payment for the shareholder's shares under
this chapter.
[1969 c 165 Section 144.]
23B.13.220 DISSENTERS' NOTICE
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of RCW 23B.13.210.
(2) The dissenters' notice must be sent within ten days after the effective date
of the corporate action, and must:
(a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(b) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not the person acquired beneficial
ownership of the shares before that date;
(d) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than third nor more than sixty days after the
date the notice in subsection (1) of this section is delivered; and
(c) Be accompanied by a copy of this chapter.
[1989 c 145 Section 145.]
23B.13.230 DUTY TO DEMAND PAYMENT
(1) A shareholder sent a dissenters' notice described in RCW 23B.13.220 must
demand payment, certify whether the shareholder acquired beneficial
ownership of the shares before the date required to be set forth in the
dissenters' notice pursuant to RCW 23B.13.220(2)(c), and deposit the
shareholder's certificates in accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits the shareholder's share
certificates under subsection (1) of this section retains all other rights
of a shareholder until the proposed corporate action is effected.
(3) A shareholder who does not demand payment or deposit the shareholder's share
certificates where required, each by the date set in the dissenters' notice,
is not entitled to payment for the shareholder's shares under this chapter.
[1989 c 165 Section 146.]
23B.13.240 SHARE RESTRICTIONS
(1) The corporation may restrict the transfer of uncertificated shares from the
date the demand for their payment is received until the proposed corporate
action is effected or the restriction is released under RCW 23B.13.260.
(2) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until the effective date of
the proposed corporate action.
[1989 c 165 Section 147.]
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23B.13.250 PAYMENT
(1) Except as provided in RCW 23B.13.270, within thirty days of the later of the
effective date of the proposed corporate action, or the date the payment
demand is received, the corporation shall pay each dissenter who complied
with RCW 23B.13.230 the amount the corporation estimates to be the fair
value of the shareholder's shares, plus accrued interest.
(2) The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity
for that year, and the latest available interim financial statements, if
any;
(b) An explanation of how the corporation estimated the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under RCW
23B.13.280; and
(e) A copy of this chapter.
[1989 c 165 Section 148.]
23B.13.260 FAILURE TO TAKE ACTION
(1) If the corporation does not effect the proposed action within sixty days
after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release any
transfer restrictions imposed on uncertificated shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation wishes to undertake the proposed action, it
must send a new dissenters' notice under RCW 23B.13.220 and repeat the
payment demand procedure.
[1989 c 165 Section 149.]
23B.13.270 AFTER-ACQUIRED SHARES
(1) A corporation may elect to withhold payment required by RCW 23B.12.250 from
a dissenter unless the dissenter was the beneficial owner of the shares
before the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action.
(2) To the extent the corporation elects to withhold payment under subsection
(1) of this section, after taking the proposed corporate action, it shall
estimate the fair value of the shares, plus accrued interest, and shall pay
this amount to each dissenter who agrees to accept it in full satisfaction
of the dissenter's demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares, an explanation
of how the interest was calculated, and a statement of the dissenter's right
to demand payment under RCW 23B.13.280.
[1989 c 165 Section 150.]
23B.13.280 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER
(1) A dissenter may notify the corporation in writing of the dissenter's own
estimate of the fair value of the dissenter's shares and amount of interest
due, and demand payment of the dissenter's estimate, less any payment under
RCW 23B.13.250, or reject the corporation's offer under RCW 23B.13.270
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and demand payment of the dissenter's estimate of the fair value of the
dissenter's shares and interest due, if:
(a) The dissenter believes that the amount paid under RCW 23B.13.250 or
offered under RCW 23B.13.270 is less than the fair value of the
dissenter's shares or that the interest due is incorrectly calculated;
(b) The corporation fails to make payment under RCW 23B.13.250 within sixty
days after the date set for demanding payment; or
(c) The corporation does not effect the proposed action and does not return
the deposited certificates or release the transfer restrictions imposed
on uncertificated shares within sixty days after the date set for
demanding payment.
(2) A dissenter waives the right to demand payment under this section unless the
dissenter notifies the corporation of the dissenter's demand in writing
under subsection (1) of this section within thirty days after the
corporation made or offered payment for the dissenter's shares.
[1989 c 165 Section 151.]
23B.13.300 COURT ACTION
(1) If a demand for payment under RCW 23B.13.280 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving
the payment demand and petition the court to determine the fair value of the
shares and accrued interest. If the corporation does not commence the
proceeding within the sixty-day period, it shall pay each dissenter whose
demand remains unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the superior court of the
county where a corporation's principal office, or, if none in this state,
its registered office, is located. If the corporation is a foreign
corporation within a registered office in this state, it shall commence the
proceeding in the county in this state where the registered office of the
domestic corporation merged with or whose shares were acquired by the
foreign corporation was located.
(3) The corporation shall make all dissenters, whether or not residents of this
state, whose demands remain unsettled, parties to the proceeding as in an
action against their shares and all parties must be served with a copy of
the petition. Nonresidents may be served by registered or certified mail or
by publication as provided by law.
(4) The corporation may join as a party to the proceeding any shareholder who
claims to be a dissenter but who has not, in the opinion of the corporation,
complied with the provisions of this chapter. If the court determines that
such shareholder has not complied with the provisions of this chapter, the
shareholder shall be dismissed as a party.
(5) The jurisdiction of the court in which the proceeding is commenced under
subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers
described in the order appointing them, or in any amendment to it. The
dissenters are entitled to the same discovery rights as parties in other
civil proceedings.
(6) Each dissenter made a party to the proceeding is entitled to judgment (a)
for the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the
corporation, or (b) for the fair value, plus accrued interest, of the
dissenter's after-acquired shares for which the corporation elected to
withhold payment under RCW 23B.13.270.
[1989 c 165 Section 152.]
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23B.13.310 COURT COSTS AND COUNSEL FEES
(1) The court in a proceeding commenced under RCW 23B.13.300 shall determine all
costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess the costs against all or some
of the dissenters, in amounts the court finds equitable, to the extent the
court finds the dissenters acted arbitrarily, vexatiously, or not in good
faith in demanding payment under RCW 23B.13.280.
(2) The court may also assess the fees and expenses of counsel and experts for
the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of RCW 23B.13.200 through 23B.13.280;
(b) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by Chapter 23B.13 RCW.
(3) If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the
amounts awarded the dissenters who were benefited.
[1989 c 165 Section 153.]
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Except to the extent indicated below, there is no charter provision, by-law,
contract, arrangement or statute under which any director or officer of Getty
Images is insured or indemnified in any manner against any liability which he or
she may incur in his or her capacity as such.
The Delaware General Corporation Law (the "DGCL") provides that a
corporation may, and in certain circumstances must, indemnify its directors,
officers, employees and agents for expenses, judgments or settlements actually
and reasonably incurred by them in connection with suits and other legal actions
or proceedings if they acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe their conduct was unlawful. In any such suit or action brought by or on
behalf of the corporation, such indemnification is limited to expenses incurred
in defense or settlement of the suit or action. The DGCL also permits a
corporation to adopt procedures for advancing expenses to directors, officers
and others without the need for a case-by-case determination of eligibility, so
long as, in the case of officers and directors, they undertake to repay the
amounts advanced if it is ultimately determined that they officer or directors
was not entitled to be indemnified. The Certificate of Incorporation of Getty
Images (the "Getty Images Certificate") and the Bylaws of Getty Images (the
"Getty Images Bylaws") contain provisions for indemnification of directors and
officers and for the advancements of expenses to any director or officer to the
fullest extend of the law.
The DGCL permits corporations to purchase and maintain insurance for
directors and officers against liability for expenses, judgments or settlements,
whether or not the corporation would have the power to indemnify such persons
therefor. The Getty Images Bylaws permit Getty Images to purchase such
insurance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS.
(a) Exhibits
<TABLE>
<C> <C> <S>
2.1 -- Merger Agreement, dated as of September 15, 1997, among Getty
Communications (USA), Inc., Getty Communications plc, PhotoDisc, Inc.
and Print Merger, Inc. (attached as Annex A to the Prospectus included
in this Registration Statement)
* 2.2 -- Scheme of Arrangement Shareholder Circular dated as of , 1997
* 3.1 -- Certificate of Incorporation of Getty Images
* 3.2 -- Bylaws of Getty Images
* 5.1 -- Opinion with respect to the legality of the securities registered hereby
* 8.1 -- Opinion of Shearman & Sterling with respect to certain tax matters
* 8.2 -- Opinion of Heller Ehrman White & McAuliffe with respect to certain tax
matters
10.1 -- Stockholders' Transaction Agreement, dated as of September 15, 1997, among
Getty Images, Inc., certain shareholders of PhotoDisc, Inc., and Mr.
Mark Torrance, as representative of the shareholders (attached as Annex
B to the Prospectus included in this Registration Statement)
10.2 -- Form of Escrow Agreement among Getty Images, Inc., certain shareholders of
PhotoDisc, Inc., and an escrow agent
10.3 -- Voting Agreement, dated as of September 15, 1997, among Getty Images, Inc.
and certain shareholders of PhotoDisc, Inc.
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <C> <S>
10.4 -- Voting Agreement, dated as of September 16, 1997, among Getty Images,
Inc., Getty Communications plc, PhotoDisc, Inc. and Getty Investments
LLC
10.5 -- Voting Agreement, dated as of September 16, 1997, among Getty Images,
Inc., Getty Communications plc, PhotoDisc, Inc. and Carlton
Communications BV
* 10.6 -- Form of Registration Rights Agreement among Getty Images, Inc., PDI,
L.L.C. and Mr. Mark Torrance
* 10.7 -- Form of Registration Rights Agreement among Getty Images, Inc. and Getty
Investments L.L.C.
* 10.8 -- Form of Stockholders' Agreement among Getty Images, Inc. and certain
stockholders of Getty Images, Inc.
* 10.9 -- Form of Employment Agreement between Getty Images, Inc. and Mr. Mark Getty
* 10.10 -- Form of Employment Agreement between Getty Images, Inc. and Mr. Mark
Torrance
* 10.11 -- Form of Employment Agreement between Getty Images, Inc. and Mr. Jonathan
Klein
* 10.12 -- Getty Images Stock Option Plan
* 11.1 -- Computation of Earnings per Share
* 12.1 -- Computation of Ratios
* 21.1 -- Subsidiaries of Getty Images
* 23.1 -- Consent of Shearman & Sterling (included as part of Exhibit 5.1)
* 23.2 -- Consent of Shearman & Sterling (included as part of Exhibit 8.1)
23.3 -- Consent of Coopers and Lybrand
23.4 -- Consent of Deloitte & Touche LLP
24.1 -- Power of Attorney (contained on page II-4)
99.1 -- Form of proxy to be mailed to shareholders of Getty Communications
99.2 -- Consent of BT Alex. Brown International
99.3 -- Consent of Robertson Stephens & Co.
</TABLE>
- ------------------------
* to be filed by amendment
(b) Financial Statement Schedules.
(c) Reports, Opinions or Appraisals.
Opinion of BT Alex. Brown International (attached as Annex C to the
Prospectus included in this Registration Statement)
Opinion of Robertson Stephens & Co. (attached as Annex D to the
Prospectus included in this Registration Statement)
*(d) Consents of Persons to be Named Directors of Getty Images
II-2
<PAGE>
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a) That, for purposes of determining any liability under the Securities
Act, each filing of this registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of any employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(b) To deliver or cause to be delivered with the prospectus, to each
person to whom the prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule
14c-3 under the Securities Exchange Act of 1934; and, where interim
financial information required to be presented by Article 3 of Regulation
S-X are not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
(c) That, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(d) That, every prospectus (i) that is filed pursuant to paragraph (b)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933 and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part
of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(e) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this
Form S-4, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent to
the effective date of the registration statement through the date of
responding to the request.
(f) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registrations statement when
it becomes effective.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of London,
England, on October 24, 1997.
<TABLE>
<S> <C> <C>
By: /s/ MARK GETTY
-----------------------------------------
Mark Getty
</TABLE>
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mark Getty and Jonathan Klein, and each of them
severally, his true and lawful attorneys-in-fact with power of substitution and
resubstitution to sign in his name, place and stead, in any and all capacities,
to do any and all things and execute any and all instruments that such attorney
may deem necessary or advisable under the Securities Act of 1933 (the
"Securities Act"), and any rules, regulations and requirements of the U.S.
Securities and Exchange Commission in connection with the registration under the
Securities Act of ordinary shares of the Class A Shares of the Registrant,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign his name in his respective capacity as a member
of the Board of Directors or officer of the Registrant, this Registration
Statement and/or such other form or forms as may be appropriate to be filed with
the Commission as any of them may deem appropriate in respect of the Class A
Shares of the Registrant, to any and all amendments thereto (including
post-effective amendments) to this Registration Statement, to any related Rule
462(b) Registration Statement and to any documents filed as part of or in
connection with this Registration Statement and any and all amendments thereto,
including post-effective amendments.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 24, 1997.
SIGNATURE CAPACITY
- ------------------------------ --------------------------
/s/ MARK GETTY President and Director
- ------------------------------ (Principal Executive
Mark Getty Officer)
Vice-President and
/s/ JONATHAN KLEIN Director
- ------------------------------ (Principal Executive
Jonathan Klein Officer)
Treasurer and Director
/s/ LAWRENCE GOULD (Principal Financial
- ------------------------------ Officer and Principal
Lawrence Gould Accounting Officer)
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ---------- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2.1 -- Merger Agreement, dated as of September 15, 1997, among Getty Communications (USA), Inc.,
Getty Communications plc, PhotoDisc, Inc. and Print Merger, Inc. (attached as Annex A to the
Prospectus included in this Registration Statement)
* 2.2 -- Scheme of Arrangement Shareholder Circular dated as of , 1997
* 3.1 -- Certificate of Incorporation of Getty Images
* 3.2 -- Bylaws of Getty Images
* 5.1 -- Opinion with respect to the legality of the securities registered hereby
* 8.1 -- Opinion of Shearman & Sterling with respect to certain tax matters
* 8.2 -- Opinion of Heller Ehrman White & McAuliffe with respect to certain tax matters
10.1 -- Stockholders' Transaction Agreement, dated as of September 15, 1997, among Getty Images, Inc.,
certain shareholders of PhotoDisc, Inc., and Mr. Mark Torrance, as representative of the
shareholders (attached as Annex B to the Prospectus included in this Registration Statement)
10.2 -- Form of Escrow Agreement among Getty Images, Inc., certain shareholders of PhotoDisc, Inc.,
and an escrow agent
10.3 -- Voting Agreement, dated as of September 15, 1997, among Getty Images, Inc. and certain
shareholders of PhotoDisc, Inc.
10.4 -- Voting Agreement, dated as of September 16, 1997, among Getty Images, Inc., Getty
Communications plc, PhotoDisc, Inc. and Getty Investments LLC
10.5 -- Voting Agreement, dated as of September 16, 1997, among Getty Images, Inc., Getty
Communications plc, PhotoDisc, Inc. and Carlton Communications BV
*10.6 -- Form of Registration Rights Agreement among Getty Images, Inc., PDI, L.L.C. and Mr. Mark
Torrance
*10.7 -- Form of Registration Rights Agreement among Getty Images, Inc. and Getty Investments L.L.C.
*10.8 -- Form of Stockholders' Agreement among Getty Images, Inc. and certain stockholders of Getty
Images, Inc.
*10.9 -- Form of Employment Agreement between Getty Images, Inc. and Mr. Mark Getty
*10.10 -- Form of Employment Agreement between Getty Images, Inc. and Mr. Mark Torrance
*10.11 -- Form of Employment Agreement between Getty Images, Inc. and Mr. Jonathan Klein
*10.12 -- Getty Images Stock Option Plan
*11.1 -- Computation of Earnings per Share
*12.1 -- Computation of Ratios
*21.1 -- Subsidiaries of Getty Images
*23.1 -- Consent of Shearman & Sterling (included as part of Exhibit 5.1)
*23.2 -- Consent of Shearman & Sterling (included as part of Exhibit 8.1)
23.3 -- Consent of Coopers and Lybrand
23.4 -- Consent of Deloitte & Touche LLP
24.1 -- Power of Attorney (contained on page II-4)
99.1 -- Form of proxy to be mailed to shareholders of Getty Communications
99.2 -- Consent of BT Alex. Brown International
99.3 -- Consent of Robertson Stephens & Co.
</TABLE>
- ------------------------
* to be filed by amendment
<PAGE>
VOTING AGREEMENT, dated as of September 15, 1997 (this "AGREEMENT"),
among Getty Communications (USA), Inc., a Delaware corporation ("GETTY IMAGES")
and the stockholders (the "VOTING STOCKHOLDERS") of PhotoDisc, Inc., a
Washington corporation ("PHOTODISC"), identified on the signature pages of this
Agreement.
W I T N E S S E T H:
WHEREAS, Getty Images, Getty Communications plc, a public limited
company organized under the laws of England and Wales, PhotoDisc, Inc., a
Washington corporation ("PHOTODISC"), and Print Merger, Inc., a Washington
corporation and wholly owned subsidiary of Getty Images ("MERGER SUB"), propose
to enter into a Merger Agreement, dated as of the date hereof (the "MERGER
AGREEMENT"), which provides, among other things, that Merger Sub will merge with
and into PhotoDisc (the "MERGER") upon the terms and subject to the conditions
set forth in the Merger Agreement (a copy of which is attached hereto as Exhibit
A);
WHEREAS, as of the date hereof, the Voting Stockholders collectively
own 7,175,230 shares of common stock, par value $0.01 per share, of PhotoDisc
("PHOTODISC COMMON STOCK") and 1,181,861 shares of Series A Preferred Stock, par
value $0.01 per share, of PhotoDisc ("SERIES A PREFERRED STOCK"); and
WHEREAS, as a condition to the willingness of Getty Images to enter
into the Merger Agreement, Getty Images has required that each of the Voting
Stockholders agrees, and in order to induce Getty Images to enter into the
Merger Agreement, each of the Voting Stockholders has agreed, to enter into this
Agreement with respect to all the shares of PhotoDisc Common Stock and Series A
Preferred Stock now owned and which may hereafter be acquired by the Voting
Stockholders (the "SHARES");
NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, indemnities and agreements set forth
herein, and intending to be legally bound hereby, the parties hereto hereby
agree as follows:
ARTICLE I
VOTING OF SHARES
SECTION 1.01. NO DISPOSITION OR ENCUMBRANCE OF SHARES. Each Voting
Stockholder hereby covenants and agrees, severally and not jointly, that such
Voting Stockholder shall not, and shall not offer or agree to, sell, transfer,
tender, assign, hypothecate or otherwise dispose of, or create or permit to
exist any security interest, lien, claim, pledge, option, right of first
refusal, agreement, limitation on such Voting Stockholder's voting rights,
<PAGE>
2
charge or other encumbrance of any nature whatsoever with respect to the Shares
now owned or that may hereafter be acquired by such Voting Stockholder at any
time to the termination of this Agreement.
SECTION 1.02. VOTING OF SHARES; FURTHER ASSURANCES. Each Voting
Stockholder, by this Agreement, does hereby constitute and appoint Getty Images,
or any nominee of Getty Images, with full power of substitution, during and for
the term of this Agreement, as such Voting Stockholder's true and lawful
attorney and proxy, for and in such Voting Stockholder's name, place and stead,
to vote each of the Voting Stockholder's Shares as such Voting Stockholder's
proxy, at every annual, special or adjourned meeting of shareholders of
PhotoDisc (including the right to sign such Voting Stockholder's name (as
stockholder) to any consent, certificate or other document relating to PhotoDisc
that the law of the State of Washington may permit or require) (i) in favor of
the adoption of the Merger Agreement and approval of the Merger and the other
transactions contemplated by the Merger Agreement, (ii) against any proposal for
any recapitalization, merger, sale of assets or other business combination
between PhotoDisc and any person or entity (other than the Merger) and (iii) in
favor of any other matter necessary to effect the consummation of the
transactions contemplated by the Merger Agreement.
SECTION 1.03. NO INCONSISTENT AGREEMENTS. Each Voting Stockholder
hereby covenants and agrees that, except as contemplated by this Agreement and
the Merger Agreement, the Voting Stockholder shall not enter into any voting
agreement or grant a proxy or power of attorney with respect to the Shares which
is inconsistent with this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE VOTING STOCKHOLDERS
Each of the Voting Stockholders, severally and not jointly, hereby
represents and warrants to Getty Images as follows:
SECTION 2.01. AUTHORITY OF VOTING STOCKHOLDERS. Such Voting
Stockholder has all necessary capacity, power and authority to enter into this
Agreement, to carry out such Voting Stockholder's obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by such Voting Stockholder, the performance by such Voting
Stockholder of such Voting Stockholder's obligations hereunder and the
consummation by such Voting Stockholder of the transactions contemplated hereby
have been duly authorized by all requisite action on the part of such Voting
Stockholder. This Agreement has been duly executed and delivered by such Voting
Stockholder and (assuming the due authorization, execution and delivery by Getty
Images) this Agreement constitutes a
<PAGE>
3
legal, valid and binding obligation of such Voting Stockholder enforceable
against such Voting Stockholder in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of equitable remedies, including specific performance, is subject
to the discretion of the court before which any proceeding thereof may be
brought.
SECTION 2.02. NO CONFLICT. The execution, delivery and performance
of this Agreement by such Voting Stockholder do not and will not (i) violate,
conflict with or result in the breach of any provision of the charter or by-laws
or operating agreement (or equivalent organizational documents) of such Voting
Stockholder, (ii) conflict with or violate (or cause an event which reasonably
could be expected to have a material adverse effect on such Voting Stockholder
as a result of) any law, rule, regulation, order, judgment or decree applicable
to such Voting Stockholder or by which the Shares are bound or affected or
(iii) conflict with, result in any breach of, constitute a default (or an event
that, with the giving of notice or lapse of time, or both, would become a
default) under, require any consent under, or give to others any rights of
termination, amendment, acceleration, suspension, revocation or cancellation of,
or result in the creation of a lien or encumbrance on any of the Shares pursuant
to, any material note, bond, mortgage or indenture, contract, agreement, lease,
sublease, license, permit, franchise or other instrument or arrangement to which
such Voting Stockholder is a party or by which such Voting Stockholder or the
Shares are bound or affected.
SECTION 2.03. OWNERSHIP OF SHARES. Such Voting Stockholder owns of
record and beneficially, free and clear of all Encumbrances (as defined in the
Merger Agreement), the number of shares of PhotoDisc Common Stock or Series A
Preferred Stock set forth opposite the name of such Voting Stockholder in
Section 3.03(d) of the PhotoDisc Disclosure Schedule (as defined in the Merger
Agreement). Such Voting Stockholder has not appointed or granted any proxy,
which appointment or grant is still effective, with respect to the Shares.
ARTICLE III
MISCELLANEOUS
SECTION 3.01. TERMINATION. This Agreement shall terminate upon the
termination of the Merger Agreement.
SECTION 3.02. NOTICES. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given or made
(and shall be deemed to have been duly given or made upon receipt) by delivery
in person, by courier service, by
<PAGE>
4
cable, by facsimile, by telegram, by telex, or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as shall be specified
in a notice given in accordance with this Section 3.02):
(a) if to Getty Images:
c/o of Getty Communications plc
101 Bayham Street
London NW1 0AG England
Facsimile: (44171) 267-6540
Attention: Nick Evans-Lombe
with a copy to each of:
Clifford Chance
200 Aldersgate Street
London EC1A 4JJ England
Facsimile: (44171) 600-5555
Attention: Michael Francies
Shearman & Sterling
555 California Street
San Francisco, California 94104
Facsimile: (415) 616-1199
Attention: Christopher D. Dillon
(b) if to any Voting Stockholders to the address set forth underneath
their signature;
with a copy to:
Heller Ehrman White & McAuliffe
6100 Columbia Center
701 Fifth Avenue
Seattle, Washington 98104
Telecopy: (206) 447-0849
Attention: Thomas S. Hodge
<PAGE>
5
SECTION 3.03. PUBLIC ANNOUNCEMENTS. No party to this Agreement shall
make, or cause to be made, any press release or public announcement in respect
of this Agreement or the transactions contemplated hereby or otherwise
communicate with any news media without prior consent of the other party (except
to the extent that such disclosure is required by law or the rules of the Nasdaq
National Market), and, to the extent practicable, the parties shall cooperate as
to the timing and contents of any such press release or public announcement.
SECTION 3.04. HEADINGS. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 3.05. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of this Agreement is not affected in any manner materially adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner in order that the terms
of this Agreement remain as originally contemplated to the greatest extent
possible.
SECTION 3.06. ENTIRE AGREEMENT. This Agreement constitutes the
entire agreement between Getty Images and the Voting Stockholders with respect
to the subject matter hereof and supersedes all prior agreements and
understandings, both written and oral, between Getty Images and the Voting
Stockholders with respect to the subject matter hereof.
SECTION 3.07. ASSIGNMENT. This Agreement may not be assigned by
operation of law or otherwise without the express written consent of the other
parties hereto (which consent may be granted or withheld in the sole discretion
of such parties).
SECTION 3.08. NO THIRD PARTY BENEFICIARIES. This Agreement shall be
binding upon and inure solely to the benefit of the parties hereto and their
permitted assigns, and nothing herein, express or implied, is intended to or
shall confer upon any other Person any legal or equitable right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 3.09. AMENDMENT. This Agreement may not be amended or
modified except by an instrument in writing signed by, or on behalf of, the
parties hereto.
<PAGE>
6
SECTION 3.10. GOVERNING LAW. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Delaware applicable
to contracts executed in and to be performed entirely within that state. All
actions and proceedings arising out of or related to this Agreement shall be
heard and determined in any Delaware state or federal court sitting in the State
of Delaware.
SECTION 3.11. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
SECTION 3.12. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement were
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
IN WITNESS WHEREOF, each of Getty Images and the Voting Stockholders
has duly executed, or has caused this Agreement to be duly executed by its duly
authorized representative, as of the date first written above.
GETTY COMMUNICATIONS (USA), INC.
By:
------------------------------------
Name:
Title:
PDI, L.L.C.
By:
------------------------------------
Name:
Title:
Address: c/o PhotoDisc, Inc.
2013 Fourth Avenue
4th Floor
Seattle, WA 98121
Facsimile: (206) 441-9379
Attention: Mark Torrance
<PAGE>
7
-----
Mark Torrance
Address:
- -----------------------------------
- -----------------------------------
Facsimile:
-----
- -----------------------------------
Chris Birkeland
Address:
- -----------------------------------
- -----------------------------------
Facsimile:
-----
- -----------------------------------
Sally von Bargen
Address:
- -----------------------------------
- -----------------------------------
Facsimile:
ADVENT VII L.P.
By:
------------------------------------
Name:
Title:
Address:
- -----------------------------------
- -----------------------------------
<PAGE>
8
Facsimile:
- -----------------------------------
Attention:
- -----------------------------------
<PAGE>
9
ADVENT ATLANTIC AND
PACIFIC III, L.L.P.
By:
-----------------------------------
Name:
Title:
Address:
- -----------------------------------
- -----------------------------------
Facsimile:
- -----------------------------------
Attention:
- -----------------------------------
ADVENT NEW YORK L.P.
By:
-----------------------------------
Name:
Title:
Address:
- -----------------------------------
- -----------------------------------
Facsimile:
- -----------------------------------
Attention:
- -----------------------------------
TA VENTURE INVESTORS LIMITED PARTNERSHIP
By:
-----------------------------------
Name:
Title:
Address:
<PAGE>
10
Address:
- -----------------------------------
- -----------------------------------
Facsimile:
- -----------------------------------
Attention:
- -----------------------------------
<PAGE>
EXHIBIT A
[MERGER AGREEMENT]
<PAGE>
VOTING AGREEMENT, dated as of September 16, 1997 (this "AGREEMENT"),
among Getty Communications (USA), Inc., a Delaware corporation ("Getty Images"),
Getty Communications plc, an English corporation ("GETTY"), PhotoDisc, Inc., a
Washington corporation ("PHOTODISC") and Getty Investments LLC, a Delaware
limited liability corporation ("GI").
WITNESSETH
WHEREAS, Getty Images, GETTY COMMUNICATIONS plc, a public limited
company organized under the laws of England and Wales, PhotoDisc, Inc., a
Washington corporation ("PhotoDisc"), and Print MERGER, Inc. a Washington
corporation and wholly owned subsidiary of Getty Images ("MERGER SUB"), propose
to enter into a Merger Agreement, dated as of the date hereof (the "MERGER
AGREEMENT"), which provides, among other things, that MERGER SUB will merge with
and into PhotoDisc (the "MERGER") upon the terms and subject to the conditions
set forth in the Merger Agreement and that Getty Images will acquire all the
shares of Getty pursuant to a Scheme of Arrangement (the "Scheme of
Arrangement") as described below:
I. Each existing Class A Ordinary Share of Getty shall be cancelled and
reissued by way of capitalization of reserves to Getty Images.
II. In consideration of the issues of shares in paragraph 1 above to Getty
Images, Getty images shall issue to each holder of Class A Ordinary
Shares of Getty, credited as fully paid, one share of common stock of
Getty Images for every two Class A Ordinary Shares of Getty held.
III. Each existing Class B Ordinary Share of Getty shall be cancelled and
reissued as a Class A Ordinary Share by way of capitalization of reserves
to Getty Images.
IV. In consideration of the issue of shares in paragraph 3 above to Getty
Images, Getty Images shall issue to each holder of Class B Ordinary
Shares of Getty, credited as fully paid, one share of common stock of
Getty Images for every two Class B Ordinary Shares of Getty held.
V. All shares of common stock of Getty Images shall rank pari passu in all
respects and in particular shall each have one vote per share of common
stock.
WHEREAS, as of the date hereof, GI owns 10,294,882 Class B ordinary
shares par value 1p of Getty ("Getty Class B Shares") and 2,089,882 Class A
ordinary shares par value 1p per share, of Getty ("Getty Class A Shares") and
has the power to direct the votes of a further 2,490,408 Getty Class B Shares;
and
WHEREAS, as a condition to the willingness of Getty Images, Getty and
PhotoDisc to enter into the Merger Agreement and the Scheme of Arrangement,
Getty Images, Getty and PhotoDisc have required that GI agrees, and in order to
induce those parties to enter into the Merger Agreement and the Scheme of
Arrangement, GI has agreed, to enter into this Agreement with respect to all the
Getty Ordinary Shares now owned and which may hereafter be acquired by GI (the
"SHARES"):
<PAGE>
2
NOW THEREFORE, in consideration of the foregoing and the respective
agreements set forth herein, and intending to be legally bound hereby, the
parties hereto agree as follows:
ARTICLE I
VOTING OF SHARES
SECTION 1.01. VOTING OF SHARES; FURTHER ASSURANCES. GI hereby
agrees, in respect of all the Shares to be bound (or to procure that the
registered holder is so bound) by the Scheme of Arrangement and to undertake to
the High Court on the hearing of the petition to sanction the Scheme of
Arrangement, to be bound (and to procure that the registered holder is so bound)
thereby and to execute and do and to procure to be executed and done all such
documents, acts and things as may be reasonably necessary or desirable to be
executed or done by it or any holder of the Shares for the purpose of giving
effect to the Scheme of Arrangement; and vote, if requested by PhotoDisc, in
favor of all resolutions to be proposed at any Extraordinary General Meeting of
the holders of Ordinary Shares of Getty or Separate Class Meeting of the holders
of Class A Ordinary Shares of Getty convened to approve the Scheme of
Arrangement and related matters (including andy adjournment of any such meeting)
to the extent the passing of such resolution is required to implement the Scheme
of Arrangement and related matters and the other transactions contemplated by
the Merger Agreement and the Scheme of Arrangement; and to vote against any
proposal for any recapitalization, merger, sale of assets or other business
combination between Getty and any person or entity (other than the Merger) and
to deliver valid and duly completed forms of proxy appointing the Chairman of
any such meeting as GI's proxy to vote in favor of all such resolutions at least
5 business days prior to the last date for delivery of such proxies; and in
favor of any other matter NECESSARY TO EFFECT THE consummation of the
transactions contemplated by the Merger Agreement and the Scheme of Arrangement.
SECTION 1.02. NO INCONSISTENT AGREEMENTS. GI hereby covenants and
agrees that, except as contemplated by this Agreement and the Merger Agreement
and the Scheme of Arrangement, GI shall not enter into any voting agreement or
grant a proxy or power of attorney with respect to the Shares which is
inconsistent with this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF GI
GI hereby represents and warrants to Getty Images, Getty and PhotoDisc
as follows:
SECTION 2.01. AUTHORITY OF GI. GI has all the necessary capacity,
power and authority to enter into this Agreement, to carry out GI's obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by GI, the performance by GI of GI's obligations
hereunder and the consummation by GI of the transactions contemplated hereby
have been duly authorized by all requisite action on the part of GI. This
Agreement has been duly executed and delivered by GI and (assuming the due
authorization, execution and delivery by Getty Images, Getty and PhotoDisc) this
Agreement constitutes a legal, valid and binding obligation of GI enforceable
against GI in accordance with its terms, except as
<PAGE>
3
enforcement may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of equitable remedies, including specific performance, is subject
to the discretion of the court before which any proceeding thereof may be
brought.
SECTION 2.02 NO CONFLICT. The execution, delivery and performance of
this Agreement by GI do not and will not, (i) violate, conflict with or result
in the breach of any provision of the charter or by-laws or operating agreement
(or equivalent organizational documents) of GI, (ii) conflict with or violate
(or cause an event which reasonably could be expected to have a material adverse
effect on GI as a result of) any law, rule, regulation, order, judgment or
decree applicable to GI or by which the Shares are bound or affected or (iii)
conflict with, result in any breach of, constitute a default (or an event that,
with the giving of notice or lapse of time, or both, would become a default)
under, require any consent under, or give to others any rights of termination,
amendment, acceleration, suspension, revocation or cancellation of, or result in
the creation of a lien or encumbrance on any of the Shares pursuant to, any
material note, bond, mortgage or indenture, contract, agreement, lease,
sublease, license, permit, franchise or other instrument or arrangement to which
GI is a party or by which such GI or the Shares are bound or affected.
SECTION 2.03 OWNERSHIP OF SHARES. GI owns of record and
beneficially, free and clear of all encumbrances the number of Class A Ordinary
Shares of Getty set forth above. GI has not appointed or granted any proxy,
which appointment or grant is still effective, with respect to the Shares.
ARTICLE III
MISCELLANEOUS
SECTION 3.01 TERMINATION. This Agreement shall terminate upon the
termination of the Merger Agreement.
SECTION 3.02 NOTICES. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given or made
(and shall be deemed to have been duly given or made upon receipt) by delivery
in person, by courier service, by cable, by facsimile, by telegram, by telex, or
by registered or certified mail (postage prepaid, return receipt requested) to
the respective parties at the following addresses (or at such other address for
a party as shall be specified in a notice given in accordance with this Section
3.02):
(a) if to Getty or Getty Images:
c/o of Getty Communications plc
101 Bayham Street
London NW1 England
Facsimile: (44171) 267-6540
Attention: Nick Evans-Lombe
with a copy to each of:
Clifford Chance
200 Aldersgate Street
London EC1A 4JJ England
Facsimile: (44171) 600-5555
Attention: Michael Francies
Shearman & Sterling
555 California Street
San Francisco, California 94104
Facsimile: (415) 616-1199
Attention: Christopher D. Dillon
<PAGE>
4
(b) if to PhotoDisc:
PhotoDisc, Inc.
2013 Fourth Avenue
4th Floor
Seattle, WA 98121
Facsimile: (206) 441-9379
Attention: Mark Torrance
with a copy to:
Heller Ehrman White & McAuliffe
6100 Columbia Centre
701 Fifth Avenue
Seattle, Washington 98104
Telecopy: (206) 447-0849
Attention: Thomas S. Hodge
(c) if to GI:
Getty Investments LLC
1325 Airmotive Way
Suite 262
Reno, Nevada 89502
Facsimile: (702) 786-5414
Attention: Jan D. Muehl
SECTION 3.03 PUBLIC ANNOUNCEMENTS. No party to this Agreement shall
make, or cause to be made, any press release or public announcement in respect
of this Agreement or the transactions contemplated hereby or otherwise
communicate with any news media without prior consent of the other party (except
to the extent that such disclosure is required by law or the rules of the Nasdaq
National Market), and, to the extent practicable, the parties shall cooperate as
to the timing and contents of any such press release or public announcement.
<PAGE>
4
SECTION 3.04 HEADINGS. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 3.05 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of this Agreement is not affected in any manner materially adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner in order that the terms
of this Agreement remain as originally contemplated to the greatest extent
possible.
SECTION 3.06 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between Getty Images and the Voting Stockholders with respect to the
subject matter hereof and supersedes all prior agreements and understandings,
both written and oral, between Getty Images and the Voting Stockholders with
respect to the subject matter hereof.
SECTION 3.07. ASSIGNMENT. This Agreement may not be assigned by
operation of law or otherwise without the express written consent of the other
parties hereto (which consent may be granted or withheld in the sole discretion
of such parties).
SECTION 3.08 NO THIRD PARTY BENEFICIARIES. This Agreement shall be
binding upon and inure solely to the benefit of the parties hereto and their
permitted assigns, and nothing herein, express or implied, is intended to or
shall confer upon any other Person any legal or equitable right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 3.09 AMENDMENT. This Agreement may not be amended or
modified except by an instrument in writing signed by, or on behalf of, the
parties hereto.
SECTION 3.10 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware applicable to
contracts executed in and to be performed entirely within that state. All
actions and proceedings arising out of OR related to this Agreement shall be
heard and determined in any Delaware state or federal court sitting in the State
of Delaware.
SECTION 3.11 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
SECTION 3.12 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event that any provision of this Agreement
is not performed in accordance with the terms hereof and that the parties shall
be entitled to specific performance of the terms hereof, in addition to any
other remedy at law or in equity.
<PAGE>
5
IN WITNESS WHEREOF, each of the parties has duly executed, or has
caused this Agreement to be duly executed by its duly authorized representative,
as of the date first written above.
GETTY COMMUNICATIONS (USA), INC.
By:
----------------------------------------------
Name:
Title:
GETTY COMMUNICATIONS PLC
By:
----------------------------------------------
Name:
Title:
PHOTODISC, INC.
By:
----------------------------------------------
Name:
Title:
GETTY INVESTMENTS LLC
By:
----------------------------------------------
Name:
Title:
<PAGE>
VOTING AGREEMENT, dated as of September 16, 1997 (this "AGREEMENT"),
among Getty Communications (USA), Inc., a Delaware corporation ("Getty Images"),
Getty Communications plc, an English corporation ("GETTY"), PhotoDisc, Inc., a
Washington corporation ("PHOTODISC") and Carlton Communications, a Netherlands
corporation ("Carlton").
WITNESSETH
WHEREAS, Getty Images, GETTY COMMUNICATIONS plc, a public limited
company organized under the laws of England and Wales, PhotoDisc, Inc., a
Washington corporation ("PhotoDisc"), and Print MERGER, Inc. a Washington
corporation and wholly owned subsidiary of Getty Images ("MERGER SUB"), propose
to enter into a Merger Agreement, dated as of the date hereof (the "MERGER
AGREEMENT"), which provides, among other things, that MERGER SUB will merge with
and into PhotoDisc (the "MERGER") upon the terms and subject to the conditions
set forth in the Merger Agreement and that Getty Images will acquire all the
shares of Getty pursuant to a Scheme of Arrangement (the "Scheme of
Arrangement") as described below:
1. Each existing Class A Ordinary Share of Getty shall be cancelled and
reissued by way of capitalization of reserves to Getty Images.
2. In consideration of the issues of shares in paragraph 1 above to Getty
Images, Getty images shall issue to each holder of Class A Ordinary Shares
of Getty, credited as fully paid, one share of common stock of Getty Images
for every two Class A Ordinary Shares of Getty held.
3. Each existing Class B Ordinary Share of Getty shall be cancelled and
reissued as a Class A Ordinary Share by way of capitalization of reserves
to Getty Images.
4. In consideration of the issue of shares in paragraph 3 above to Getty
Images, Getty Images shall issue to each holder of Class B Ordinary Shares
of Getty, credited as fully paid, one share of common stock of Getty Images
for every two Class B Ordinary Shares of Getty held.
5. All shares of common stock of Getty Images shall rank pari passu in all
respects and in particular shall each have one vote per share of common
stock.
WHEREAS, as of the date hereof, Carlton owns 3,238,772 Class A
ordinary shares par value 1p per share of Getty ("Getty Class A Shares") and
WHEREAS, as a condition to the willingness of Getty Images, Getty and
PhotoDisc to enter into the Merger Agreement and the Scheme of Arrangement,
Getty Images, Getty and PhotoDisc have required that Carlton agrees, and in
order to induce those parties to enter into the Merger Agreement and the Scheme
of Arrangement, Carlton has agreed, to enter into this Agreement with respect to
all the Getty Class A Shares now owned and which may hereafter be acquired by
Carlton (the "SHARES"):
<PAGE>
2
NOW THEREFORE, in consideration of the foregoing and the respective
agreements set forth herein, and intending to be legally bound hereby, the
parties hereto agree as follows:
ARTICLE I
VOTING OF SHARES
SECTION 1.01. VOTING OF SHARES; FURTHER ASSURANCES. Carlton hereby
agrees, in respect of all the Shares to be bound (or to procure that the
registered holder is so bound) by the Scheme of Arrangement and to undertake to
the High Court on the hearing of the petition to sanction the Scheme of
Arrangement, to be bound (and to procure that the registered holder is so bound)
thereby and to execute and do and to procure to be executed and done all such
documents, acts and things as may be reasonably necessary or desirable to be
executed or done by it or any holder of the Shares for the purpose of giving
effect to the Scheme of Arrangement; and vote, if requested by PhotoDisc, in
favor of all resolutions to be proposed at any Extraordinary General Meeting of
the holders of Ordinary Shares of Getty or Separate Class Meeting of the holders
of Class A Ordinary Shares of Getty convened to approve the Scheme of
Arrangement and related matters (including any adjournment of any such meeting)
to the extent the passing of such resolution is required to implement the Scheme
of Arrangement and related matters and the other transactions contemplated by
the Merger Agreement and the Scheme of Arrangement; and to vote against any
proposal for any recapitalization, merger, sale of assets or other business
combination between Getty and any person or entity (other than the Merger) and
to deliver valid and duly completed forms of proxy appointing the Chairman of
any such meeting as Carlton's proxy to vote in favor of all such resolutions at
least 5 business days prior to the last date for delivery of such proxies; and
in favor of any other matter NECESSARY TO EFFECT THE consummation of the
transactions contemplated by the Merger Agreement and the Scheme of Arrangement.
SECTION 1.02. NO INCONSISTENT AGREEMENTS. Carlton hereby covenants
and agrees that, except as contemplated by this Agreement and the Merger
Agreement and the Scheme of Arrangement, Carlton shall not enter into any voting
agreement or grant a proxy or power of attorney with respect to the Shares which
is inconsistent with this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF CARLTON
Carlton hereby represents and warrants to Getty Images, Getty and
PhotoDisc as follows:
SECTION 2.01. AUTHORITY OF CARLTON. Carlton has all the necessary
capacity, power and authority to enter into this Agreement, to carry out
Carlton's obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by Carlton, the
performance by Carlton of Carlton's obligations hereunder and the consummation
by Carlton of the transactions contemplated hereby have been duly authorized by
all requisite action on the part of Carlton. This Agreement has been duly
executed and delivered by Carlton and (assuming the due authorization, execution
and delivery by Getty Images, Getty and PhotoDisc) this Agreement constitutes a
legal, valid and binding obligation of Carlton enforceable against Carlton in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency or other similar laws
<PAGE>
3
affecting the enforcement of creditors' rights generally and except that the
availability of equitable remedies, including specific performance, is subject
to the discretion of the court before which any proceeding thereof may be
brought.
SECTION 2.02 NO CONFLICT. The execution, delivery and performance of
this Agreement by Carlton do not and will not, (i) violate, conflict with or
result in the breach of any provision of the charter or by-laws or operating
agreement (or equivalent organizational documents) of Carlton, (ii) conflict
with or violate (or cause an event which reasonably could be expected to have a
material adverse effect on Carlton as a result of) any law, rule, regulation,
order, judgment or decree applicable to Carlton or by which the Shares are bound
or affected or (iii) conflict with, result in any breach of, constitute a
default (or an event that, with the giving of notice or lapse of time, or both,
would become a default) under, require any consent under, or give to others any
rights of termination, amendment, acceleration, suspension, revocation or
cancellation of, or result in the creation of a lien or encumbrance on any of
the Shares pursuant to, any material note, bond, mortgage or indenture,
contract, agreement, lease, sublease, license, permit, franchise or other
instrument or arrangement to which Carlton is a party or by which such Carlton
or the Shares are bound or affected.
SECTION 2.03 OWNERSHIP OF SHARES. Carlton owns of record and
beneficially, free and clear of all encumbrances the number of Class A Ordinary
Shares of Getty set forth above. Carlton has not appointed or granted any
proxy, which appointment or grant is still effective, with respect to the
Shares.
ARTICLE III
MISCELLANEOUS
SECTION 3.01 TERMINATION. This Agreement shall terminate upon the
termination of the Merger Agreement.
SECTION 3.02 NOTICES. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given or made
(and shall be deemed to have been duly given or made upon receipt) by delivery
in person, by courier service, by cable, by facsimile, by telegram, by telex, or
by registered or certified mail (postage prepaid, return receipt requested) to
the respective parties at the following addresses (or at such other address for
a party as shall be specified in a notice given in accordance with this Section
3.02):
(a) if to Getty or Getty Images:
c/o of Getty Communications plc
101 Bayham Street
London NW1 England
Facsimile: (44171) 267-6540
Attention: Nick Evans-Lombe
with a copy to each of:
Clifford Chance
200 Aldersgate Street
London EC1A 4JJ England
Facsimile: (44171) 600-5555
Attention: Michael Francies
Shearman & Sterling
555 California Street
San Francisco, California 94104
Facsimile: (415) 616-1199
Attention: Christopher D. Dillon
<PAGE>
4
(b) if to PhotoDisc:
PhotoDisc, Inc.
2013 Fourth Avenue
4th Floor
Seattle, WA 98121
Facsimile: (206) 441-9379
Attention: Mark Torrance
with a copy to:
Heller Ehrman White & McAuliffe
6100 Columbia Centre
701 Fifth Avenue
Seattle, Washington 98104
Telecopy: (206) 447-0849
Attention: Thomas S. Hodge
(c) if to Carlton:
Vossenbeemd 51
5705 CL Helmond
The Netherlands
Facsimile: 31492 552505
Attention: Han von Eijden
with a copy to:
Carlton Communications Plc
25 Knightsbridge
London SW1X 7RZ
Facsimile: 171 663 6300
Attention: David Abdoo
SECTION 3.03 PUBLIC ANNOUNCEMENTS. No party to this Agreement shall
make, or cause to be made, any press release or public announcement in respect
of this Agreement or the transactions contemplated hereby or otherwise
communicate with any news media without prior consent of the other party (except
to the extent that such disclosure is required by law or the rules of the Nasdaq
National Market), and, to the extent practicable, the parties shall cooperate as
to the timing and contents of any such press release or public announcement.
SECTION 3.04 HEADINGS. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 3.05 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other terms and
<PAGE>
5
provisions of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of this Agreement is not affected in
any manner materially adverse to any party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in an
acceptable manner in order that the terms of this Agreement remain as originally
contemplated to the greatest extent possible.
SECTION 3.06 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between Getty Images and the Voting Stockholders with respect to the
subject matter hereof and supersedes all prior agreements and understandings,
both written and oral, between Getty Images and the Voting Stockholders with
respect to the subject matter hereof.
SECTION 3.07. ASSIGNMENT. This Agreement may not be assigned by
operation of law or otherwise without the express written consent of the other
parties hereto (which consent may be granted or withheld in the sole discretion
of such parties).
SECTION 3.08 NO THIRD PARTY BENEFICIARIES. This Agreement shall be
binding upon and inure solely to the benefit of the parties hereto and their
permitted assigns, and nothing herein, express or implied, is intended to or
shall confer upon any other Person any legal or equitable right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 3.09 AMENDMENT. This Agreement may not be amended or
modified except by an instrument in writing signed by, or on behalf of, the
parties hereto.
SECTION 3.10 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware applicable to
contracts executed in and to be performed entirely within that state. All
actions and proceedings arising out of OR related to this Agreement shall be
heard and determined in any Delaware state or federal court sitting in the State
of Delaware.
SECTION 3.11 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
SECTION 3.12 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event that any provision of this Agreement
is not performed in accordance with the terms hereof and that the parties shall
be entitled to specific performance of the terms hereof, in addition to any
other remedy at law or in equity.
IN WITNESS WHEREOF, each of the parties has duly executed, or has
caused this Agreement to be duly executed by its duly authorized representative,
as of the date first written above.
<PAGE>
6
GETTY COMMUNICATIONS (USA), INC.
By:
----------------------------------------------
Name:
Title:
GETTY COMMUNICATIONS PLC
By:
----------------------------------------------
Name:
Title:
PHOTODISC, INC.
By:
----------------------------------------------
Name:
Title:
CARLTON COMMUNICATIONS BV
By:
----------------------------------------------
Name:
Title:
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
of Getty Images, Inc. on Form S-4 of our report dated March 13, 1997, of our
audits of the consolidated financial statements and financial statement
schedules of Getty Communications plc as of December 31, 1996 and 1995, and for
the period March 14, 1995 through December 31, 1995 and for the year ended
December 31, 1996, and the consolidated financial statements and financial
statement schedules of Tony Stone Associates Limited as of December 31, 1994 and
March 13, 1995, and for the year ended December 31, 1994 and for the period
January 1, 1995 through March 13, 1995, which report is included in the Annual
Report of Getty Communications plc on Form 20-F. We also consent to the
reference to our firm under the caption "Experts".
Coopers & Lybrand
Chartered Accountants
London
October [ ], 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this Registration Statement of Getty Images, Inc.
on Form S-4 of our report dated August 12, 1997 (September 16, 1997, as to Note
1) appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected
Financial Data" and "Experts" in such Prospectus.
Deloitte & Touche, LLP
Independent Auditors
Seattle, Washington
October 24, 1997
<PAGE>
EXHIBIT 99.2
[LETTERHEAD OF BT ALEX. BROWN INTERNATIONAL]
Board of Directors
Getty Images, Inc.
101 Bayham Street
London NW1 OAG
England
October [ ], 1997
Members of the Board:
We hereby consent to the inclusion of and reference to our opinion dated
September 15, 1997 in the prospectus included in this Registration Statement on
Form S-4 of Getty Images, Inc., a Delaware corporation ("Getty Images"),
covering common stock, par value $0.01 per share, of Getty Images to be issued
in connection with (i) the scheme of arrangement in accordance with the
Companies Act of 1985 of Great Britain between Getty Communications plc and
Getty Images; and (ii) the merger of Print Merger, Inc., a Washington
corporation and a wholly owned subsidiary of Getty Images, with and into
PhotoDisc, Inc., a Washington corporation. In giving the foregoing consent, we
do not admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended (the
"Securities Act") and rules and regulations promulgated thereunder, nor do we
admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities Act
or the rules and regulations promulgated thereunder.
BT ALEX. BROWN INTERNATIONAL
By:
- ---------------------------------
London
October [ ], 1997
<PAGE>
EXHIBIT 99.3
CONSENT OF BANCAMERICA ROBERTSON STEPHENS
We hereby consent to the inclusion of and reference to our opinion dated
September 15, 1997 in the prospectus included in this Registration Statement on
Form S-4 of Getty Images, Inc., a Delaware corporation ("Getty Images"),
covering common stock, par value $0.01 per share, of Getty Images to be issued
in connection with (i) the scheme of arrangement in accordance with the
Companies Act of 1985 of Great Britain between Getty Communications plc and
Getty Images; and (ii) the merger of Print Merger, Inc., a Washington
corporation and wholly owned subsidiary of Getty Images, with and into
PhotoDisc, Inc., a Washington corporation. In giving the foregoing consent, we
do not admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended (the
"Securities Act") and rules and regulations promulgated thereunder, nor do we
admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities Act
or the rules and regulations promulgated thereunder.
BANCAMERICA ROBERTSON STEPHENS
--------------------------------------
Authorized Signatory
