<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 22, 1997
REGISTRATION STATEMENT NO. 333-38777
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GETTY IMAGES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<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, CALIFORNIA 94104 701 FIFTH AVENUE
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: / /
--------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 DECEMBER 22, 1997
PROSPECTUS
[LOGO]
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
PHOTODISC, INC. WITH AND INTO
PRINT MERGER, INC., A WHOLLY OWNED SUBSIDIARY OF GETTY IMAGES, 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 (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"), each issued Class B ordinary share, 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 will be
converted into one Getty Class A Ordinary Share, each Getty Ordinary Share will
be transferred to Getty Images or its nominees and the holders of Getty 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) PhotoDisc will be
merged with and into Merger Sub (the "Merger", and, together with the Scheme of
Arrangement, the "Transactions"), with Merger Sub 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. Arrangements have been 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 in the Scheme of Arrangement. Holders of Getty
Communications ADSs will be entitled to receive upon completion of the Scheme of
Arrangement one share of Getty Images Common Stock for each Getty Communications
ADS held of record. Upon consummation of the Transactions, the holders of Getty
Ordinary Shares (the "Getty Shareholders") and Getty Communications ADSs 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.
The Scheme of Arrangement requires the sanction of the High Court of Justice
of England and Wales (the "English High Court") and the Scheme of Arrangement
and related matters must be approved by certain shareholders of Getty
Communications at two different meetings of shareholders. The English High Court
has directed Getty Communications to convene a meeting of certain of the holders
of Getty Class A Ordinary Shares (the "Getty Class A Shareholders") to be held
on Monday, January 22, 1998, at 3:00 p.m., London time, at the offices of
Clifford Chance, 200 Aldersgate Street, London EC1A 4JJ England (such meeting
and any adjournments or postponements thereof being referred to as the "Getty
Court Meeting"). At the Getty Court Meeting, such Getty Class A Shareholders of
record as of the date of the Getty Court Meeting will be asked to consider and,
if thought fit, approve the Scheme of Arrangement. In addition to the Getty
Court Meeting, the Board of Directors of Getty Communications (the "Getty
Communications Board") will convene an Extraordinary General Meeting of the
holders of Getty Ordinary Shares to consider, and if thought fit, approve
resolutions relating to the Scheme of Arrangement and the Merger (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"). The Getty EGM will be held at 3:15 p.m., London time, on January 22,
1998 (or as soon thereafter as the Getty Court Meeting shall have concluded or
been adjourned) at the offices of Clifford Chance at 200 Aldersgate Street,
London EC1A 4JJ England. Holders of Getty Communications ADSs will be able to
have their votes represented at the Getty Court Meeting and at the Getty EGM by
proxy through procedures established pursuant to the Deposit Agreement (the
"Getty Deposit Agreement") dated as of July 8, 1996, by and among Getty
Communications, the Depositary and the registered holders of Getty
Communications ADSs ("ADS Holders"). See "The Getty Shareholder Meetings" on
page 74.
(CONTINUED FROM PREVIOUS PAGE)
SEE "RISK FACTORS" ON PAGE 19 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 December , 1997.
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
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 January 22, 1998 at 10 a.m., Seattle time, at
PhotoDisc's offices, 2013 Fourth Avenue, 4th Floor, Seattle, Washington 98121
(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
December 1, 1997 will be asked to consider and vote upon the approval and
adoption of the Merger Agreement (the "Merger Proposal"). See "The Special
Meeting of PhotoDisc Shareholders" on page 76. Eight holders of approximately
82% of the currently outstanding shares of PhotoDisc Common 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.
Pursuant to the Merger Agreement, the number of shares of Getty Images
Common Stock and the amount of cash that holders of shares of PhotoDisc Common
Stock will receive at the effective time of the Merger (the "Effective Time")
will be a function of the average closing price of Getty Communications ADSs on
the Nasdaq National Market during the ten trading days prior to the closing (the
"Closing") of the Merger (the "Average Trading Price of Getty Communications
ADSs at Closing"), the fully diluted number of shares of PhotoDisc Common Stock
outstanding at the Effective Time and the aggregate amount of expenses incurred
by PhotoDisc in connection with the Transactions. See "The Transactions--Merger
Consideration" on page 27. AS A RESULT, WHEN PHOTODISC SHAREHOLDERS VOTE ON THE
MERGER AND WHEN GETTY SHAREHOLDERS VOTE ON THE SCHEME OF ARRANGEMENT, THEY WILL
NOT KNOW THE ACTUAL NUMBER OF SHARES OF GETTY IMAGES COMMON STOCK OR THE ACTUAL
AMOUNT OF CASH THAT HOLDERS OF SHARES OF PHOTODISC COMMON STOCK WILL RECEIVE AT
THE EFFECTIVE TIME OF THE MERGER. It is currently anticipated that the Merger
will be completed on February 3, 1998, but there can be no assurance that the
Merger will be completed or that completion will not be delayed until after that
date.
The following table sets forth the number of shares of Getty Images Common
Stock and the amount of cash that holders of shares of PhotoDisc Common Stock
will receive at the Effective Time of the Merger for a range of Average Trading
Prices of Getty Communications ADSs at Closing, based upon the assumptions
described in "Unaudited Condensed Pro Forma Consolidated Financial Information"
on page 149:
<TABLE>
<CAPTION>
Average Trading Price of Getty Communications ADSs at
Closing............................................... $12.00 $14.34(1) $15.00 $18.00
<S> <C> <C> <C> <C>
Number of shares of Getty Images Common Stock to be
issued at the Effective Time per share of PhotoDisc
Common Stock.......................................... 0.7048 0.7176 0.7205 0.7310
Amount of cash to be paid at the Effective Time per
share of PhotoDisc Common Stock....................... $1.90 $2.32 $2.43 $2.96
Aggregate number of shares of Getty Images Common Stock
to be issued to holders of PhotoDisc Common
Stock(2).............................................. 7,616,332 7,755,352 7,786,723 7,900,315
Aggregate amount of cash to be paid to holders of
PhotoDisc Common Stock(3)............................. $20,564,084 $25,022,632 $26,280,167 $31,996,254
Percentage of outstanding shares of Getty Images Common
Stock to be held by holders of shares of PhotoDisc
Common Stock(2)(4).................................... 28.4% 28.8% 28.9% 29.2%
</TABLE>
- ------------------------------
(1) The average closing price of Getty Communications ADSs during the ten
trading days prior to December 18, 1997, the latest practicable date prior
to the date of this Prospectus.
(2) 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. Assuming that no options to purchase shares of PhotoDisc Common Stock
are exercised prior to completion of the Transactions and that Getty Images
does not determine to reduce the cash component of the merger consideration
for tax reasons, as described below, the maximum number of shares of Getty
Images Common Stock that could be issued to holders of PhotoDisc Common
Stock for any value of Average Trading Price of Getty Communications ADSs at
Closing would be approximately 7.98 million. Assuming that the Average
Trading Price of Getty Communications ADSs at Closing is $14.34 and that no
options to purchase shares of PhotoDisc Common Stock are exercised prior to
completion of the Transactions, if Getty Images determined to reduce the
cash component of the merger consideration to a minimum of $0 in order to
ensure that the Merger could be effected as a tax-free reorganization for
U.S. federal income tax purposes (as described on page 26), the maximum
number of shares of Getty Images Common Stock that would be issued to
holders of PhotoDisc Common Stock would be 9,693,583.
(3) Exclusive of preferential cash payment to holders of Series A Preferred
Stock and cash to be paid to acquire certain outstanding options to purchase
shares of PhotoDisc Common Stock.
(4) Exclusive of shares of Getty Images Common Stock to be reserved for issuance
in respect of outstanding options to purchase Getty Ordinary Shares.
The actual number of shares of Getty Images Common Stock and the actual
amount of cash to be paid to holders of PhotoDisc Common Stock at the Effective
Time of the Merger may differ from the amounts set forth in the above table,
depending upon, among other things, the Average Trading Price of Getty
Communications ADS at Closing, which may differ from the representative examples
used in the above table. There has been significant volatility in the market
prices of Getty Communications ADSs over recent periods, with trading prices
during the period from October 1, 1997 to December 19, 1997 ranging from a low
of $13.00 to a high of $18.25. The prevailing trading prices of Getty
Communications ADSs may rise or fall after the date of this Prospectus, between
the date of the PhotoDisc Special Meeting and the Effective Time of the Merger
and after the Effective Time of the Merger.
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 has been made to quote the Getty Images Common
Stock on the Nasdaq National Market under the symbol "GETY".
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. Where a description
of such a document is included in this Prospectus, such description summarizes
the material terms of such document.
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 in this Prospectus has been
furnished by Getty Communications. Getty Communications does not have
independent knowledge of the matters set forth herein regarding PhotoDisc or its
subsidiaries, and PhotoDisc does not have independent knowledge of the matters
set forth herein regarding Getty Communications or 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 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 herein is
correct as of any time subsequent to the date hereof.
(i)
<PAGE>
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 December 19, 1997, the Noon Buying Rate
was $1.6684 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.
The financial information concerning Getty Communications contained in this
Prospectus does not constitute statutory accounts within the meaning of Section
240 of the Companies Act. Statutory accounts prepared in accordance with U.K.
generally accepted accounting principles ("UK GAAP") of Tony Stone Images in
respect of the financial years ended December 31, 1994 and 1995 and of Getty
Communications in respect of the financial years ended December 31, 1995 and
1996 have been delivered to the Registrar of Companies of England and Wales. In
respect of each of those UK GAAP statutory accounts, the auditors of those
accounts have given reports under Section 235 of the Companies Act, each of
which were unqualified and did not contain a statement under Section 237(2)-(4)
of that Act.
(ii)
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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AVAILABLE INFORMATION...................................................................................... (i)
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............................................................ 8
The Getty Shareholder Meetings......................................................................... 11
The Special Meeting of PhotoDisc Shareholders.......................................................... 12
Market Price and Dividend Data......................................................................... 13
Summary Consolidated Financial and Operating Data of Getty Communications.............................. 14
Summary Consolidated Financial and Operating Data of PhotoDisc......................................... 16
Summary Unaudited Condensed Pro Forma Consolidated Financial Information............................... 17
Comparative Unaudited Per Share Data................................................................... 18
RISK FACTORS............................................................................................... 19
THE TRANSACTIONS........................................................................................... 26
The Merger Agreement................................................................................... 26
Merger Consideration................................................................................... 27
PhotoDisc Options, Warrants and Series A Preferred Stock............................................... 29
Background of the Transactions......................................................................... 30
Getty Communications' Reasons for the Transactions; Recommendation of the Board of Directors of Getty
Communications........................................................................................ 35
Opinion of BT Alex. Brown International, Financial Advisor to Getty Communications..................... 37
PhotoDisc's Reasons for the Merger; Recommendation of the Board of Directors of PhotoDisc.............. 42
Opinion of BancAmerica Robertson Stephens, Financial Advisor to PhotoDisc.............................. 45
Financing for the Merger............................................................................... 48
Conflicts of Interest of Certain Persons............................................................... 48
Regulatory Approvals................................................................................... 51
Accounting Treatment................................................................................... 51
Transaction Costs...................................................................................... 51
Certain Income Tax Considerations...................................................................... 52
No Dissenters' Rights for Getty Shareholders........................................................... 57
Rights of Dissenting PhotoDisc Shareholders............................................................ 57
Forward-Looking Statements............................................................................. 58
THE SCHEME OF ARRANGEMENT.................................................................................. 60
Getty Communications Share Option Plan................................................................. 61
THE MERGER AGREEMENT....................................................................................... 62
The Effective Time..................................................................................... 62
Conversion of PhotoDisc Shares; Procedures for Exchange; Fractional Shares............................. 62
Representations and Warranties......................................................................... 63
Conditions to the Transactions......................................................................... 64
Conduct of Business Prior to the Closing............................................................... 66
Indemnification........................................................................................ 67
</TABLE>
(iii)
<PAGE>
<TABLE>
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PAGE
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<S> <C>
Termination............................................................................................ 68
Amendment and Waiver................................................................................... 69
Governing Law.......................................................................................... 69
RELATED AGREEMENTS......................................................................................... 70
The Stockholders' Transaction Agreement................................................................ 70
The Escrow Agreement................................................................................... 72
The Stockholders' Agreement............................................................................ 73
The Registration Rights Agreements..................................................................... 74
The Employment Agreements.............................................................................. 75
THE GETTY SHAREHOLDER MEETINGS............................................................................. 77
The Getty Court Meeting................................................................................ 77
The Getty EGM.......................................................................................... 77
Voting by Holders of Getty Communications ADSs......................................................... 78
Solicitation of Proxies................................................................................ 78
THE SPECIAL MEETING OF PHOTODISC SHAREHOLDERS.............................................................. 79
Record Date............................................................................................ 79
Voting at the PhotoDisc Special Meeting................................................................ 79
THE VISUAL CONTENT INDUSTRY................................................................................ 81
GETTY IMAGES............................................................................................... 84
Overview............................................................................................... 84
Strategy............................................................................................... 85
Competition............................................................................................ 86
Board of Directors of Getty Images Following the Merger................................................ 87
Management of Getty Images Following the Merger........................................................ 88
Expected Stock Ownership of Directors, Executive Officers
and Five Percent Stockholders of Getty Images Following the Merger................................... 88
Getty Images Stock Incentive Plan...................................................................... 90
Dividend Policy of Getty Images Following the Merger................................................... 91
Certain Related Party Transactions..................................................................... 91
GETTY COMMUNICATIONS....................................................................................... 94
Overview............................................................................................... 94
Visual Content Collections............................................................................. 94
Marketing.............................................................................................. 96
Sales and Distribution................................................................................. 97
Intellectual Property.................................................................................. 98
Employees.............................................................................................. 98
Property............................................................................................... 98
Legal Proceedings...................................................................................... 98
Recent Developments.................................................................................... 99
Selected Consolidated Financial Data of Getty Communications........................................... 99
Getty Communications' Management's Discussion and Analysis of Financial Condition
and Results of Operations of Getty Communications.................................................... 102
Management of Getty Communications..................................................................... 111
Ownership of Getty Ordinary Shares..................................................................... 114
PHOTODISC.................................................................................................. 115
Overview............................................................................................... 115
PhotoDisc Image Collection............................................................................. 115
Marketing.............................................................................................. 116
Sales and Distribution................................................................................. 117
Intellectual Property.................................................................................. 118
</TABLE>
(iv)
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Technology............................................................................................. 118
Employees.............................................................................................. 119
Property............................................................................................... 119
Legal Proceedings...................................................................................... 119
Selected Consolidated Financial Data of PhotoDisc...................................................... 119
PhotoDisc's Management's Discussion and Analysis of Financial Condition
and Results of Operations of PhotoDisc............................................................... 121
Management of PhotoDisc................................................................................ 126
Ownership of PhotoDisc Capital Stock................................................................... 128
Certain Related Party Transactions..................................................................... 129
DESCRIPTION OF GETTY IMAGES CAPITAL STOCK.................................................................. 131
Getty Images Common Stock.............................................................................. 131
Getty Images Preferred Stock........................................................................... 131
Delaware Anti-Takeover Statute......................................................................... 131
Limitations on Directors' Liabilities and Indemnification.............................................. 132
Status of Getty Images Shares under the Federal Securities Laws; Affiliates............................ 132
Transfer Agent and Registrar........................................................................... 133
COMPARISON OF RIGHTS OF SHAREHOLDERS OF GETTY COMMUNICATIONS AND STOCKHOLDERS OF GETTY IMAGES.............. 134
COMPARISON OF RIGHTS OF SHAREHOLDERS OF PHOTODISC AND STOCKHOLDERS OF GETTY IMAGES......................... 145
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION........................................... 150
EXCHANGE RATES............................................................................................. 162
VALIDITY OF SECURITIES..................................................................................... 162
EXPERTS.................................................................................................... 162
LIST OF DEFINED TERMS...................................................................................... 163
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................................................. F-1
Annex A-- Merger Agreement, dated as of September 15, 1997, among Getty Images, Getty Communications,
PhotoDisc and Merger Sub
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>
(v)
<PAGE>
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. SEE "THE
TRANSACTIONS--FORWARD-LOOKING STATEMENTS" ON PAGE 58.
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 PhotoDisc with Merger Sub, 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" on page 26, "The Scheme of Arrangement" on page 59
and "The Merger Agreement" on page 61. 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" or the "Internet"),
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" on page 80.
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 other 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
(44 171) 544-3456. See "Getty Communications" on page 93.
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" on page 114.
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" on page 83.
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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 Getty Class B Ordinary Share will be
converted into one Getty Class A Ordinary Share, each Getty Ordinary Share will
be transferred to Getty Images or its nominees and the holders of Getty 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. Appropriate arrangements have
been made with the Depositary for Getty Communications ADSs to permit holders of
Getty Communications ADSs to vote on the Scheme of Arrangement. Holders of Getty
Communications ADSs will be entitled to receive upon completion of the Scheme of
Arrangement one share of Getty Images Common Stock for each Getty Communications
ADS held of record. See "The Scheme of Arrangement" on page 59.
THE MERGER
Subject to the satisfaction or waiver (where permissible) of certain
conditions, at the Effective Time, PhotoDisc will be merged with and into Merger
Sub, the separate corporate existence of PhotoDisc will cease, and Merger Sub,
as the surviving corporation of the Merger, will become a wholly owned
subsidiary of Getty Images. 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" on page 26.
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
amount of cash and the number of shares of Getty Images Common Stock specified
in the Merger Agreement (the "Merger Consideration").
As described in detail in "The Transactions--Merger Consideration" on page
27, the Merger Consideration per share of PhotoDisc Common Stock will be a
function of 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. A table on page 28 sets forth the number of shares of
Getty Images Common Stock and the amount of cash that holders of shares of
PhotoDisc Common Stock will receive at the Effective Time of the Merger for a
range of Average Trading Prices of Getty Communications ADSs at Closing, based
upon the assumptions described in "Unaudited Condensed Pro Forma Consolidated
Financial Information" on page 149. Assuming that the Average Trading Price of
Getty Communications ADSs at Closing is $14.34 (which was the average closing
price during the ten trading days prior to December 18, 1997), and certain other
assumptions described in "Unaudited Condensed Pro Forma Consolidated Financial
Information" on page 149, the Merger Consideration per share of PhotoDisc Common
Stock will consist of 0.7176 shares of Getty Images Common Stock and $2.32 in
cash (for an aggregate of approximately 7.8 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 $25.0 million in cash (exclusive of the
preferential cash payment to holders of Series A Preferred Stock and cash to be
paid to acquire certain outstanding options to purchase shares of PhotoDisc
Common Stock)). Assuming that no options to purchase shares of PhotoDisc Common
Stock are exercised prior to completion of the Transactions and that Getty
Images does not
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determine to reduce the cash component of the merger consideration for tax
reasons, as described below, the maximum number of shares of Getty Images Common
Stock that could be issued to holders of PhotoDisc Common Stock for any value of
Average Trading Price of Getty Communications ADSs at Closing would be
approximately 7.98 million. Assuming that the Average Trading Price of Getty
Communications ADSs at Closing is $14.34 and that no options to purchase shares
of PhotoDisc Common Stock are exercised prior to completion of the Transactions,
if Getty Images determined to reduce the cash component of the merger
consideration to a minimum of $0 in order to ensure that the Merger could be
effected as a tax-free reorganization for U.S. federal income tax purposes (as
described on page 26), the maximum number of shares of Getty Images Common Stock
that would be issued to holders of PhotoDisc Common Stock would be 9,693,583.
See "The Transactions--Merger Consideration" on page 27.
GETTY COMMUNICATIONS OPTIONS
Getty Communications has one share option scheme, the Getty Communications
Executive Share Option Plan (the "Getty Communications Share Option Plan"). As
of September 30, 1997, options ("Getty Communications Options") were outstanding
over 4,661,908 Getty Class A Ordinary Shares at prices between $5.00 and $10.97
per share (equivalent to prices between $10.00 and $21.94 per Getty
Communications ADS). Optionholders will have the right to exercise all of their
options for a period of one month (or such longer period as the Getty
Communications Board may permit) 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). Alternatively, optionholders may
convert each option to purchase two Getty Class A Ordinary Shares into an option
to purchase one share of Getty Images Common Stock at an adjusted exercise price
with adjusted vesting. Getty Communications also has the right to pay to
optionholders (and may allow optionholders to elect to receive), the net benefit
attaching to their options (i.e., the excess of the market value of the options
being exercised over the exercise price, after making any deduction for tax or
similar liabilities) in fully paid Getty Ordinary Shares. See "The Scheme of
Arrangement-- Getty Communications Share Option Plan" on page 60.
PHOTODISC OPTIONS
As of December 16, 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 2,633,800 shares of
PhotoDisc Common Stock, of which options to purchase 1,549,226 shares were
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. Assuming that the Average Trading Price of Getty Communications ADSs at
Closing is $14.34 (which was the average closing price during the ten trading
days prior to December 18, 1997), and certain other assumptions described in
"Unaudited Condensed Pro Forma Consolidated Financial Information", holders of
PhotoDisc Options will receive options to purchase approximately 1.9 million
shares of Getty Images Common Stock (after the repurchase of certain options by
PhotoDisc as described below).
Prior to and conditional upon the Effective Time, PhotoDisc will extend an
offer to certain current holders of PhotoDisc Options to purchase from such
holders options representing 20% of the shares subject to such options (for an
aggregate consideration of approximately $4.9 million). See "The
Transactions--PhotoDisc Options, Warrants and Series A Preferred Stock" on page
28.
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GETTY IMAGES OPTIONS
In connection with the Transactions, Getty Images will issue to certain
employees at Closing options to purchase up to 3,600,000 shares of Getty Images
Common Stock at an exercise price equal to the closing price of Getty
Communications ADSs on the Nasdaq National Market on the date of closing. See
"Getty Images-- Getty Images Stock Incentive Plan" on page 89.
EFFECT ON GETTY COMMUNICATIONS ADSS; QUOTATION OF GETTY IMAGES SHARES
Getty Communications ADSs will continue to be quoted on the Nasdaq National
Market until the Closing Date. Upon the consummation of the Transactions, the
Getty Communications ADSs will cease to be quoted on the Nasdaq National Market
and the registration of the Getty Communications ADSs under the Exchange Act
will be terminated. Upon the consummation of the Transactions, each American
Depositary Receipt evidencing the Getty Communications ADSs will represent only
the right to receive the appropriate number of shares of Getty Images Common
Stock in exchange therefor. All of the Getty Communications ADSs will be
cancelled upon their surrender to the Depositary and the issuance of Getty
Images Common Stock in exchange therefor. See "The Scheme of Arrangement" on
page 59.
Application has been made to quote shares of Getty Images Common Stock on
the Nasdaq National Market under the symbol "GETY".
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.
Certain members of the Getty Communications Board may have certain conflicts of
interest related to the Transactions. See "The Transactions--Conflicts of
Interest of Certain Persons" on page 48.
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 complementary
nature of Getty Communications' and PhotoDisc's businesses, management,
strategic objectives and prospects, the strong financial condition and results
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 and the terms and conditions of the Merger Agreement. The Getty
Communications Board also considered a number of potentially negative factors,
including the timing, risks and costs associated with the integration of
PhotoDisc with Getty Communications, the risk associated with the fact that
there would be a new significant minority shareholder of Getty Images, the
uncertainty of the value of the Merger Consideration until the Effective Time of
the Merger, the generation of a significant amount of goodwill upon consummation
of the Merger, and the financing of the cash portion of the Merger
Consideration. See "The Transactions--Getty Communications' Reasons for the
Transactions; Recommendation of the Board of Directors of Getty Communications"
on page 35.
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
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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" on page 37.
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. Certain members of the PhotoDisc Board may have certain
conflicts of interests related to the Transactions. See "The
Transactions--Conflicts of Interest of Certain Persons" on page 48.
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, 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 a number of potentially negative factors, including possible
disruption of PhotoDisc's business pending completion of the Transactions, 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 certain other risks. See "The
Transactions--PhotoDisc's Reasons for the Merger; Recommendation of the Board of
Directors of PhotoDisc" on page 42 and "Risk Factors" on page 19.
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 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
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BancAmerica Robertson Stephens, Financial Advisor to PhotoDisc" on page 44.
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. On October 24, 1997, the FTC granted early termination of the
applicable waiting period under the HSR Act. See "The Transactions--Regulatory
Approvals" on page 50.
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 transferred to Getty Images or its nominees. The
shares of Getty Images Common Stock issued to replace the transferred stock will
be recorded at par value. See "The Transactions--Accounting Treatment" on page
50.
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" on page 50.
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, the exchange of Getty Ordinary Shares by
Getty Shareholders who are U.K. tax residents in return for shares of 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 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" on page 51.
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 and the subsequent
court hearing. See "The Transactions--No Dissenters' Rights for Getty
Shareholders" on page 56.
PhotoDisc Shareholders will be entitled to dissenters' rights under
Washington law in connection with the Merger. See "The Transactions--Rights of
Dissenting PhotoDisc Shareholders" on page 56.
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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"
on page 61.
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 sanctioned 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" on page 63.
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;
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- 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;
- 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" on page 67.
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"
on page 69.
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 (representing an aggregate of approximately 1.3 million
shares, assuming that the Average Trading Price of Getty Communications ADSs at
Closing is $14.34, which was the average closing price during the ten trading
days prior to December 18, 1997) to secure the indemnification obligations of
the Principal Shareholders contained in the Stockholders' Transaction Agreement
and the Merger Agreement. The Escrow Shares will be included in the purchase
price for accounting purposes. See "Related Agreements--The Escrow Agreement" on
page 71.
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" on page 72.
9
<PAGE>
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" on page 73.
THE EMPLOYMENT AGREEMENTS
One of the conditions to the consummation of the Transactions is that
employment agreements (the "Employment Agreements") be entered into with each of
Mr. Mark Getty, Mr. Mark Torrance, Mr. Jonathan Klein and Crediton Limited (a
company of which the sole beneficiary is 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" on page 74.
10
<PAGE>
THE GETTY SHAREHOLDER MEETINGS
DATE, TIME AND PLACE
The Getty Court Meeting will be held at the offices of Clifford Chance at
200 Aldersgate Street, London EC1A 4JJ England, on Monday, January 22, 1998, at
3:00 p.m., London time, to consider and, if thought fit, approve the Scheme of
Arrangement.
The Getty EGM will be held at 3:15 p.m. on Monday, January 22, 1998 (or as
soon thereafter as the Getty Court Meeting shall have concluded or been
adjourned) at the offices of Clifford Chance at 200 Aldersgate Street, London
EC1A 4JJ England, to consider and, if thought fit, approve resolutions
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 (except as described under "--Required Vote").
VOTING BY HOLDERS OF GETTY COMMUNICATIONS ADSS
Holders of Getty Communications ADSs will be able to have their votes
represented at the Getty Court Meeting and at the Getty EGM by proxy through
procedures established pursuant to the Getty Deposit Agreement. Pursuant to the
Getty Deposit Agreement, the Depositary has fixed the close of business on
December 24, 1997 as the record date (the "ADS Record Date") for the
determination of the ADS Holders entitled to notice of, and to vote at, the
Getty Shareholder Meetings. Each Getty Communications ADS will entitle the
holder thereof to two votes on each matter that may properly come before the
Getty Court Meeting and the Getty EGM. The Depositary will mail to all ADS
Holders of record as of the ADS Record Date a notice containing (i) the Getty
Shareholder Circular and this Prospectus, (ii) a statement that the ADS Holders
as of the close of business on the ADS Record Date will be entitled to instruct
the Depositary as to the exercise of the voting rights pertaining to the number
of Getty Class A Ordinary Shares represented by their respective Getty
Communications ADSs and (iii) a statement that such instructions may be given by
returning a properly executed proxy card to the Depositary. Shares of Getty
Class A Ordinary Shares represented by properly executed proxies received by the
Depositary on or before January 17, 1998, unless such proxies have been revoked,
will be voted by the Depositary in accordance with the instructions set forth on
such proxies. See "The Getty Shareholder Meetings--Voting by Holders of Getty
Communications ADSs" on page 77.
REQUIRED VOTE
At the Getty Court Meeting, the Scheme of Arrangement must be approved by a
majority in number of the holders of the Getty Class A Ordinary Shares other
than those held by Getty Investments L.L.C. ("Getty Investments") and Carlton
Communications B.V. ("Carlton") (such shares being the "Public Scheme Shares")
present (in person or by proxy) at the Getty Court Meeting, with such majority
in number representing three-fourths or more in value of the votes attached to
the Public Scheme Shares voted at the Getty Court Meeting.
At the Getty EGM, the Scheme of Arrangement must be approved by 75% or more
of the Public Scheme Shares voted at the Getty EGM.
As a result of its interest in Getty Class B Ordinary Shares, Getty
Investments will not be entitled to vote at the Getty Court Meeting and will
undertake to the English High Court to be bound by the terms of the Scheme of
Arrangement in respect of its entire holding of Getty Ordinary Shares. As a
result of certain rights attached to Carlton's share holdings in Getty
Communications, Carlton is being treated by the English High Court as a separate
class of shareholder. Accordingly, Carlton will not be entitled to vote at the
Getty Court Meeting and will undertake to the English High Court to be bound by
the terms of the Scheme of Arrangement. Crediton Limited and October 1993 Trust,
each of which holds only Getty Class B Ordinary Shares, will also undertake to
the English High Court to be bound by the terms of the Scheme of Arrangement.
11
<PAGE>
THE SPECIAL MEETING OF PHOTODISC SHAREHOLDERS
DATE, TIME AND PLACE
The PhotoDisc Special Meeting will be held at PhotoDisc's offices, 2013
Fourth Avenue, 4th Floor, Seattle, Washington 98121, on January 22, 1998, at
10:00 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 December 1, 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 8,436,580
shares of PhotoDisc Common Stock outstanding held by 10 holders of record and
1,701,879 shares of Series A Preferred Stock outstanding held by 13 holders of
record. See "The Special Meeting of PhotoDisc Shareholders" on page 78.
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 persons 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" on
page 78. AS A RESULT, ADOPTION OF THE MERGER PROPOSAL BY THE PHOTODISC
SHAREHOLDERS IS ASSURED.
12
<PAGE>
MARKET PRICE AND DIVIDEND DATA
GETTY COMMUNICATIONS ADSS
Getty Communications ADSs have been quoted on the Nasdaq National Market
under the symbol "GETY" 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 December 19, 1997)..................................................... 18.25 13.00
</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 December 19, 1997, the latest
practicable trading day prior to the date of this Prospectus, the last reported
sale price per Getty Communications ADS was $15.3125.
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 23 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" on page
90.
13
<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" on page 98, "Getty Communications--Getty
Communications' Management's Discussion and Analysis of Financial Condition and
Results of Operations of Getty Communications" on page 97 and the consolidated
financial statements of Getty Communications and the notes thereto included
elsewhere in this Prospectus. See "Index to Consolidated Financial Statements"
on page F-1.
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" on page 101.
<TABLE>
<CAPTION>
TONY STONE IMAGES
(PREDECESSOR COMPANY)(1) GETTY COMMUNICATIONS NINE
-------------------------------------------- ----------------------------------------------
MONTHS
YEAR ENDED DECEMBER ENDED
YEAR ENDED DECEMBER 31, JANUARY 1 MARCH 14 31, SEPTEMBER
------------------------------- THROUGH THROUGH ---------------------- 30,
1993 1994 MARCH 13, DEC. 31, 1995(2) 1996 ---------
1992 --------- --------- ----------- ----------- ----------- ---------
--------- 1995 1995
$ $ ----------- ----------- $ $ 1996
$ $ $ ---------
$
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE, PER ADS AND RATIO OF EARNINGS TO FIXED CHARGES DATA)
STATEMENT OF OPERATIONS DATA:
Sales.......................... 23,729 27,559 42,052 9,498 53,523 63,021 85,014 62,289
Gross profit................... 15,084 17,355 25,762 5,880 32,427 38,307 52,858 38,486
Operating income/(loss)........ 2,049 2,180 3,221 (16) 4,683 4,667 7,967 5,402
Net interest
(expense)/income............. (195) (160) (218) (62) (1,406) (1,468) (1,951) (1,871)
Net income/(loss).............. 1,516 1,169 1,694 (103) 1,374 1,271 2,728 1,321
----------- ----------- --------- ---------
----------- ----------- --------- ---------
Net income per share(3)........ 0.06 0.05 0.10 0.05
----------- ----------- --------- ---------
----------- ----------- --------- ---------
Shares used in computing per
share amounts(3)............. 23,390 23,390 27,832 25,812
----------- ----------- --------- ---------
----------- ----------- --------- ---------
Net income per ADS(4).......... 0.12 0.11 0.20 0.10
----------- ----------- --------- ---------
----------- ----------- --------- ---------
OPERATING DATA:
EBITDA(5)...................... 3,638 4,058 6,622 962 9,690 10,652 15,608 10,903
--------- --------- --------- ----------- ----------- ----------- --------- ---------
--------- --------- --------- ----------- ----------- ----------- --------- ---------
Ratio of earnings to fixed
charges(6)................... 9.61 6.42 8.53 1.15 3.93 3.38 3.79 2.63
--------- --------- --------- ----------- ----------- ----------- --------- ---------
--------- --------- --------- ----------- ----------- ----------- --------- ---------
Net cash provided by/(used in):
Operating activities......... 3,386 2,264 5,202 509 6,448 6,957 13,502 10,330
Investing activities......... (2,217) (2,183) (5,296) (1,106 ) (23,476 ) (24,582 ) (25,953) (21,982)
Financing activities......... (690) 229 (314) (38 ) 18,958 18,920 64,290 22,584
--------- --------- --------- ----------- ----------- ----------- --------- ---------
Net increase/(decrease) in cash
and cash equivalents......... 479 310 (408) (635 ) 1,930 1,295 51,839 10,932
--------- --------- --------- ----------- ----------- ----------- --------- ---------
--------- --------- --------- ----------- ----------- ----------- --------- ---------
<CAPTION>
1997
---------
$
<S> <C>
STATEMENT OF OPERATIONS DATA:
Sales.......................... 75,260
Gross profit................... 46,988
Operating income/(loss)........ 6,049
Net interest
(expense)/income............. 1,078
Net income/(loss).............. 3,723
---------
---------
Net income per share(3)........ 0.10
---------
---------
Shares used in computing per
share amounts(3)............. 38,603
---------
---------
Net income per ADS(4).......... 0.19
---------
---------
OPERATING DATA:
EBITDA(5)...................... 14,007
---------
---------
Ratio of earnings to fixed
charges(6)................... 4.37
---------
---------
Net cash provided by/(used in):
Operating activities......... 12,823
Investing activities......... (32,366)
Financing activities......... (3,303)
---------
Net increase/(decrease) in cash
and cash equivalents......... (22,846)
---------
---------
</TABLE>
<TABLE>
<CAPTION>
GETTY COMMUNICATIONS
--------------------------------------------
AT DECEMBER 31, 1996 AT SEPTEMBER 30, 1997
--------------------- ---------------------
<S> <C> <C>
$ $
BALANCE SHEET DATA: (IN THOUSANDS)
Cash and cash equivalents............................................. 58,939 33,006
Total assets.......................................................... 163,504 170,444
Long-term debt........................................................ 17,910 13,954
Total shareholders' equity............................................ 113,523 117,317
</TABLE>
14
<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.
Due to the nature of this combination, the presentation of combined results
for the two periods in 1995 does not conform with U.S. GAAP. 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. As defined by Getty Communications, EBITDA may not be comparable
to other similarly titled measures used by other companies.
(6) Ratio of earnings to fixed charges means the ratio of net income (before
fixed charges and income taxes) to fixed charges, where fixed charges are
the aggregate of interest, amortization of the costs relating to debt and an
allocation of rental charges to approximate equivalent interest.
15
<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" on page 118, "PhotoDisc-- PhotoDisc's Management's Discussion and
Analysis of Financial Condition and Results of Operations of PhotoDisc" on page
120 and the consolidated financial statements of PhotoDisc and the notes thereto
included elsewhere in this Prospectus. See "Index to Consolidated Financial
Statements" on page F-1.
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
----------------------------------------------------- ---------
1992 1993 1994 1995 1996 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ $ $ $ $ $
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO OF EARNINGS TO FIXED
CHARGES DATA)
STATEMENT OF INCOME DATA:
Sales.......................................................... 387 1,480 4,709 12,512 28,231 19,831
Gross profit................................................... 281 1,051 3,319 9,470 22,129 15,710
Operating (loss)/income........................................ (218) (58) 506 2,332 4,216 3,183
Interest (expense)/income...................................... (10) (21) (11) (28) 94 34
Net (loss)/income.............................................. (167) (32) 585 1,475 2,712 2,023
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Net income/(loss) per share.................................... (0.02) 0.00 0.07 0.13 0.23 0.18
Shares used in computation of net income/(loss) per share...... 6,964 9,050 8,967 10,952 11,756 11,517
OPERATING DATA:
EBITDA (1)..................................................... (161) 35 673 2,668 5,386 4,003
Ratio of earnings to fixed charges(2).......................... -- -- 15.27 30.01 25.50 26.53
Deficiency of earnings to fixed charges(3)..................... 167 32 -- -- -- --
Net cash provided by/(used in):
Operating activities......................................... 215 (62) 298 939 4,743 4,004
Investing activities......................................... (340) (104) (283) (1,000) (3,865) (2,491)
Financing activities......................................... 186 105 85 200 5,198 5,198
--------- --------- --------- --------- --------- ---------
Net increase/(decrease) in cash and cash equivalents........... 61 (61) 100 139 6,076 6,711
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
<CAPTION>
1997
---------
<S> <C>
$
STATEMENT OF INCOME DATA:
Sales.......................................................... 30,318
Gross profit................................................... 24,572
Operating (loss)/income........................................ 2,774
Interest (expense)/income...................................... 161
Net (loss)/income.............................................. 1,812
---------
---------
Net income/(loss) per share.................................... 0.14
Shares used in computation of net income/(loss) per share...... 13,134
OPERATING DATA:
EBITDA (1)..................................................... 4,516
Ratio of earnings to fixed charges(2).......................... 12.16
Deficiency of earnings to fixed charges(3)..................... --
Net cash provided by/(used in):
Operating activities......................................... 3,785
Investing activities......................................... (4,313)
Financing activities......................................... (2,000)
---------
Net increase/(decrease) in cash and cash equivalents........... (2,528)
---------
---------
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996 AT SEPTEMBER 30, 1997
--------------------- -----------------------
<S> <C> <C>
$ $
BALANCE SHEET DATA:
Cash and cash equivalents............................................. 6,315 3,787
Total assets.......................................................... 14,705 16,852
Long-term debt, net of current maturities............................. -- --
Total shareholders' equity............................................ 10,437 10,269
</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. As defined by PhotoDisc, EBITDA may not be
comparable to other similarly titled measures used by other companies.
(2) Ratio of earnings to fixed charges means the ratio of net income (before
fixed charges and income tax) to fixed charges, where fixed charges are the
aggregate of interest, amortization of the costs relating to debt and an
allocation of rental charges to approximate equivalent interest.
(3) Deficiency of earnings to fixed charges means the deficiency between income
(before fixed charges and income tax) to fixed charges.
16
<PAGE>
SUMMARY UNAUDITED CONDENSED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following summary unaudited condensed pro forma consolidated financial
information has 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" on page
149.
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 September 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 Statements".
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 $14.34 (which was the average closing
price of Getty Communications ADSs on the Nasdaq National Market during the ten
trading days prior to December 18, 1997); (ii) the closing trading price of
Getty Communications ADSs on the Nasdaq National Market on the date immediately
preceding the Closing will be $15.75 (which was the closing trading price on
December 17, 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 $2,600,000; (iv) the aggregate
transaction expenses incurred by Getty Images will be $7,000,000; (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 NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
------------------- -------------------
<S> <C> <C>
$ $
(IN THOUSANDS, EXCEPT LOSS PER SHARE)
PRO FORMA CONSOLIDATED INCOME STATEMENT DATA:
Sales...................................................................... 113,245 105,578
Gross profit............................................................... 75,711 72,481
Operating income (1)....................................................... 3,098 2,009
Net loss (1)............................................................... (5,831 ) (2,818 )
EBITDA (2)................................................................. 20,821 18,333
Loss per share (1)--primary................................................ (0.22 ) (0.10 )
--fully diluted............................................ (0.21 ) (0.10 )
<CAPTION>
AT SEPTEMBER 30,
1997
-------------------
$
<S> <C> <C>
PRO FORMA CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................................................. 34,241
Total assets............................................................... 366,448
Long-term debt, net of current maturities.................................. 54,028
Total shareholders' equity................................................. 266,664
</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 been incurred if the Transactions had been completed on
January 1, 1996 are approximately $6.8 million for the nine-month period
ended September 30, 1997 and approximately $9.1 million for the year ended
December 31, 1996. See Note 2(a) to "Unaudited Condensed Pro Forma
Consolidated Financial Information" on page 157.
(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. As defined by Getty Images, EBITDA may not be comparable to other
similarly titled measures used by other companies.
17
<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"
on page 149, 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>
NINE MONTHS ENDED AND AT SEPTEMBER 30, 1997
----------------------------------------------------------------
GETTY PHOTODISC PRO
COMMUNICATIONS PHOTODISC GETTY IMAGES FORMA
HISTORICAL (1) HISTORICAL PRO FORMA(2) EQUIVALENT(3)
----------------- ----------- --------------- ---------------
<S> <C> <C> <C> <C>
$ $ $ $
Net income/(loss) per share--fully diluted.............. 0.10 0.14 (0.10) (0.07)
Dividends per share..................................... -- -- -- --
Book value per share.................................... 3.06 0.76(4) 9.91 7.11
<CAPTION>
YEAR ENDED AND AT DECEMBER 31, 1996
----------------------------------------------------------------
GETTY PHOTODISC PRO
COMMUNICATIONS PHOTODISC GETTY IMAGES FORMA
HISTORICAL (1) HISTORICAL PRO FORMA(2) EQUIVALENT(2)
----------------- ----------- --------------- ---------------
$ $ $ $
<S> <C> <C> <C> <C>
Net income/(loss) per share--fully diluted.............. 0.10 0.23 (0.20) (0.14)
Dividends per share..................................... -- -- -- --
Book value per share.................................... 3.04 0.79(4) 9.94 7.13
</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" on page 101.
(2) See "Unaudited Condensed Pro Forma Consolidated Financial Information" on
page 149. An increase in the Average Trading Price of Getty Communications
ADSs at Closing from $14.34 by one U.S. dollar and an increase in the
closing price of Getty Communications ADSs on the Nasdaq National Market on
the date immediately preceding the Closing from $15.75 by one U.S. dollar
would leave the fully diluted pro forma loss per share for the nine-month
period ended September 30, 1997 unchanged and increase the fully diluted pro
forma loss per share from $0.19 to $0.21 for the year ended December 31,
1996. There would be a corresponding increase in book value per share at
September 30, 1997 from $9.91 to $10.21. A decrease in the Average Trading
Price of Getty Communications ADSs at Closing from $14.34 by one U.S. dollar
and a decrease in the closing price of Getty Communications ADSs on the
Nasdaq National Market on the date immediately preceding the Closing from
$15.75 by one U.S. dollar would decrease the fully diluted pro forma loss
per share from $0.10 to $0.09 for the nine-month period ended September 30,
1997 and from $0.20 to $0.19 for the year ended December 31, 1996. There
would be a corresponding decrease in book value per share at September 30,
1997 from $9.91 to $9.61.
(3) PhotoDisc pro forma equivalent amounts have been calculated by multiplying
the Getty Images pro forma amounts by 0.7176, the stock consideration per
share of PhotoDisc Common Stock on the basis of the assumptions used to
calculate the Getty Images pro forma amounts.
(4) PhotoDisc historical book value per share amounts have been calculated by
dividing total shareholders' equity (which was $10,269,000 at September 30,
1997 and $10,437,000 at December 31, 1996) by the number of fully diluted
shares outstanding (which was 13,427,231 at September 30, 1997 and
13,156,815 at December 31, 1996) at that date.
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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.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE A NUMBER
OF RISKS AND UNCERTAINTIES, INCLUDING, BUT NOT LIMITED TO, THOSE RISK FACTORS
SET FORTH BELOW.
UNCERTAINTY OF VALUE OF MERGER CONSIDERATION
As described in the "The Transactions--Merger Consideration", the number of
shares of Getty Images Common Stock and the amount of cash that holders of
shares of PhotoDisc Common Stock will receive at the Effective Time will be a
function of the Average Trading Price of Getty Communications ADSs at Closing,
the fully diluted number of shares of PhotoDisc Common Stock outstanding at the
Effective Time and the aggregate amount of expenses incurred by PhotoDisc in
connection with the Transactions. As a result, when PhotoDisc Shareholders vote
on the Merger and when Getty Shareholders vote on the Scheme of Arrangement,
they will not know the actual number of shares of Getty Images Common Stock or
the actual amount of cash that holders of shares of PhotoDisc Common Stock will
receive at the Effective Time of the Merger. It is currently anticipated that
the Merger will be completed on January 27, 1998, but there can be no assurance
that the Merger will be completed or that completion will not be delayed until
after that date.
Under "The Transactions--Merger Consideration", a table sets forth the
number of shares of Getty Images Common Stock and the amount of cash that
holders of shares of PhotoDisc Common Stock will receive at the Effective Time
of the Merger for a range of Average Trading Prices of Getty Communications ADSs
at Closing, based upon the assumptions described in "Unaudited Condensed Pro
Forma Consolidated Financial Information". The actual number of shares of Getty
Images Common Stock and the actual amount of cash to be paid to holders of
PhotoDisc Common Stock at the Effective Time of the Merger may differ from the
amounts set forth in such table, depending upon the Average Trading Price of
Getty Communications ADS at Closing, which may differ from the representative
examples used in such table. There has been significant volatility in the market
prices of Getty Communications ADSs over recent periods, with trading prices
during the period from October 1, 1997 to December 19, 1997 ranging from a low
of $13.00 to a high of $18.25. The prevailing trading prices of Getty
Communications ADSs may rise or fall after the date of this Prospectus, between
the date of the PhotoDisc Special Meeting and the Effective Time of the Merger
and after the Effective Time of the Merger. See "--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".
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".
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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, Visual Communications and Corbis, 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 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--
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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 has 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.
RISKS RELATED TO GETTY IMAGES' ACQUISITION 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 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.
RISKS RELATED TO GOODWILL RECOGNITION
The acquisition of PhotoDisc by Getty Images will generate a significant
amount of goodwill that will be amortized against the earnings of Getty Images
in future periods. On a pro forma basis, assuming that the Average Trading Price
of Getty Communications ADSs at Closing is $14.34 (which was the average closing
price during the ten trading days prior to December 18, 1997) and based on the
assumptions described in "Unaudited Condensed Pro Forma Consolidated Financial
Information", the acquisition of PhotoDisc would generate goodwill of
approximately $182 million. See Note 3(a) to "Unaudited Condensed Pro Forma
Consolidated Financial Information". On a pro forma basis, on the same
assumptions the resulting amortization charges that would have been incurred if
the Transactions had been completed on January 1, 1996 are approximately $6.8
million for the nine-month period ended September 30, 1997 and approximately
$9.1 million for the year ended December 31, 1996. See Note 2(a) to 'Unaudited
Condensed Pro Forma Consolidated Financial Information". Such charges would have
contributed to a pro forma net loss of approximately $2.6 million for the
nine-month period ended September 30, 1997 and a pro forma net loss of
approximately $5.5 million for the year ended December 31, 1996. In addition,
Getty Images could be required to write-down the value of such goodwill in the
future at an accelerated rate in the event that it suffers a permanent
dimunition in value.
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
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require shareholder approval. Upon completion of the Transactions (and assuming
that the Average Trading Price of Getty Communications ADSs at Closing is $14.34
and the other assumptions described in "Unaudited Condensed Pro Forma
Consolidated Financial Information"), Getty Investments, Mr. Mark Getty, Mr.
Jonathan Klein, Crediton Limited (a company of which the sole beneficiary is Mr.
Klein) and the October 1993 Trust (a trust established by Mr. Getty)
(collectively, the "Getty Group") will own approximately 33 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 20 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--Conflicts of Interest of Certain Persons", "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 period of three years
commencing as of closing of the Transactions. 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 and merger costs, Getty Images intends to
borrow an additional approximately $41 million from commercial banks. Getty
Images is negotiating terms and conditions for an acquisition loan. In
connection with arranging such loan, Getty Images may also refinance some of the
outstanding indebtedness of Getty Communications in a credit facility
aggregating $70-$80 million. 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 $54.0 million and $2.4 million, respectively, at
September 30, 1997. See "Unaudited Condensed Pro Forma Consolidated 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 intention to
pay cash dividends in the foreseeable future) and will also require
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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 currencies against the U.S. dollar. Getty Images believes that the
proportion of its revenues that will be
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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".
LITIGATION
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. On November 26,
1997, Getty Communications filed a motion to dismiss certain of the claims
alleged in the complaint. On November 24, 1997, Getty Communications received a
motion filed by the plaintiffs for a preliminary injunction seeking, among other
things, to enjoin the defendants from disclosing, transferring or using
confidential information and/or trade secrets of Digital Stock and to enjoin the
defendants from merging with or acquiring PhotoDisc. A hearing on the
preliminary injunction motion was held on December 22, 1997. See "Getty
Communications--Legal Proceedings".
POTENTIAL LOSS OF RIGHTS TO GETTY TRADEMARKS
Following the Merger, Getty Images (through its subsidiaries) will own
trademarks and trademark applications in respect of the names Getty
Communications and Hulton Getty, and derivatives thereof (including the name
"Getty Images") and the related logo (together, the "Getty Trademarks"). In the
event that Getty Images becomes controlled by a third party or parties 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 Communications will have 12 months in
which it will be permitted to continue to use the Getty Trademarks and
thereafter will have to cease such use. Although the primary brands used by
Getty Communications are Tony Stone Images, Hulton Getty, Gamma Liaison and
Energy Film Library, Getty Images is used as a corporate identity for certain of
the subsidiaries of Getty Communications and Hulton Getty is a Getty Trademark.
There can be no assurance that the exercise by Getty Investments of its right to
cause an assignment of the Getty Trademarks would not have a material adverse
effect on the business, financial condition or results of operations of Getty
Images. Further, there can be no assurance that the existence of the right of
Getty Investments to cause such an assignment would not have a negative impact
on the amount of consideration a potential acquiror would be willing to pay to
acquire Getty Images Common Stock.
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 July 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
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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 26.9 million 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 10.6 million shares will be
held by the former public shareholders of Getty Communications, approximately
8.6 million shares will be held by other former shareholders of Getty
Communications and approximately 7.8 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 that Getty Images 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". Under certain circumstances, Carlton, one of the current
shareholders of Getty Communications, can require Getty Images to file with the
Commission after March 31, 1998 a shelf registration statement covering all of
its shares of Getty Images Common Stock. See "Getty Images--Certain Related
Party Transactions--Agreements with Carlton". In addition, employees of Getty
Images will hold a significant number of options to purchase shares of Getty
Images Common Stock, many of which will be, or will become, exercisable shortly
after completion of the Transactions. Many employees may exercise their options
and sell shares shortly after such options become exercisable, particularly if
they need to raise funds to pay for the exercise of such options or to satisfy
tax liabilities that they may incur in connection with exercising their share
options. See "The Scheme of Arrangement" and "Getty Images--Getty Images Stock
Option Plan". Depending upon market conditions and other factors, following
completion of the Transactions Getty Images may also seek to raise funds through
the issuance of additional share capital. Additional issuances or market sales
of Getty Images Shares could have an adverse affect on the market price of Getty
Images Shares prevailing from time to time.
ANTI-TAKEOVER CONSIDERATIONS
Following the completion of the Transactions, the Getty Images Board will
have the authority, without stockholder approval, to issue up to 5,000,000
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 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 THE MATERIAL TERMS 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
PhotoDisc with Merger Sub, 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 each issued Getty Class B Ordinary Share will be converted
into one Getty Class A Ordinary Share, each Getty Ordinary Share will be
transferred to Getty Images or its nominee and the holders of Getty 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.
THE MERGER
Subject to the terms and conditions of the Merger Agreement and in
accordance with the WBCA, at the Effective Time, PhotoDisc will be merged with
and into Merger Sub. Merger Sub 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 Articles of Incorporation of PhotoDisc (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.
The Merger Agreement provides that, 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 to effect the Merger as a "forward subsidiary"
merger rather than as a "reverse subsidiary" merger or 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.
Pursuant to this provision, Getty Images has elected to effect the Merger as a
"forward subsidiary" merger as described in this Prospectus. In light of such
election, it is unlikely that Getty Images will determine to reduce the cash
component of the Merger Consideration in accordance with this provision of 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 Class B Ordinary Share will be
converted into one Getty Class A Ordinary Share, each Getty Ordinary Share will
be transferred to Getty Images or its
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nominees and the holders of Getty 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. Holders of Getty Communications ADSs will be entitled to receive
upon completion of the Scheme of Arrangement one share of Getty Images Common
Stock for each Getty Communications ADS held of record. There will be no
entitlement to any fraction of a share of Getty Images Common Stock and no
fraction of a share of Getty Images Common Stock will be allotted pursuant to
the Scheme of Arrangement. See "The Scheme of Arrangement".
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
Merger Consideration, which consists of the Stock Consideration (as defined
below) and the Cash Consideration (as defined below).
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 percent 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 $14.34 (which was the average closing price during the ten trading
days prior to December 18, 1997) and, based on the
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<PAGE>
assumptions described in "Unaudited Condensed Pro Forma Consolidated Financial
Information", the calculation of the Merger Consideration is illustrated below:
Stock Consideration per share of PhotoDisc Common Stock:
<TABLE>
<S> <C> <C> <C>
Starting Number of shares of Getty Images Common Stock .............. 12,400,000
Less:
Amount of cash payment to holders of Series A Preferred Stock...... $3,361,601
Divided by the Average Trading Price of Getty Communications ADSs
at Closing....................................................... $ 14.34 (234,421)
Less:
50% of the Adjusted Closing Estimate of the Shared Expenses........ $1,560,000
Divided by the Average Trading Price of Getty Communications ADSs
at Closing....................................................... $ 14.34 (108,787)
---------
12,056,792
---------
Divided by the fully diluted number of shares of PhotoDisc Common
Stock.............................................................. 13,440,731
---------
The PhotoDisc Exchange Ratio......................................... 0.8970
---------
Multiplied by 0.8.................................................... 0.7176
---------
---------
</TABLE>
Cash Consideration per share of PhotoDisc Common Stock:
<TABLE>
<S> <C> <C> <C>
Average Trading Price of Getty Communications ADSs at Closing...... $ 14.34
Multiplied by 0.9.................................................. $ 12.91
Multiplied by the PhotoDisc Exchange Ratio (0.8970)................ $ 11.58
Multiplied by 0.2.................................................. $ 2.32
---------
---------
</TABLE>
The following table sets forth the Merger Consideration for a range of
Average Trading Prices of Getty Communications ADSs at Closing, based upon the
assumptions described above:
<TABLE>
<CAPTION>
Average Trading Price of Getty Communications ADSs at
Closing.............................................. $12.00 $14.34(1) $15.00 $18.00
<S> <C> <C> <C> <C>
Number of shares of Getty Images Common Stock to be
issued at the Effective Time per share of PhotoDisc
Common Stock......................................... 0.7048 0.7176 0.7205 0.7310
Amount of cash to be paid at the Effective Time per
share of PhotoDisc Common Stock...................... $1.90 $2.32 $2.43 $2.96
Aggregate number of shares of Getty Images Common Stock
to be issued to holders of PhotoDisc Common
Stock(2)............................................. 7,616,332 7,755,352 7,786,723 7,900,315
Aggregate amount of cash to be paid to holders of
PhotoDisc Common Stock(3)............................ $20,564,084 $25,022,632 $26,280,167 $31,996,254
Percentage of outstanding shares of Getty Images Common
Stock to be held by holders of shares of PhotoDisc
Common Stock(2)(4)................................... 28.4% 28.8% 28.9% 29.2%
</TABLE>
- ------------------------------
(1) The average closing price of Getty Communications ADSs during the ten
trading days prior to December 18, 1997, the latest practicable date prior
to the date of this Prospectus.
(2) 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. Assuming that no options to purchase shares of PhotoDisc Common Stock
are exercised prior to completion of the Transactions and that Getty Images
does not determine to reduce the cash component of the merger consideration
for tax reasons, as described below, the maximum number of shares of Getty
Images Common Stock that could be issued to holders of PhotoDisc Common
Stock for any value of Average Trading Price of Getty Communications ADSs at
Closing would be approximately 7.98 million. Assuming that the Average
Trading Price of Getty Communications ADSs at Closing is $14.34 and that no
options to purchase shares of PhotoDisc Common Stock are exercised prior to
completion of the Transactions, if Getty Images determined to reduce the
cash component of the merger consideration to a minimum of $0 in order to
ensure that the Merger could be effected as a tax-free reorganization for
U.S. federal income tax purposes (as described on page 26), the maximum
number of shares of Getty Images Common Stock that would be issued to
holders of PhotoDisc Common Stock would be 9,693,583.
(3) Exclusive of preferential cash payment to holders of Series A Preferred
Stock and cash required to acquire certain outstanding options to purchase
shares of PhotoDisc Common Stock.
(4) Exclusive of shares of Getty Images Common Stock to be reserved for issuance
in respect of outstanding options to purchase Getty Ordinary Shares.
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<PAGE>
The actual number of shares of Getty Images Common Stock and the actual
amount of cash to be paid to holders of PhotoDisc Common Stock at the Effective
Time of the Merger may differ from the amounts set forth in the above table,
depending upon, among other things, the Average Trading Price of Getty
Communications ADSs at Closing, which may differ from the representative
examples used in the above table. There has been significant volatility in the
market prices of Getty Communications ADSs over recent periods, with trading
prices during the period from October 1, 1997 to December 19, 1997 ranging from
a low of $13.00 to a high of $18.25. The prevailing trading prices of Getty
Communications ADSs may rise or fall after the date of this Prospectus, between
the date of the PhotoDisc Special Meeting and the Effective Time of the Merger
and after the Effective Time of the Merger.
PHOTODISC OPTIONS, WARRANTS AND SERIES A PREFERRED STOCK
As of December 16, 1997, options were outstanding under the PhotoDisc Stock
Option Plan to purchase up to 2,633,800 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 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). Assuming that the
Average Trading Price of Getty Communications ADSs at Closing is $14.34 (which
was the average closing price during the ten trading days prior to December 18,
1997), and certain other assumptions described in "Unaudited Condensed Pro Forma
Consolidated Financial Information", holders of PhotoDisc Options will receive
options to purchase approximately 1.9 million shares of Getty Images Common
Stock (after the repurchase of certain PhotoDisc Options, as described below).
Prior to and conditional upon the Effective Time, PhotoDisc 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 percent of the number of shares of PhotoDisc Common Stock
subject to such options for an amount in cash, without interest, per share of
PhotoDisc Common Stock equal to the difference between the Cash Value of Getty
Communications ADSs at Closing (as defined below) divided by the PhotoDisc
Exchange Ratio and the exercise price per share of PhotoDisc Common Stock
(which, on the above assumptions, would represent an aggregate consideration of
approximately $4.9 million). The purchase of such options will have the effect
of reducing the net assets of PhotoDisc prior to 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 to whom such offer is extended may accept such
offer and receive payment at Closing with respect to either vested options or
with respect to 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.
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<PAGE>
As of December 16, 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 December 16, 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 $14.34
(which was the average closing price during the ten trading days prior to
December 18, 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 $3.4 million. Certain holders of Series A
Preferred Stock have agreed to convert their shares of Series A Preferred Stock
into shares of PhotoDisc Common Stock, subject to the consummation of the Merger
and immediately prior to the Effective Time. As a result of such conversions,
all shares of Series A Preferred Stock will, in accordance with their terms, be
converted into shares of PhotoDisc Common Stock.
For a description of the treatment of outstanding options to purchase Getty
Class A Ordinary Shares, see "The Scheme of Arrangement--Getty Communications
Share Option Plan".
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 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 and the business strategies of Getty Communications and PhotoDisc
were compatible and whether the rights of certain significant shareholders of
Getty Communications, due to their holding of Getty Class B Ordinary Shares with
super-voting rights, were compatible with such a business combination.
At the conclusion of such discussions, Mr. Getty and Mr. Torrance agreed
that they would consult with their management colleagues and their respective
financial advisors 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 later part of the week of July 14, 1997, discussions commenced
between representatives 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 accounting treatment desired, 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
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<PAGE>
by each of Getty Communications and PhotoDisc. During the week of July 21, 1997,
discussions commenced with representatives of Getty Investments to solicit their
views as to the possible business combination and, in particular, the removal of
the super voting rights attached to the Getty Class B Ordinary Shares.
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. At this meeting, preliminary discussions took
place relating to the possible benefits of a business combination, the possible
corporate and organizational structures of the combined business and the
possible financial terms of the transactions. The parties determined that the
financial terms of any transaction should be based on an assessment of the
relative value of Getty Communications and PhotoDisc and their respective
contributions to a combined company. PhotoDisc's contribution to a possible
combined company on a fully diluted basis, was discussed as being in a range
between 33 and 45 percent of a combined company. In these discussions, Getty
Communications derived its assessment of the relative value and respective
contribution PhotoDisc would make to a combined company from data and analyses
developed internally by Getty Communications and by BT Alex. Brown. PhotoDisc
derived its assessment of the relative value and respective contribution Getty
Communications would make to a combined company from publicly available
information and data and analyses developed by BARS.
In addition to the financial terms of a possible transaction, the parties
also discussed other issues, including the name of a possible combined company,
the composition of its board of directors and the executive committee and the
removal of the super-voting rights attached to the Getty Class B Ordinary
Shares. The parties were unable to reach any agreements or understandings during
this meeting, but concluded that BT Alex. Brown and BARS, financial advisor to
PhotoDisc, should commence exploratory discussions relating to the terms of a
possible transaction and, in particular, determine if the range of PhotoDisc's
possible contribution to a combined company could be narrowed.
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. No agreements or
understandings were reached as a result of these discussions, but it was agreed
that, as sufficient progress had been made towards an acceptable organizational
structure of a combined company, BT Alex. Brown, on behalf of Getty
Communications, and BARS, on behalf of PhotoDisc, be 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. From July 30 to August 1, discussions took
place between BT Alex. Brown and BARS on the relative valuation of each company,
including, in particular, the historical financial position of both companies,
the prospective IPO valuation of PhotoDisc, an analysis of certain publicly
traded companies and an analysis of the contribution that would be made by each
company to the combined entity based on publicly available information and
projections developed by each of BT Alex. Brown and BARS.
On July 30, 1997, a regularly convened Board meeting of Getty Communications
was held at which a verbal presentation by management was made as to the
possibility of a transaction with PhotoDisc. The presentation included the state
of the visual content industry, with particular emphasis on the royalty-free
sector, the strategic rationale for any proposed transaction with PhotoDisc,
together with valuation issues and the removal of the super-voting rights
attached to the Getty Class B Ordinary Shares. It was noted that the discussions
with PhotoDisc were at an exploratory stage and that to date no confidential
information had been exchanged. The Getty Communications Board authorized Mr.
Getty and Mr. Klein to pursue the possibility of a transaction with PhotoDisc.
31
<PAGE>
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 percentages related
to Getty Communications and PhotoDisc's relative valuation and contribution to a
combined company. BARS indicated that its valuation of Getty Communications and
the contribution Getty Communications would make to a combined company were
derived by utilizing its own projections for Getty Communication's results of
operations for the years ended December 1, 1997 and 1998 based on publicly
available information and projections developed by BARS analysts. In addition,
BARS provided BT Alex. Brown and Getty Communications certain limited headline
budgets for PhotoDisc for the same financial periods which had been prepared by
PhotoDisc management for internal budgeting purposes and were being reviewed by
BARS and PhotoDisc. Getty Communications, in deriving its assessment of the
valuation and contribution PhotoDisc would make to a combined company, expressed
its view that PhotoDisc's budgets should be viewed conservatively based on the
manner in which they had been prepared, the lack of review both internally and
by outside advisors and Getty Communication's own view as to the likely future
performance of PhotoDisc. Getty Communications also set forth a number of
additional factors to be considered in the valuation and contribution analysis,
including the breadth and depth of Getty Communication's visual content
collection and its international distribution network of wholly owned offices
and dedicated agents. Accordingly, Getty Communications derived its assessment
of the relative valuation and respective contribution PhotoDisc would make to a
combined company from data and analyses developed internally by Getty
Communications and by BT Alex. Brown and from Getty Communications' views on the
PhotoDisc budget.
As a result of these discussions, each party came to believe that a business
combination based on an estimated contribution of PhotoDisc to a combined
company of 37 to 40 percent, on a fully diluted basis, may be desirable if a
number of significant issues, including the satisfactory completion of
accounting, business and legal due diligence to verify the estimated
contribution of PhotoDisc, the removal of the super-voting rights of the Getty
Class B Ordinary Shares and the approval of the major shareholders of Getty
Communications and PhotoDisc, could be addressed by the parties. Certain
additional issues, including the corporate and organizational structure of the
combined entity, satisfactory negotiation of a merger agreement and any
ancillary documents and the receipt of fairness opinions from BT Alex. Brown and
BARS by Getty Communications and PhotoDisc, respectively, would also need to be
addressed before any transaction between the parties could be agreed upon.
Accordingly, following these discussions, the management of each of Getty
Communications and PhotoDisc commenced work with its respective advisors 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, the parties commenced business due diligence
to determine the feasibility of a business combination based on an estimated
contribution to the combined entity by PhotoDisc of 37 to 40 percent on a fully
diluted basis. Representatives of Getty Communications visited PhotoDisc's
Seattle operations for a preliminary assessment of those operations, and
representatives of PhotoDisc, accompanied by representatives from BARS, visited
Getty Communications' London operations for a preliminary assessment of those
operations. During that week, discussions continued, particularly in relation to
the management, operating and organizational structure and name and jurisdiction
of incorporation 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.
At 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. These discussions included the name of the combined
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<PAGE>
entity, the corporate and organizational structure, the accounting treatment of
the combination, employee benefits and service arrangements, governance of the
combined entity and financial aspects of the proposed combination. As a result
of these discussions, the parties preliminarily agreed that a transaction was
possible and determined that each party should continue its detailed due
diligence. The parties agreed that discussions with a view to reaching agreement
on the full terms of a possible transaction should be commenced.
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
advisors, 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 and management of Getty
Communications conferred with members of the Getty Communications Board and
representatives of Getty Investments concerning the terms of the proposed Merger
and the status of various issues.
On August 18, 1997, the Board of Getty Investments (the "Getty Investments
Board") held a special meeting to consider a potential business combination
between Getty Communications and PhotoDisc. At that meeting, Mr. Getty and Mr.
Klein made a verbal presentation to the Getty Investments Board concerning
various aspects of the proposed transaction, including the structure of a
proposed transaction, the possible treatment of the super-voting rights of the
Getty Class B Ordinary Shares, the assumption of certain agreements between
Getty Communications and Getty Investments by the new entity, and a potential
timetable for the completion of the transaction. Following these presentations,
the Getty Investments Board authorized Getty Communications' management and its
advisors to continue discussions with PhotoDisc and its advisors and confirmed
that, subject to satisfactory resolution of all outstanding issues, it was
prepared to relinquish the super-voting rights attached to its Getty Class B
Ordinary Shares and vote in favor of the proposed transaction.
On August 20, 1997, the Board of Getty Communications held a special meeting
to consider a potential business combination between Getty Communications and
PhotoDisc. At that meeting, Mr. Getty and Mr. Klein made a verbal presentation
to the Getty Communications Board concerning various aspects of the proposed
transaction. In particular, they described to the Getty Communications Board (i)
the current state of the visual content industry and the position of
royalty-free product in the industry and PhotoDisc's position in the
royalty-free sectors and the rationale for any business combination, (ii)
various operating and financial characteristics of PhotoDisc and Getty
Communications and PhotoDisc combined, (iii) 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 of a new company, the location of that company
and the pooling accounting treatment of the transaction, (iv) 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, agreement of management, operating,
organizational and governance structure, and agreement on employment and service
arrangements) and (v) a potential timetable for the negotiation, public
announcement and completion of the transaction. Following these presentations,
the Getty Communications Board authorized management and its advisors to
continue discussions with PhotoDisc and its advisors.
Following the Getty Communications Board meeting, Getty Communications'
management and its advisors determined that the contemplated combination could
not be accounted for on a pooling basis.
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<PAGE>
Getty Communications' management so informed certain members of the Getty
Communications Board and, accordingly, Getty Communications' management
commenced negotiating terms of the proposed transaction such that part of the
consideration be payable in cash, rather than in shares.
On September 5, 1997, Messrs. Getty, Klein, Evans-Lombe, Torrance and
Chamberlain, together with legal and financial advisors, met in London, England,
to discuss various issues regarding the proposed business combination,
including, among other things, the financial performance of the respective
companies, the appropriate exchange ratio, the amount of cash to be paid to the
PhotoDisc shareholders in the Merger and certain terms of the proposed Merger
Agreement, including limiting any indemnification provided by either party
pursuant to the negotiated merger agreement. 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
and agreed on a final timetable to do so.
On September 7, 1997, representatives of Getty Communications, PhotoDisc and
BARS met in London and Getty Communications made a presentation of its
historical results for July and August 1997 and projected results for the month
of September 1997 and for the quarter to September 30, 1997.
During the week of September 8, 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.
On September 9, 1997, the Getty Investments Board held a special meeting to
consider approval of the Merger. Based on the verbal presentations of Mr. Getty,
Mr. Klein and Clifford Chance, legal advisors to Getty Communications, regarding
the significant terms of the transaction and considering a number of factors,
both positive and negative, to Getty Communications and its shareholders, the
Getty Investments Board unanimously approved the Transactions, subject to the
satisfactory resolution by management of all outstanding issues with PhotoDisc
and the assumption of certain terms of Getty Investments' existing agreements
with Crediton Limited, the October Trust, Jonathan Klein and Mark Getty being
extended on satisfactory terms so as to apply in respect of Getty Images.
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 made
further verbal presentations and reviewed the results of the due diligence
investigations, the terms of the Merger Agreement, the business and prospects of
Getty Communications, PhotoDisc and Getty Images, the potential Scheme of
Arrangement with Getty Images, the potential combination of Getty Communications
with PhotoDisc, the proposed organizational and governance structure, the
employee benefits and service arrangements, the accounting treatment of the
combination, the ability to structure the Transactions so as to be tax-free to
Getty Communications and PhotoDisc shareholders and changes since the previous
board meeting. BT Alex. Brown made verbal presentations with respect to the
valuation analysis prepared by BT Alex. Brown during the course of the
negotiations and the proposed stock and cash consideration payable to the
holders of PhotoDisc Common Stock. Clifford Chance discussed with the Getty
Communications Board the status of the negotiations for the Merger Agreement,
the Stockholders Transaction Agreement and the other related agreements and the
conditions thereto. The Getty Communications Board also 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 "--Getty Communications' Reasons for the
Transactions; Recommendation of the Board of Directors of Getty Communications".
Following these discussions and subject to (i) the satisfactory resolution
of certain outstanding issues, including the finalization of the terms of the
cash consideration to be paid and the scope and limitation of the
indemnification provision in the merger agreement and (ii) the receipt of a
written fairness opinion from BT Alex. Brown, the Getty Communications Board
determined that the proposed transactions would be fair to Getty Communications
and in the best interest of shareholders. Accordingly, subject to such
34
<PAGE>
conditions described in the preceding sentence, the Getty Communications Board
approved the proposed transactions and the form of the Merger Agreement and
unanimously recommended that the shareholders of Getty Communications vote for
approval of the Transactions at the Getty Shareholder Meetings.
The Getty Communications Board appointed a committee of four directors to
confirm that the remaining issues were satisfactorily resolved and authorized
such committee to execute the Merger Agreement upon resolution of all such
remaining issues.
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 the
evaluation of the proposed Merger. These factors are described in more detail in
"--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, the parties resolved the remaining open issues
related to the proposed Transactions and finalized the terms of the Merger
Agreement and the related agreements. In addition, BT Alex. Brown delivered to
the Getty Communications Board its opinion, dated September 15, 1997, to the
effect that, as of such date, 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. Getty Investments confirmed its agreement to
the Transactions. See "--Opinion of BT Alex. Brown International, Financial
Advisor to Getty Communications". The committee appointed by the Getty
Communications Board confirmed that all conditions to the Getty Communications
Board's approval of the Transactions had been satisfied and, accordingly,
executed the Merger Agreement and the related agreements.
On September 16, 1997, PhotoDisc and Getty Communications publicly announced
the terms of the Transactions.
On December , 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,
1997, 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 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". Certain members of the Getty
Communications Board may have certain conflicts of interests related to the
Transactions. See "The Transactions--Conflicts of Interest of Certain Persons".
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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 positive and negative factors related to
the proposed transactions. The Getty Communications Board did not materially
rely upon any projections or other material non-public information provided by
PhotoDisc or BARS in arriving at the terms of the Merger or in determining its
fairness. The discussion which follows encompasses all material factors
considered by the Getty Communications Board.
The Getty Communications Board considered the following benefits to Getty
Communications and its shareholders:
(i) the complementary nature of Getty Communications' and PhotoDisc's
respective businesses, products, assets, managements, strategic objectives
and prospects, which would enable Getty Images to benefit from the economies
of scale and other operational benefits;
(ii) 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 presentation of BT Alex. Brown to the Getty Communications
Board at its meeting on September 10, 1997 and BT Alex. Brown's opinion
delivered to the Getty Communications Board to the effect that, as of
September 15, 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 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 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 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) that Getty Communications and PhotoDisc have strong customer-led
philosophies, with a focus on providing superior levels of product and
service to their clients; and
(ix) 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.
The Getty Communications Board also identified and considered the following
potentially negative factors in its deliberations concerning the Transactions:
(i) the timing and risks associated with the integration of PhotoDisc
with Getty Communications and the other businesses that Getty Communications
has recently acquired and whether the potential benefits sought in the
Transactions and such other acquisitions might not be fully realized;
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(ii) the requirement that the Merger be approved by the Getty
Shareholders;
(iii) the risks 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 fact that the number of shares of Getty Images Common Stock and
the amount of cash that holders of shares of PhotoDisc Common Stock will
receive at the Effective Time will be a function of, among other things, the
Average Trading Price of Getty Communications ADSs at Closing. As a result,
the actual number of shares of Getty Images Common Stock and the amount of
cash to be paid by Getty Communications to the holders of shares of
PhotoDisc Common Stock would not be determined until the Effective Time of
the Merger. See "The Transactions--Merger Consideration";
(vii) the fact that a significant amount of goodwill will be generated
upon the consummation of the Merger, which will be amortized against the
earnings of Getty Images in the future periods;
(viii) risks related to the indebtedness that will be incurred to finance
the Cash Consideration to be paid in the Merger. See "The
Transactions--Financing for the Merger"; and
(ix) 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 but
includes all material factors considered by the Getty Communications Board. 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 COMMUNICATIONS
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 15, 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
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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 THE BT ALEX. BROWN OPINION DATED SEPTEMBER 15, 1997, 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.
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 material 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 conditions 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
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operating performance trends. BT Alex. Brown noted that, due to PhotoDisc's
rapid historical growth and the change of PhotoDisc's business model over the
last 12 months, the historical financial position of PhotoDisc was not as
relevant to the valuation of PhotoDisc as future development of the business.
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")). BT Alex. Brown considered the
business model of the selected Business Services Firm and the On-line Commerce
Firms to be comparable in part to that of PhotoDisc. BT Alex. Brown considered
the business model of the Business Services Firms to be comparable in part to
that of PhotoDisc due to the fact that, like PhotoDisc, the Business Services
Firms are pioneers in the packaging and distribution of their services in a
novel way and provide services which have a relatively low per unit price to
businesses on a repeat basis. BT Alex. Brown considered the business model of
the On-line Commerce Firms to be comparable in part to that of PhotoDisc due to
the fact that, like PhotoDisc, the On-line Commerce Firms are small- to
medium-sized companies that provide products and commercial solutions over the
Internet. The financial information compared by BT Alex. Brown 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 their equity market values. Other financial information used by BT
Alex. Brown in its analysis of the Business Services Firms and On-line Commerce
Firms consisted of historical revenue growth rates and projected future EPS
growth rates as well as operating margins in the case of the Business Services
Firms. In its analysis of the Business Service Firms, BT Alex. Brown noted that
the mean 3-5 year projected compounded annual growth rates for these firms' EPS
was 39.8 percent, with a range of 35 percent to 47.2 percent. BT Alex. Brown
furthermore noted that the mean latest twelve-month margins of the Business
Services Firms' EBITDA, operating income and net income were 18.5 percent, 13.6
percent and 10.2 percent, respectively. In its analysis of the On-line Commerce
Firms, BT Alex. Brown noted that the projected 3-5 year compounded annual growth
rates of revenues ranged from 50 percent to 52 percent. 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 earnings per share ("EPS") for calendar years 1997
and 1998 as reported by IBES. Revenue estimates for calendar years 1997 and 1998
for the On-line 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
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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. Due to differences between the two
groups' respective business models, the Business Services Firms trade on net
income multiples whereas the On-line Commerce Firms trade on revenue multiples.
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 (namely the acquisition of Excite,
Inc. by Intuit, Inc. in June 1997, the acquisition of Automated Catalog
Services, L.P. by Sterling Commerce, Inc. in May 1997, the acquisition of
Fractal Design Corporation by MetaTools, Inc. in February 1997, and the
acquisition of Insoft, Inc. by Netscape Communications Corp. in June 1996) and
four transactions in the visual content industry (namely the acquisition of the
Liaison Agency by Getty Communications plc in March 1997, the investment in
Getty Communications plc by Carlton Communications plc in December 1996, the
investment in PhotoDisc, Inc. by T. A. Associates in June 1996, and the
acquisition of Visual Communications Group Ltd. by United News and Media plc in
August 1994). These transactions were selected based on the relevance of the
industry sectors and BT Alex. Brown considered the business models of the
respective targets to be comparable in part to the business model of PhotoDisc.
BT Alex. Brown considered the business model of the targets in the software
industry transactions to be comparable in part to PhotoDisc due to the fact
that, like PhotoDisc, the business of such entities involves the utilization of
similar emerging software technology for the fulfillment of transactions on the
Internet. BT Alex. Brown considered the business model of the targets in the
visual content industry transactions to be comparable in part to PhotoDisc due
to the fact that, like PhotoDisc, the business of such entities involves the
provision of visual content. BT Alex. Brown did not rely on this analysis to any
great extent. 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.
The mean and median multiple range consisted of seven of the transactions
compared. The multiple range of enterprise value to trailing twelve-month
revenue consisted of seven of the transactions compared. The multiple range of
equity value to trailing twelve-month net income consisted of five transactions
compared. 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.
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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 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 and pro forma EBITDA for the projected 1997 calendar year
slightly below the interest that PhotoDisc Common Shareholders will receive in
the Merger, and in respect of pro forma net income for the projected 1997
calendar year in excess of the interest that PhotoDisc Common Shareholders will
receive in the Merger. 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.
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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 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.
BT Alex. Brown was retained by Getty Communications during the week of July
14, 1997 as the Company's sole and exclusive financial advisor, to assist Getty
Communications in evaluating and structuring a potential business combination
with PhotoDisc and to assist Getty Communications in due diligence, valuation
analysis and negotiations with PhotoDisc. In consideration for BT Alex. Brown's
services, Getty Communications agreed to pay BT Alex. Brown a fee of $1,750,000,
which included the delivery of a fairness opinion. 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. The PhotoDisc
Board did not materially rely upon any projections or other material non-public
information provided by Getty Communications or BT Alex. Brown in arriving at
the terms of the Merger or in determining its fairness. Certain members of the
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PhotoDisc Board may have certain conflicts of interests related to the
Transactions. See "The Transactions--Conflicts of Interest of Certain Persons".
The discussion which follows encompasses all material factors considered by the
PhotoDisc Board.
In reaching its conclusion to approve the Merger, the PhotoDisc Board
considered the following positive and negative factors:
(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
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 sales
organization and 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".
(vi) At various times in the course of Merger discussions, the PhotoDisc
Board considered the consideration to be received by PhotoDisc Common
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. Based upon 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
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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 each of PhotoDisc and Getty Communications
in the visual content industry, 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 and cash flows of the combined company; (iii) 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; (iv)
PhotoDisc's view of the strength of the management of Getty Communications; (v)
the terms and provisions of the Merger Agreement, including the parties'
representations, warranties and covenants, the conditions to their respective
obligations and limitations on PhotoDisc's rights to consider and negotiate
other aquisition proposals; (vi) 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; (vii) the impact of the Merger
on PhotoDisc's customers and employees; and (viii) the due diligence
investigations of Getty Communications conducted by management and financial and
legal advisors.
The PhotoDisc Board also identified and considered the following potentially
negative factors in its deliberations concerning the Merger:
(i) possible disruption of PhotoDisc's business pending completion of the
Transactions 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 maintain relationships with
independent photographers and to attract and retain key management,
marketing and technical personnel;
(iv) the fact that the number of shares of Getty Images Common Stock and
the amount of cash that holders of shares of PhotoDisc Common Stock will
receive at the Effective Time will be a function of, among other things, the
Average Trading Price of Getty Communications ADSs at Closing. As a result,
the actual number of shares of Getty Images Common Stock and the amount of
cash to be paid by Getty Communications to the holders of shares of
PhotoDisc Common Stock would not be determined until the Effective Time of
the Merger. See "The Transactions--Merger Consideration";
(v) 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 at
closing, the consideration to be received by PhotoDisc Common Shareholders
will decline if the price of Getty Communications ADSs or Getty Images
Common Stock declines;
(vi) 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;
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(vii) the risks associated with the fact that the Getty Images Board will
contain a majority of directors elected by the Getty Shareholders; and
(viii) the charges to be incurred in connection with the Merger,
including the write-off of goodwill, costs of integrating the businesses and
transaction expenses arising from the Merger.
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 includes 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' 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. BARS has consented to the inclusion in this Prospectus of the
following summary of its 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' opinion to the PhotoDisc Board
addresses only the fairness of the Net Purchase Price to the PhotoDisc
Shareholders, 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' 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,
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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 material 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 upon the closing stock price of the Getty Communications
ADSs on September 11, 1997.
PRECEDENT ACQUISITION ANALYSIS
BARS analyzed publicly available information for six selected recent mergers
and acquisitions within the visual content industry: Getty Communications/Energy
Film Library (July 1997); Getty Communications/Liaison Agency Inc. (March 1997);
Carlton Communications/Getty Communications (December 1996); Getty
Communications/Fabulous Footage (April 1996); Getty Communications/Hulton Getty
Holdings Ltd. (April 1996); and Corbis Corporation/Bettman Archives (October
1995) (the "Precedent Acquisitions"). Those transactions were selected because
they involved acquisitions of privately held companies, like PhotoDisc, in the
visual content industry. BARS noted, however, that none of the Precedent
Acquisitions was identical to the Merger. For example, certain of the Precedent
Acquisitions were acquisitions of libraries of visual content and not
broader-based visual content businesses or web commerce 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
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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 upon total consideration offered to the
latest 12 months' revenue multiples, which data was available for the first five
Precedent Acquisitions noted above, PhotoDisc's implied equity value was $96.6
million. Based upon the total consideration offered to the latest 12 months'
EBITDA multiples, which data was available for the second and third Precedent
Acquisition noted above, 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 upon 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 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
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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' experience as a financial advisor in
connection with mergers and acquisitions and in securities valuations generally,
as well as BARS' 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. Based upon the last reported
sale price per Getty Communications ADS on September 15, 1997, the last full
trading day preceding the public announcement of the execution of the Merger
Agreement, such fee would have been approximately $2.06 million. Based upon the
last reported sale price per Getty Communications ADS on December 8, 1997, a
recent trading day prior to the mailing of this Prospectus, such fee would have
been approximately $2.08 million. 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 the cash consideration to be paid in the Merger and merger costs,
Getty Images intends to borrow an additional approximately $41.0 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 1.25 percent per
annum over U.S. dollar LIBOR and to be secured by the assets of Getty Images and
its subsidiaries. Customary covenants, warranties and events of default are also
likely to be included. In connection with arranging such loan, Getty Images may
also refinance some of the outstanding indebtedness of Getty Communications.
CONFLICTS OF INTEREST OF CERTAIN PERSONS
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 interests in the Transactions that are different from,
or in addition to, the interests of the Getty Shareholders and 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
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being in the best interests of the holders of Getty Ordinary Shares and
PhotoDisc Common Stock, respectively.
OWNERSHIP OF GETTY ORDINARY SHARES
As of September 30, 1997, the current directors and executive officers of
Getty Communications beneficially owned an aggregate of 5,772,308 Getty Class A
Ordinary Shares and 2,490,408 Getty Class B Ordinary Shares, including shares
that may be acquired upon the exercise of outstanding stock options (or
approximately 15% of the then outstanding Getty Ordinary Shares, representing
approximately 19% of the outstanding voting power).
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).
EMPLOYMENT AGREEMENTS
As a condition to the consummation of the Transactions, Employment
Agreements will be entered into with Messrs. Mark Getty (as Co-Chairman), Mark
Torrance (as Co-Chairman) and Jonathan Klein (as Chief Executive Officer) (each
an "Executive" and collectively the "Executives"). Mr. Getty will be employed by
Getty Communications and will be appointed Co-Chairman of Getty Images. Mr.
Torrance will be employed by Getty Images and will be appointed Co-Chairman of
Getty Images. Mr. Klein will be employed by Getty Communications in respect of
his services to be performed inside the United Kingdom. Getty Images will enter
into a consultancy agreement with Crediton Limited pursuant to which Crediton
Limited will make Mr. Klein's services available to Getty Images outside the
United Kingdom. Mr. Klein will be appointed Chief Executive Officer of Getty
Images. The remuneration per annum to the Executives will be as follows: Mr.
Getty, $275,000; Mr. Torrance, $275,000; and Mr. Klein, payments to him in
respect of his contract with Getty Communications for his U.K. services and to
Crediton Limited in respect of his services provided to Getty Images outside the
United Kingdom under Getty Images' consultancy agreement with Crediton Limited
totalling $325,000. Each Executive's compensation package will also include
yearly bonuses, certain options to purchase shares of Getty Images Common Stock
and a supplemental pension contribution (or payment in lieu thereof) equal to
20% of the Executive's annual salary (including the payments to Crediton Limited
in respect of Mr. Klein).
Upon the termination of employment by Getty Images of any of the Executives
(and the consultancy agreement with Crediton Limited), other than for Cause (as
defined below) or by reason of his voluntary resignation for Good Reason (as
defined below), such Executive (and Crediton Limited under the consultancy
agreement) will receive a lump sum payment equal to the unpaid remuneration and
maximum bonuses over the remainder of the term of the agreement. In addition,
other than in respect of a termination for Cause, the Executive will be entitled
to accelerated vesting of all outstanding options. See "Related Agreements--The
Employment Agreements".
Presently, each of the Executives has an employment agreement with Getty
Communications or PhotoDisc. Pursuant to Mr. Getty's current employment with
Getty Communications, he receives an annual salary of L125,000 and a
discretionary bonus not to exceed 100% of salary. Pursuant to Mr. Torrance's
current employment with PhotoDisc, he receives an annual salary of $225,000 and
a bonus of up to $67,500 and may also receive an additional bonus in the
discretion of the Board. Pursuant to Mr. Klein's current employment with Getty
Communications, he receives an annual salary of L125,000 and a discretionary
bonus not to exceed 100% of salary.
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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 or Getty Images
intends to offer employment agreements to certain executives of PhotoDisc to
secure their services following completion of the Transactions, including Mr.
Robert J. Chamberlain (presently Chief Financial Officer and Senior Vice
President, Finance, of PhotoDisc), Ms. Sally von Bargen (presently Senior Vice
President, Sales and Service, of PhotoDisc), Mr. Christian Birkeland (presently
Vice President, Operations, of PhotoDisc), Ms. Natalie Angelillo (presently Vice
President, Content Development, of PhotoDisc), Mr. Michel Perrin (presently
Executive Vice President, Europe, of PhotoDisc), Mr. William Heston (presently
Senior Vice President, Business Development, of PhotoDisc) and Ms. Heather
Redman (presently Vice President, General Counsel, and Secretary of PhotoDisc).
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. As of the date hereof, PhotoDisc and Mr.
Torrance were in the process of negotiating the new lease for this facility,
which is expected to have a term of five years and to provide for rent at the
rate of $14.00 per square foot. PhotoDisc believes that the terms of the new
lease will be comparable to those obtainable in an arm's length transaction with
an unrelated third party. For a more detailed discussion of the existing and
proposed lease terms, 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 in connection with the Transactions, among
other things, to limit the rights of October 1993 Trust and Crediton Limited to
vote and all parties to transfer their Getty Images Shares. See "Getty
Images--Certain Related Party Transactions--Getty Parties Shareholders'
Agreement".
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".
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AGREEMENTS WITH CARLTON
Getty Communications has agreed to amend 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. On
October 24, 1997, the FTC granted early termination of the applicable waiting
period under the HSR Act.
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 transferred to Getty Images or its nominees. The
shares of Getty Images Common Stock issued to replace the transferred 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 $7.0 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").
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 percent 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 percent 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
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each Principal Shareholder such Principal Shareholder's pro rata share of 50
percent 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 has been prepared by Shearman &
Sterling, special U.S. tax counsel to Getty Communications, except for those
portions entitled "United States Federal Income Tax Consequences of the Merger",
which has been prepared by Heller Ehrman White & McAuliffe, special counsel to
PhotoDisc, and "United Kingdom Tax Consequences of the Scheme of Arrangement",
which has been prepared by Clifford Chance. This discussion is based on U.S.
federal income tax law, including the Internal Revenue Code of 1986, as amended
(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. 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.
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Shareholders: (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity (other than an estate or trust) 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 exchange
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 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.
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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 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 an "exchange" 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 percent, if the holder's holding period in the PhotoDisc Common Stock was
more than 18 months at the Effective Time, and (ii) 28 percent, 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 percent or 20 percent rate nominally applicable. Conversely,
if the constructive redemption would not so qualify, the cash received would be
treated as ordinary dividend income up to the lesser of the shareholder's
ratable share of the accumulated "earnings and profits" of PhotoDisc and the
gain realized by the shareholder.
In order to qualify as an exchange 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 "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
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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 "IRS"),
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 an exchange if such
shareholder suffers some reduction in equity interest as a result of the
redemption 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 rules relating to constructive redemptions of
stock in a merger, including the constructive ownership rules, is dependent on
the individual situation of each shareholder of the acquired corporation and
could result in the receipt by a shareholder of ordinary income (rather than
capital gain) in the Merger, 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 aggregate tax basis of the Getty Images Common Stock to be received by a
PhotoDisc Shareholder (including any shares held for the benefit of such
shareholder under the Escrow Agreement) 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 therefor.
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.
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.
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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 percent, 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 percent.
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 IRS and a possible 31 percent 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 IRS.
UNITED KINGDOM TAX CONSEQUENCES OF THE SCHEME OF ARRANGEMENT
The directors of Getty Communications have been advised by Clifford Chance
that the principal U.K. tax consequences of the Transactions for Getty
Shareholders are as set forth below.
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 a trade in the United Kingdom through a branch or
agency.
The remaining discussion applies to Getty Shareholders who are U.K.
residents. 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
therefor. 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.
Clearance has been obtained from the U.K. Inland Revenue under section 138
of the U.K. Taxation of Chargeable Gains Act 1992 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.
Clearance has also been obtained from the U.K. Inland Revenue under section 707
of the U.K. Income and Corporation Taxes Act 1988 that section 703 of such Act
does not apply in respect of the Transactions.
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.
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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, the Getty EGM and
at the English High Court hearing on February 2, 1998.
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 percent 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.
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
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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.
FORWARD-LOOKING STATEMENTS
Getty Images, Getty Communications and PhotoDisc have made forward-looking
statements in this document that are subject to risks and uncertainties.
Forward-looking statements include the information concerning possible or
assumed future results of operations of Getty Images, Getty Communications or
PhotoDisc set forth under "--Getty Communications' Reasons for the Transactions;
Recommendations of the Board of Directors of Getty Communications", "--Opinion
of BT Alex. Brown International, Financial Advisor to Getty Communications",
"--PhotoDisc's Reasons for the Merger; Recommendation of the Board of Directors
of PhotoDisc", and "--Opinion of BancAmerica Robertson Stephens, Financial
Advisor to PhotoDisc", and information labeled "projections" and those preceded
by, followed by or that include the words "believes,", "expects", "anticipates"
or similar expressions. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual results
or performance of Getty Images, Getty Communications or PhotoDisc to be
materially different from any future results or performance expressed or implied
by such forward-looking statements. Such forward-looking statements were based
on various factors and were derived utilizing numerous important
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assumptions and other important factors that could cause actual results to
differ materially from those in the forward-looking statements. The following
important factors, in addition to those discussed elsewhere in this document,
could affect the future results of Getty Images, Getty Communications and
PhotoDisc, and could cause those results to differ materially from those
expressed or implied in the forward-looking statements of Getty Images, Getty
Communications and PhotoDisc: material adverse changes in economic conditions in
the markets served by Getty Images, Getty Communications and PhotoDisc; a
significant delay in the expected closing of the Transactions; material adverse
changes in the development of the visual content industry; technological
changes, competitive developments; potential difficulties in integrating the
operations of Getty Communications and PhotoDisc and in managing the growth and
expansion of Getty Images; fluctuations in foreign currency exchange rates; and
the other factors described in "Risk Factors". None of Getty Images, Getty
Communications or PhotoDisc assumes any obligation, or intends, to update these
forward-looking statements to reflect actual results, changes in assumptions or
changes in other factors affecting such forward-looking statements.
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THE SCHEME OF ARRANGEMENT
THE FOLLOWING SUMMARIZES THE MATERIAL TERMS OF THE SCHEME OF ARRANGEMENT.
THE SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE GETTY 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 Getty Class B Ordinary Share will be converted into one
Getty Class A Ordinary Share, each Getty Ordinary Share will be transferred to
Getty Images or its nominees and the holders of Getty 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. There will be no entitlement to any
fraction of a share of Getty Images Common Stock and no fraction of a share of
Getty Images Common Stock will be allotted pursuant to the Scheme of
Arrangement. 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 the Scheme of Arrangement and related matters must be approved by certain
shareholders of Getty Communications at two different meetings of shareholders,
the Getty Court Meeting and the Getty EGM. See "The Getty Shareholder Meetings"
for information regarding the date, time and place of the the Getty Shareholder
Meetings and voting at the Getty Shareholder Meetings.
If the Scheme of Arrangement is approved at the Getty Court Meeting and the
related resolutions are approved at the Getty EGM, Getty Communications will
petition the English High Court to approve the Scheme of Arrangement. The
English High Court may approve the Scheme of Arrangement if it is 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.
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). Upon the Scheme of Arrangement becoming
effective, it will be binding on all shareholders, irrespective of whether they
attended or voted at the Getty Court Meeting.
Following completion of the Transactions, new share certificates
representing shares of Getty Images Common Stock will automatically be sent to
all holders of Getty Ordinary Shares. Each holder of any Scheme Shares will be
bound to deliver to Getty Images upon request the existing ordinary share
certificates for his or her holding(s) thereof.
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Getty Communications ADSs will continue to be quoted on the Nasdaq National
Market until the Closing Date. Upon the consummation of the Transactions, the
Getty Communications ADSs will cease to be quoted on the Nasdaq National Market
and the registration of the Getty Communications ADSs under the Exchange Act
will be terminated.
For holders of Getty Communications ADSs, after completion of the
Transactions the Depositary will send each holder a notice informing such
holders that the Getty Deposit Agreement will terminate 90 days after the
Effective Time and instructing each such holder to surrender the American
Depositary Receipts evidencing their Getty Communications ADSs to the Depositary
in exchange for the transfer of shares of Getty Images Common Stock. Upon
receipt of such American Depositary Receipts, the Depositary will transfer one
share of Getty Images Common Stock for each Getty Communications ADS received.
ADS Holders will not be charged any fees upon such surrender and exchange of
Getty Communications ADSs for shares of Getty Images Common Stock. After the
Effective Time, each American Depositary Receipt evidencing Getty Communications
ADSs will represent only the right to receive the appropriate numbers of shares
of Getty Images Common Stock in exchange therefor.
GETTY COMMUNICATIONS SHARE OPTION PLAN
Getty Communications has one share option plan, the Getty Communications
Share Option Plan. As of September 30, 1997, Getty Communications Options were
outstanding over 4,661,908 Getty Class A Ordinary Shares at prices between $5.00
and $10.97 per share (equivalent to prices between $10.00 and $21.94 per Getty
Communications ADS).
Optionholders under the Getty Communications Share Option Plan will have the
right to exercise their Getty Communications Options for a period of one month
(or such longer period as the Getty Communications Board may permit) 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 such period
they will have available to them the alternatives set forth below, failing with
which, the options will lapse. A resolution will be proposed at the Getty EGM to
amend the Articles of Association of Getty Communications (the "Getty
Communications Articles of Association") 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 bound by the
Scheme of Arrangement. 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 Getty
Communications Articles of Association to provide for the automatic transfer of
such shares to Getty Images.
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 in the same manner as the vesting proposed for the Getty Images Share
Incentive Plan.
Under the Getty Communications Share Option Plan, Getty Communications has
the right, upon the exercise of any Getty Communications Option, to determine,
in its absolute discretion, that the optionholder so exercising shall be paid a
sum equal to the cash equivalent of that number of shares issuable upon the
exercise. The cash equivalent is the amount by which the market value of such
shares exceeds the option price, after deducting any tax or similar liabilities.
Getty Communications may pay such cash equivalent in Getty Ordinary Shares
issued at a price equal to their market value. Getty Communications has stated
that it will only consider exercising this discretion (and allowing
optionholders to elect for it) in respect of a payment to be made in Getty
Ordinary Shares and not in respect of a cash payment.
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THE MERGER AGREEMENT
THE FOLLOWING SUMMARIZES THE MATERIAL TERMS 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 Citibank, N.A., as escrow agent (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 Getty 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 Communications 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 Getty 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 Getty 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 sanctioned the Scheme of Arrangement
and Getty Communications having delivered an office copy of the order of the
English High Court to the Registrar of Companies of England and Wales for
registration;
(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 the 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 use their best
efforts to preserve intact their business organizations and not to engage in any
practice, take
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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 percent 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 percent 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 percent 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 percent 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 percent 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 THE MATERIAL TERMS 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 (the "Principal Shareholder's
Representative"), 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 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. 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 Stockholders' 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 affect 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 Getty
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". The number of Escrow Shares will be equal to 12.5 percent of the
number of shares of Getty Images Common Stock to be issued to each Principal
Shareholder at Closing (representing an aggregate of approximately 1.3 million
shares assuming that the Average Trading Price of Getty Communications ADSs at
Closing is $14.34, which was the average
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closing price during the ten trading days prior to December 18, 1997). The
Escrow Shares will be included in the purchase price for accounting purposes.
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, 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, or in a cashless exercise of options. 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
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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
beneficially own fewer than the greater of 3,000,000 shares of Getty Images
Common Stock and such number of shares of Getty Images Common Stock as is equal
to two percent 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 nominate one director. For so long as the Getty Group
has the right to nominate 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 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 percent 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, upon the
consummation of the Transactions, Getty Images will assume the obligations of
Getty Communications and PhotoDisc with respect to certain
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registration rights granted by the companies to certain of their respective
shareholders, including, in the case of PhotoDisc, certain registration rights
granted to holders of Series A Preferred Stock, and, in the case of Getty
Communications, certain registration rights granted to October 1993 Trust and
Crediton Limited, Messrs. Getty, Klein and Gould, RIT Capital Partners and Mr.
Anthony Stone and The Schwartzberg Family L.P.
THE EMPLOYMENT AGREEMENTS
One of the conditions to the consummation of the Transactions is that
Employment Agreements be entered into with the Executives having certain
principal terms defined in the Merger Agreement. Mr Getty will be employed by
Getty Communications and will be appointed Co-Chairman of Getty Images. Mr.
Torrance will be employed by Getty Images and will be appointed Co-Chairman of
Getty Images. Mr. Klein will be employed by Getty Communications in respect of
his services to be performed inside the United Kingdom. Getty Images will enter
into a consultancy agreement with Crediton Limited pursuant to which Crediton
Limited will make Mr. Klein's services available to Getty Images outside the
United Kingdom. Mr. Klein will be appointed Chief Executive Officer of Getty
Images.
Each Employment Agreement will have an initial minimum period of two years
commencing as of closing of the Transactions, continuing thereafter until the
termination of such agreement by either party giving 12 months' prior written
notice not to expire before the third anniversary of the Employment Agreement.
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, payments to him
in respect of his contract with Getty Communications for his U.K. services and
to Crediton Limited in respect of his services provided to Getty Images outside
the United Kingdom under Getty Images' consultancy agreement with Crediton
Limited totalling $325,000. The remuneration to each Executive (and to Crediton
Limited) will be reviewed annually on or about March 1 of each year and adjusted
upwards in line with market equivalents. In addition, Mr. Getty and Mr. Torrance
will be eligible to receive bonuses of up to 50 percent of their remuneration
subject to the achievement of certain performance targets set by the Getty
Images Board, and Mr. Klein (and Crediton Limited) will be eligible to receive a
bonus of up to 60 percent of 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 and, in the
case of Mr. Klein, such options may be issued in whole or in part to Crediton
Limited in respect of the provision of Mr. Klein's services to Getty Images
outside the United Kingdom), exercisable at the closing price of Getty
Communications ADSs on the Nasdaq National Market on the date of closing and
fully vesting one year after the Closing and (ii) options over 500,000 shares of
Getty Images Common Stock issued at Closing (in the case of Mr. Klein, these
options being issued partly to Mr. Klein and partly to Crediton Limited in
respect of the provision of Mr. Klein's services to Getty Images outside the
United Kingdom), exercisable at the closing price of Getty Communications ADSs
on the Nasdaq National Market on the date of closing and vesting on a schedule
of 25 percent one year after the Closing and ratably each month thereafter over
the following three years.
Upon the termination of employment by Getty Images of any of the Executives
(and the consultancy agreement with Crediton Limited), other than for Cause (as
defined below) or by reason of his voluntary resignation for Good Reason (as
defined below), such Executive (and Crediton Limited under the consultancy
agreement) will receive a lump sum payment equal to the unpaid remuneration and
maximum bonuses over the remainder of the term of the contract. In addition,
except in respect of a termination for Cause, each Executive will be entitled to
retain all options as if he remained an employee but with vesting accelerated so
that all options become fully vested. On a termination for Cause, each Executive
will be entitled to retain only the options vested to the date of termination.
"Cause" is defined as (i) willful, material and repeated non-performance of such
Executive's duties (other than by reason of physical or
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mental illness) after notice from the Getty Images Board of such failure and one
Executive's nonperformance and continued, wilful, material and repeated
nonperformance after such notice; (ii) indictment of the Executive for a felony
offense; (iii) the commission by the Executive of fraud against the Group or any
other action that is injurious to the reputation of the Group or the ability of
the Executive to perform his duties; or (iv) any other material breach of any
material term of such Executive's Employment Agreement; or (v) the Executive is
personally bankrupt. "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 salary or bonus opportunity or
Getty Images' failure to pay such Executive any material amount of compensation
when due; (iv) failure to be nominated for reelection to the Board; or (v) 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 or Getty Images
intends to offer employment agreements to certain executives of PhotoDisc to
secure their services following completion of the Transactions, including Mr.
Robert Chamberlain, Ms. Sally von Bargen, Mr. Christian Birkeland, Ms. Natalie
Angelillo, Mr. Michel Perrin, 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
In order for the Scheme of Arrangement to become effective, certain matters
related to the Scheme of Arrangement must be approved by certain shareholders of
Getty Communications at two different meetings of shareholders, the Getty Court
Meeting and the Getty EGM.
THE GETTY COURT MEETING
The English High Court has directed Getty Communications to convene the
Getty Court Meeting by order pursuant to Section 425 of the Companies Act to
consider and, if thought fit, approve the Scheme of Arrangement. The Getty Court
Meeting will be held on January 22, 1998 beginning at 3:00 p.m., London time, at
the offices of Clifford Chance at 200 Aldersgate Street, London EC1A 4JJ
England.
The shares affected by the Scheme of Arrangement, the "Scheme Shares", shall
be the Getty Class A Ordinary Shares and Getty Class B Ordinary Shares in issue
at the date of this Prospectus together with all (if any) additional Getty Class
A Ordinary Shares and Getty Class B Ordinary Shares that (i) may be issued prior
to the Getty Court Meeting and (ii) may be issued on or after the date of the
Getty Court Meeting and up until 10:00 p.m. London time (the "Scheme Record
Time") on February 2, 1998, the business day prior to completion of the Scheme
of Arrangement (the "Scheme Record Date"), as a result of the exercise of any
options granted under the Getty Communications Share Option Plan and in respect
of which the original or any subsequent holder thereof shall by bound by the
Scheme of Arrangement or otherwise shall have agreed in writing to be bound by
the Scheme of Arrangement.
Only certain of the Scheme Shares shall be entitled to vote on approval of
the Scheme of Arrangement at the Getty Court Meeting. Such shares, the "Public
Scheme Shares", shall be those Getty Class A Ordinary Shares held of record as
of the time of the Getty Court Meeting, other than those held by Getty
Investments and by Carlton. As a result of its holdings of Getty Class B
Ordinary Shares, Getty Investments will be treated by the Court as a separate
class of shareholder. Accordingly, Getty Investments will not be entitled to
vote at the Getty Court Meeting in respect of its Getty Class A Ordinary Shares
and has agreed to abstain from voting at the Getty EGM and will undertake to the
English High Court to be bound by the terms of the Scheme of Arrangement in
respect of its entire holding of Getty Ordinary Shares. As a result of certain
rights attached to Carlton's share holdings in Getty Communications, Carlton is
being treated by the English High Court as a separate class of shareholder.
Accordingly, Carlton has agreed to abstain from voting at the Getty Court
Meeting and at the Getty EGM and will undertake to the English High Court to be
bound by the terms of the Scheme of Arrangement. Crediton Limited and October
1993 Trust, each of which holds only Getty Class B Ordinary Shares, will also
abstain from voting at the Getty Court Meeting and at the Getty EGM and will
undertake to the English High Court to be bound by the terms of the Scheme of
Arrangement.
The Scheme of Arrangement must be approved by a majority in number of the
holders of the Public Scheme Shares present (in person or by proxy) at the Getty
Court Meeting, with such majority in number representing three-fourths or more
in value of the votes attached to the Public Scheme Shares voted at the Getty
Court Meeting. Voting at the Getty Court Meeting will be on a poll. Each holder
of a Public Scheme Share present (in person or by proxy) at the Getty Court
Meeting will be entitled to vote on each matter that may properly come before
the Getty Court Meeting.
If the appropriate majorities are obtained at the Getty Court Meeting, the
English High Court must also sanction the Scheme of Arrangement before it can
take effect.
THE GETTY EGM
In addition to the Getty Court Meeting, the Board of Directors of Getty
Communications will convene the Getty EGM to consider and, if thought fit,
approve resolutions concerning various matters relating to the Scheme of
Arrangement and the Merger, including approval of the Getty Images Incentive
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Plan. The Getty EGM will be held at 3:15 p.m. on January 22, 1998 (or as soon
thereafter as the Getty Court Meeting shall have concluded or been adjourned) at
the offices of Clifford Chance at 200 Aldersgate Street, London EC1A 4JJ
England.
The Scheme of Arrangement requires the approval of holders of 75 percent or
more of the Public Scheme Shares voted at the Getty EGM. Voting at the Getty EGM
will be on a poll. Each holder of a Public Scheme Share present (in person or by
proxy) at the Getty EGM will be entitled to vote on each matter that may
properly come before the Getty EGM.
VOTING BY HOLDERS OF GETTY COMMUNICATIONS ADSS
Holders of Getty Communications ADSs will be able to have their votes
represented at the Getty Court Meeting and at the Getty EGM by proxy through
procedures established pursuant to the Getty Deposit Agreement.
Pursuant to the Getty Deposit Agreement, the Depositary has fixed the close
of business on December 24, 1997 as the record date for the determination of the
ADS Holders entitled to notice of, and to vote at, the Getty Shareholder
Meetings. Each Getty Communications ADS will entitle the holder thereof to two
votes on each matter that may properly come before the Getty Court Meeting and
the Getty EGM. The Depositary will mail to all ADS Holders of record as of the
ADS Record Date a notice containing (i) the Getty Shareholder Circular and this
Prospectus, (ii) a statement that the ADS Holders as of the close of business on
the ADS Record Date will be entitled to instruct the Depositary as to the
exercise of the voting rights pertaining to the number of Getty Class A Ordinary
Shares represented by their respective Getty Communications ADSs and (iii) a
statement that such instructions may be given by returning a properly executed
proxy card (in the form provided by the Depositary) to the Depositary.
Shares of Getty Class A Ordinary Shares represented by properly executed
proxies received by the Depositary on or before January 17, 1998, unless such
proxies have been revoked, will be voted by the Depositary in accordance with
the instructions set forth on such proxies. If no instructions are indicated,
such ADS Holder will be deemed to have instructed the Depositary to, and the
Depositary will, give a discretionary proxy to a person designated by Getty
Communications with respect to such Getty Class A Ordinary Shares represented by
such holder's Getty Communications ADSs. The Getty Class A Ordinary Shares
covered by such discretionary proxies will be voted to approve the Scheme of
Arrangement.
ADS Holders may attend the Getty Shareholder Meetings in person. ADS Holders
who wish to vote in person the Getty Class A Ordinary Shares represented by
their Getty Communications ADSs must, on or before January 19, 1998 and in
accordance with the Getty Deposit Agreement, surrender their Getty
Communications ADSs to the Depositary in exchange for the Getty Class A Ordinary
Shares represented by such Getty Communications ADSs.
SOLICITATION OF PROXIES
This prospectus, the Getty Shareholders Circular and accompanying forms of
proxy are being mailed by Getty Communications to Getty Shareholders in
connection with the solicitation of proxies by Getty Communications for the
Getty Court Meeting and the Getty EGM. The cost of soliciting proxies in the
accompanying forms will be borne by Getty Communications. Getty Communications
has not retained any independent soliciting agent. Proxies may be solicited in
person or by telephone or telegram by the directors, executive officers and
employees of Getty Communications, who will not receive additional compensation
for such activities.
Upon request and in accordance with customary U.S. practice, brokers,
nominees and other similar record holders will be requested to forward proxy
solicitation material to beneficial owners and, upon request and to the extent
in accordance with customary practice, will be reimbursed by Getty
Communications for their out-of-pocket expenses.
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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 January 22, 1998 at 10:00 a.m., Seattle time at
PhotoDisc's offices, 2013 Fourth Avenue, 4th Floor, Seattle, Washington 98121.
At the PhotoDisc Special Meeting, the PhotoDisc Shareholders of record as of the
close of business on December 1, 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 December 1, 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
December 1, 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 8,436,580
shares of PhotoDisc Common Stock outstanding and entitled to vote, which were
held by 10 holders of record, and there were 1,701,879 shares of Series A
Preferred Stock outstanding and entitled to vote, which were held by 13 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 a 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
percent of the currently outstanding voting power of the PhotoDisc Common Stock
and Series A Preferred Stock (approximately 74 percent 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
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owned and which subsequently may be acquired by such PhotoDisc Voting
Shareholder, as such PhotoDisc 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. The royalty-free sector
is one of the fastest growing sectors in the visual content industry.
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 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 Web sites 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 brandname in the digitization and electronic delivery of
images and its experience with royalty-free licensing models and on-line
commerce. Getty Images believes that, the Merger represents the first commercial
combination of high quality visual content and rapid delivery over the Internet.
Getty Images further believes that, following completion of the Transactions, 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 by creating a new division responsible for making
Getty Images 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. With
this focus on digital delivery of images and use of technology, Getty
Images intends to provide the best products and service to its existing
and future customers.
- 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:
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(i) complementary visual content; (ii) a presence in a geographic market
where Getty Images is under-represented; or (iii) access to new
technologies.
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.
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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
James Bailey
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
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 (the initial members of
which will be Messrs. Bailey, Garb and Sporborg) and a compensation committee
(the initial members of which will be Messrs. Bailey, Garb and Sporborg).
For biographical information on Messrs. Garb, Stone, Bailey, Fernandez,
Sporborg, Getty and Klein, see "Getty Communications--Management of Getty
Communications". For biographical information on Mr. Torrance, see
"PhotoDisc--Management of PhotoDisc".
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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......................... 46 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 J. Chamberlain..................... 44 Senior Vice President, PhotoDisc
Sally von Bargen.......................... 48 Senior Vice President, PhotoDisc
</TABLE>
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 $14.34 and the other assumptions described in "Unaudited Condensed Pro Forma
Consolidated Financial Information"), approximately 26.9 million Getty Images
Shares will be outstanding and approximately 7.0 million additional Getty Images
Shares will be reserved for issuance upon the exercise of options (assuming that
all currently outstanding options to purchase Getty Ordinary Shares are rolled
over at Closing into options to purchase Getty Images Shares).
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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)............................................. 6,522,046 24.2%
PDI, L.L.C. (4)........................................................... 5,465,985 20.3
Mark Torrance (5)......................................................... 5,499,107 20.4
Wade Torrance (6)......................................................... 2,438,165 9.1
Carlton Communications BV (7)............................................. 1,869,381 6.9
Mark H. Getty (8)......................................................... 1,546,587 5.6
Jonathan D. Klein (9)..................................................... 1,547,037 5.6
Andrew Garb............................................................... 10,000 *
Anthony Stone............................................................. 130,019 *
James Bailey.............................................................. 0 *
Manny Fernandez (10)...................................................... 20,000 *
Christopher Sporborg...................................................... 800 *
Lawrence J. Gould (11).................................................... 255,035 *
Nick Evans-Lombe (12)..................................................... 9,200 *
Heather Redman (13)....................................................... 32,128 *
Stephen T. Mayes (14)..................................................... 30,500 *
Warwick Woodhouse (15).................................................... 30,592 *
William Heston (16)....................................................... 200,936 *
Don P. Smith (17)......................................................... 30,500 *
Stephen Warshaw........................................................... 0 *
Jan Ross.................................................................. 308,881 1.1
Robert J. Chamberlain..................................................... 0 *
Sally von Bargen (18)..................................................... 67,744 *
Michel Bernard (19)....................................................... 167,917 *
Andrew Duncomb (20)....................................................... 14,240 *
Michele Vitucci (21)...................................................... 30,500 *
All directors and executive officers as a group (22) (22 persons)......... 7,652,251 34.2
</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.
For current directors and officers of Getty Communications, applying such
definition of beneficial ownership results in the inclusion of all shares
subject to options held by such person because all Getty Communications
Options become exercisable for a period after the closing as described in
"The Scheme of Arrangement--Getty Communications Share Option Plan".
(2) Applicable percentage of ownership for each stockholder is based on
26,913,960 shares of Getty Images Common Stock which will be outstanding as
of the Closing plus the number of options 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) PDI, L.L.C. is a Washington limited liability company formed on October 31,
1996 with five members, Mr. Mark Torrance, Ms. Wade Torrance and three
trusts established for the benefit of their children. 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 2,438,165 shares held by PDI in
which he has no pecuniary interest. PDI is a party to certain of the
agreements related to the Transactions, including the Stockholders'
Transaction Agreement and the PhotoDisc Voting Agreement, and has agreed to
appoint Getty Images as PDI's lawful attorney and proxy to vote shares of
PhotoDisc Common Stock held by PDI in favor of the Transactions. See "The
Related Agreements" and "The Special Meeting of
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PhotoDisc Shareholders--Voting at the PhotoDisc Special Meeting". 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 2,438,165 shares held by PDI in which
he has no pecuniary interest. See Note (4) above. Mr. Torrance's address is
2013 Fourth Avenue, Seattle, Washington 98121.
(6) Represents 2,438,165 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 51, PO Box 3055, NL, 5700 JD Helmond, The
Netherlands.
(8) Includes 923,985 shares of Getty Images Common Stock issuable upon exercise
of outstanding options and 622,602 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 923,985 shares of Getty Images Common Stock issuable upon exercise
of outstanding options and 622,602 shares held by Crediton Limited, a
company of which the sole beneficiary is Mr. Jonathan Klein. 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 20,000 shares of Getty Images Common Stock issuable upon
exercise of outstanding options.
(11) Includes 36,250 shares of Getty Images Common Stock issuable upon exercise
of outstanding options.
(12) Includes 5,490 shares of Getty Images Common Stock issuable upon exercise
of outstanding options.
(13) Represents 32,128 shares of Getty Images Common Stock issuable upon
exercise of outstanding options.
(14) Represents 30,500 shares of Getty Images Common Stock issuable upon
exercise of outstanding options.
(15) Includes 30,500 shares of Getty Images Common Stock issuable upon exercise
of outstanding options.
(16) Represents 200,936 shares of Getty Images Common Stock issuable upon
exercise of outstanding options.
(17) Represents 30,500 shares of Getty Images Common Stock issuable upon
exercise of outstanding options.
(18) Includes 8,037 shares of Getty Images Common Stock issuable upon exercise
of outstanding options.
(19) Includes 11,994 shares of Getty Images Common Stock issuable upon exercise
of outstanding options.
(20) Includes 12,000 shares of Getty Images Common Stock issuable upon exercise
of outstanding options.
(21) Represents 30,500 shares of Getty Images Common Stock issuable upon
exercise of outstanding options.
(22) Includes 2,296,701 shares issuable upon exercise of outstanding options to
purchase Getty Images Common Stock.
GETTY IMAGES STOCK INCENTIVE PLAN
On or prior to the Closing, the Getty Images Board will adopt the Getty
Images, Inc. 1998 Stock Incentive Plan (the "Getty Images Incentive Plan").
Under the Getty Images Incentive Plan, the Getty Images Board will have the
discretion to grant incentive options with an exercise price equal to the market
price of the Getty Images Common Stock at the date of the grant, as well as
other equity-based compensation awards, such as non-qualified stock options,
stock appreciation rights, stock awards and performance share awards
(collectively, "Awards"). It is presently contemplated that the Compensation
Committee will grant solely options under the plan. The vesting of options will
be at the discretion of the Getty Images Board, but it is currently expected
that most options will vest on a schedule of 25 percent on the first anniversary
of the date of the grant and then ratably 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 ten years from the date of the
grant. Other Awards granted under the Getty Images Incentive Plan will be
subject to such terms as conditions as established by the Compensation
Committee.
The Getty Images Incentive Plan will provide for the grant of Awards with
respect to up to 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 Incentive Plan, Awards
are made by the Compensation Committee of the Getty Images Board at an exercise
price, on a vesting schedule and
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subject to such other terms as described above. Generally, awards awarded under
the Getty Images Incentive 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. Awards granted under the
Getty Images Incentive Plan are generally not transferable and may not be
exercised except by the person to whom such Awards were granted. Awards may not
be granted under the Getty Images Incentive Plan after the tenth anniversary of
its adoption. A U.K. schedule to the Getty Images Share Incentive Plan will be
established to enable U.K. tax-resident employees to receive up to L30,000 of
stock options in a tax-efficient manner in accordance with U.K. tax legislation.
Pursuant to the Employment Agreements, each of Messrs. Getty and Torrance
and Mr. Klein and Crediton Limited together 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". In addition,
Getty Images currently intends to grant options over an aggregate of another
1,560,000 shares of Getty Images Common Stock to employees at or after Closing,
including options to purchase 75,000 shares to each of Mr. Getty and Mr. Klein
and Crediton Limited together and options to purchase 50,000 shares to Mr.
Torrance. All of such options will have an exercise price equal to the closing
price of Getty Communications ADSs on the Nasdaq National Market on the date of
Closing.
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 the Delaware General Corporation Law
(the "DGCL"), Getty Images may only pay dividends from its surplus as defined
and calculated according to the DGCL, 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
Shareholders of PhotoDisc and Stockholders of Getty Images-- 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. Getty Images and 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
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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 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 any of its subsidiaries, or
(ii) Getty Investments ceases at any time to hold at least an agreed percentage
of the then outstanding shares of Getty Images Common Stock. In addition, if
Getty Investments or any of its members 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 L78,843 and L272,137, subject to
certain inflation adjustments, respectively, and thereafter an annual fee of
L28,485 and L98,681, 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 the parties to the agreement cease to
own beneficially fewer than the greater of 3,000,000 shares of Getty Images
Common Stock and such number of shares as is equal to two percent or less 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
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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 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. In addition, Getty
Images and Getty Communications have agreed to indemnify the persons named to
become directors and certain officers of Getty Images upon completion of the
Transactions for certain liabilities incurred by any such person by reason of
the fact that such person was so named to become a director, provided that such
person was acting in good faith.
AGREEMENTS WITH CARLTON
Carlton has entered into an agreement with Getty Communications with respect
to its ownership of approximately ten percent of the currently outstanding Getty
Ordinary Shares granting it certain rights and imposing certain restrictions.
Carlton, Getty Communications and Getty Images have agreed to terminate such
agreement prior to the consummation of the Transactions and replace it with a
new agreement (such agreement, as replaced, being the "Carlton Agreement").
Under the Carlton Agreement, Carlton will be able to require Getty Images to
file a shelf registration statement with the Commission as soon as possible
after March 31, 1998 and to keep such registration statement effective for up to
one year.
GETTY TRADEMARKS
Getty Communications has trademark registrations and applications for the
Getty Trademarks. Getty Communications and Getty Investments had previously
agreed that in the event that Getty Communications becomes controlled by a third
party or parties 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 Communications will have 12
months in which it will be permitted to continue to use the Getty Trademarks and
thereafter will have to cease such use. Getty Communications, Getty Images and
Getty Investments have agreed that such agreement will continue, with
appropriate amendments to reflect the Transactions, following completion of the
Transactions.
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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 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 other 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. With leading positions in each of the largest sectors of the
visual content industry and its broad distribution network, Getty Communications
believes that it is a leading provider of visual content.
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, based on estimated revenues and the creativity and aesthetic
quality of its images, 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
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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 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, based on the number of photographs in its collection.
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. Hulton Getty also incorporates the
special image collections of Ernst Haas and Slim Aarons. 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, based on its worldwide sales and the size of its images
database. Gamma Liaison sources stories worldwide and distributes 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.
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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.
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. Getty Communications believes that the breadth and magnitude of Energy
Film Library's collection, together with the revenue generated by the
collection, have established Energy Film Library as a leader in the stock
footage segment.
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 in the first quarter of 1998.
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
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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.
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 14 cities in Europe, North
America and the Far East and dedicated agents in 15 other 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.
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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 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
percent 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 filed a motion to dismiss certain of the claims on November 26,
1997.
On November 24, 1997, Getty Communications received a motion filed by the
plantiffs for a preliminary injunction seeking, among other things, to enjoin
the defendants from disclosing, transferring
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or using confidential information and/or trade secrets of Digital Stock and to
enjoin the defendants from merging with or acquiring PhotoDisc. A hearing on the
preliminary injunction motion was held on December 22, 1997.
Getty Communications believes that the claims are without merit, denies the
allegations and intends to defend vigorously against the action. Getty
Communications further believes that the action will not have a material adverse
effect on its consolidated financial position or results of operations or on
completion of the Transactions.
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 payments of
between L28 and L29 million, of which between L16 million and L17 million would
be paid in the form of cash and approximately L12 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 first quarter of 1998 and that the
acquisition could be completed 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. It is expected that such
acquisition will not be conditional upon completion of the Transactions.
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.
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 nine-month
periods ended September 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
nine-month periods
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ended September 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".
100
<PAGE>
<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, PER ADS AND RATIO OF EARNINGS TO FIXED CHARGES
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
--------- --------- --------- ----------- ----------- ----------- ---------
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
--------- --------- --------- ----------- ----------- ----------- ---------
--------- --------- --------- ----------- ----------- ----------- ---------
Net income per share(2)..................... 0.06 0.05 0.10
----------- ----------- ---------
----------- ----------- ---------
Shares used in computing per share
amount(2)................................. 23,390 23,390 27,832
----------- ----------- ---------
----------- ----------- ---------
Net 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
--------- --------- --------- ----------- ----------- ----------- ---------
--------- --------- --------- ----------- ----------- ----------- ---------
Ratio of earnings to fixed charges(5)....... 9.61 6.42 8.53 1.15 3.93 3.38 3.79
--------- --------- --------- ----------- ----------- ----------- ---------
--------- --------- --------- ----------- ----------- ----------- ---------
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>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1996 1997
--------- ---------
$ $
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales....................................... 62,289 75,260
Cost of sales............................... 23,803 28,272
--------- ---------
Gross profit................................ 38,486 46,988
Selling, general and administrative
expenses.................................. 27,583 32,981
--------- ---------
Amortization of Intangibles................. 1,547 2,280
Depreciation................................ 3,954 5,678
--------- ---------
Operating income/(loss)..................... 5,402 6,049
Net interest (expense)/income............... (1,871) 1,078
Exchange gains/(losses)..................... (347) (177)
--------- ---------
Income before income taxes.................. 3,184 6,950
Income taxes................................ (1,863) (3,227)
--------- ---------
Net income/(loss)........................... 1,321 3,723
--------- ---------
--------- ---------
Net income per share(2)..................... 0.05 0.10
--------- ---------
--------- ---------
Shares used in computing per share
amount(2)................................. 25,812 38,603
--------- ---------
--------- ---------
Net income per ADS(3)....................... 0.10 0.19
--------- ---------
--------- ---------
OPERATING DATA:
EBITDA(4)................................... 10,903 14,007
--------- ---------
--------- ---------
Ratio of earnings to fixed charges(5)....... 2.63 4.37
--------- ---------
--------- ---------
Net cash provided by/(used in):
Operating activities...................... 10,330 12,823
Investing activities...................... (21,982) (32,366)
Financing activities...................... 22,584 (3,303)
--------- ---------
Net increase/(decrease) in cash and cash
equivalents............................... 10,932 (22,846)
--------- ---------
--------- ---------
</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
Total shareholders' equity....................... 2,668 4,026 5,984 54 27,012 113,523
<CAPTION>
AT
SEPTEMBER 30,
-------------
1997
-------------
$
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ 33,006
Total assets..................................... 170,444
Long-term debt, net of current maturities........ 13,954
Total shareholders' equity....................... 117,317
</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. Due to the nature of this
combination, the presentation of combined results for the two periods in
1995 does not conform with U.S. GAAP.
(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. As defined by Getty Communications, EBITDA may not be comparable
to other similarly titled measures used by other companies.
(5) Ratio of earnings to fixed charges means the ratio of net income (before
fixed charges and income taxes) to fixed charges, where fixed charges are
the aggregate of interest, amortization of the costs relating to debt and an
allocation of rental charges to approximate equivalent interest.
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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.
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.
In order to increase the sales potential of the combined business and to
achieve synergies with PhotoDisc, Getty Communications expects to incur certain
integration costs, including those, for example, in respect of office
consolidation and reorganization. At the same time, Getty Communications will
have
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the opportunity to accelerate its digital strategy, but this will require
substantial capital expenditure in 1998.
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 nine-month periods ended September 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 nine-month period ended September 30, 1996
and also of Gamma Liaison and Energy Film Library in respect of the nine month
period ended September 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. Due to the nature of this combination, the
presentation of combined results for the two periods in 1995 does not conform
with U.S. GAAP.
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 NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 13, DECEMBER 31, DECEMBER 31, SEPTEMBER 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 1.5360 1.6308
</TABLE>
PERIOD END RATES:
<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 13, AT DECEMBER 31, AT SEPTEMBER 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 1.5634 1.6154
</TABLE>
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<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------
1996 1997
--------- PERCENT --------- PERCENT
$ OF SALES $ OF SALES
----------- -----------
(IN THOUSANDS, EXCEPT NET INCOME PER ADS,
<S> <C> <C> <C> <C>
RATIO OF EARNINGS TO FIXED CHARGES AND
PERCENTAGES)
STATEMENT OF OPERATIONS DATA:
Sales...................................................... 62,289 100.0% 75,260 100.0%
Gross profit............................................... 38,486 61.8 46,988 62.4
Operating income........................................... 5,402 8.7 6,049 8.0
Net income................................................. 1,321 2.1 3,724 4.9
Net income per ADS......................................... 0.10 0.19
OPERATING DATA:
EBITDA(1).................................................. 10,903 17.5 14,007 18.6
--------- ----- --------- -----
--------- ----- --------- -----
Ratio of earnings to fixed charges (2)..................... 2.63 4.37
Net cash provided by/(used in):
Operating activities..................................... 10,330 12,823
Investing activities..................................... (21,982) (32,366)
Financing activities..................................... 22,584 (3,303)
Net increase/(decrease) in cash equivalents................ 10,932 (22,846)
--------- ---------
--------- ---------
Volume of Image Transactions............................... 132 174
--------- ---------
--------- ---------
</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.
(2) Ratio of earnings to fixed charges means the ratio of net income (before
fixed charges and income taxes) to fixed charges, where fixed charges are
the aggregate of interest, amortization of the costs relating to debt and an
allocation of rental charges to approximate equivalent interest.
SALES. Getty Communications' sales rose from $62.3 million in the nine
months ended September 30, 1996 to $75.3 million in the nine months ended
September 30, 1997, an increase of 20.8 percent. Movements in currencies during
the nine 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 $78 million in the nine months ended September 30, 1997, 3 percent
higher than the figures reported and growth over 1996 would have been 25 percent
for the nine months to September 30, 1997.
This increase arose from continued growth in the core business which, in
management, is attributed to continuing increases in the breadth of Getty
Communications' imagery, improvement in the distribution network and the impact
of new catalogs. Three catalogs were launched during the nine months ended
September 1997, including the specialist Hulton Getty and Interpretations
catalogs and the launch of the on-line and digital fulfillment systems. The
increase was also attributable in part to $6.5 million in sales from the
acquisitions in the nine months to September 30, 1997. At the end of September
1997, the "Instants" CD providing 8,500 images in digital format from the Tony
Stone Images and Hulton Getty collections was launched in the United Kingdom and
the United States.
The number of images and clips marketed by Getty Communications in the first
nine months of 1996 and 1997 was 132,000 and 174,000, respectively, a growth of
32 percent.
COST OF SALES. Getty Communications' cost of sales, which largely comprise
amounts payable to contributing photographers and cinematographers, rose from
$23.8 million in the nine months ended
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September 30, 1996 to $28.3 million in the nine months ended September 30, 1997.
As a percentage of sales, cost of sales fell from 38.2 percent in the nine
months ended September 30, 1996 to 37.6 percent in the nine months ended
September 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. Further reductions attributable to the acquisition of Energy,
which has a higher relative margin than Tony Stone Images, were partially offset
by the acquisition of Gamma Liaison, which has a higher relative cost of sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Getty Communications'
selling, general and administrative expenses increased by 19.6 percent from
$27.6 million in the nine months ended September 30, 1996 to $33.0 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 28.2 percent
from $14.9 million in 1996 to $19.1 million in 1997 in the nine-month period.
As a percentage of sales, selling, general and administrative expenses for
Getty Communications were 44.3 percent in the nine months ended September 30,
1996 and 43.8 percent in the nine months ended September 30, 1997. This
reduction is primarily attributable to management's continued focus on cost
control and more efficient use of systems and infrastructure. At Tony Stone
Images (including Hulton Getty), selling, general and administrative expenses
reduced from 44.8% of sales in the third quarter of 1996 to 41.9% of sales in
the third quarter of 1997.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles amounted to $1.5
million in the nine months ended September 30, 1996 and increased to $2.3
million in the nine months ended September 30, 1997. The increase in
amortization is primarily due to the inclusion of amortization relating to the
acquisition of Gamma Liaison in March 1997, Energy Film Library in July 1997 and
the World View group in November 1996. The Merger with PhotoDisc will result in
a substantial increase in intangible assets and, consequently, a higher
quarterly amortization charge.
DEPRECIATION. Depreciation increased by 43.6 percent from $4.0 million in
the nine months ended September 30, 1996 to $5.7 million in the nine months
ended September 30, 1997. The increase primarily arose from the inclusion of
acquisitions in the 1997 figures, together with continued investment in capital
expenditure. In the nine months ended September 30, 1997, Getty Communications
invested $10.7 million in fixed assets (including duplicate transparencies and
the digitization of the collections) compared to $5.1 million in the nine months
to September 30, 1996. The Merger with PhotoDisc will provide the opportunity to
accelerate Getty Communications' digital strategy, but will require additional
substantial capital expenditure in 1998. This will result in an increase in
depreciation in 1998 and future years.
NET INTEREST INCOME. Net interest income amounted to $1.1 million in the
nine months ended September 30, 1997, compared with an expense of $1.9 million
in the nine months ended September 30, 1996. The 1997 interest income was
generated on Getty Communications' cash balances, which stood at $33.0 million
at September 30, 1997. The Merger with PhotoDisc will result in a substantial
increase in interest bearing debt and, consequently, a bigger interest charge.
NET EXCHANGE LOSSES. Getty Communications had net exchange losses of
$347,000 in the nine months ended September 30, 1996 and $176,000 in the nine
months ended September 30, 1997. These have largely arisen from movements in the
value of sterling against Getty Communications' other main functional
currencies, the U.S. dollar, German mark and French franc. In particular, from
the end of 1996, 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 $3.2
million in the nine months ended September 30, 1997, an effective rate of 46.4
percent, compared to $1.9 million for the nine months ended September 30, 1996,
an effective rate of 58.5 percent. Excluding the effect of the amortization of
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intangibles, which is largely non-tax deductible, Getty Communications had an
effective tax rate of 39.4 percent for the nine months ended September 30, 1996,
and 35.0 percent for the nine months ended September 30, 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 $3.7
million in the nine months ended September 30, 1997 compared to $1.3 million in
the nine months ended September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
EBITDA. EBITDA increased from $10.9 million in the nine months ended
September 30, 1996 to $14.0 million in the nine months ended September 30, 1997.
EBITDA as a percentage of sales increased from 17.5 percent to 18.6 percent in
the nine-month period.
Movements in currencies had a significant effect on EBITDA during the nine
months ended September 30, 1997. Had the equivalent 1996 exchange rates applied,
EBITDA would have been approximately $15.2 million in the nine months ended
September 30, 1997, approximately 9 percent higher than the figures reported.
Growth over 1996 on this basis would have been approximately 40 percent for the
nine months to September 30, 1997. EBITDA, as a percentage of (restated) sales,
at equivalent 1996 exchange rates was approximately 20 percent in the nine-month
period ended September 30, 1997 compared to 17 percent in the nine-month period
ended September 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.
CASH FLOWS. Net cash provided by operating activities was $10.3 million and
$12.8 million in the nine months ended September 30, 1996 and 1997,
respectively. The increased operating cash flow was primarily due to higher
EBITDA in 1997 compared to 1996.
Net cash used in investing activities totalled $22.0 million and $32.4
million in the nine months ended September 30, 1996 and 1997, respectively.
During the nine months ended September 30, 1997, Getty Communications acquired
Gamma Liaison, Energy Film Library and Getty Images Hong Kong together with
initial fees relating to the PhotoDisc merger. For the nine months ended
September 30, 1996, the cash invested was primarily in respect of the
acquisitions of Hulton Getty and Fabulous Footage, both in April 1996. In the
nine months ended September 30, 1997, Getty Communications invested $10.7
million in fixed assets (including duplicate transparencies and the digitization
of the collections) compared to $5.1 million in the nine months to September 30,
1996.
Net cash used for financing activities totalled $3.3 million in the nine
months ended September 30, 1997, representing repayment of debt. Net cash
provided by financing activities in the nine-month period to September 30, 1996
primarily comprises the loans drawn down to finance the 1996 acquisitions ($19.2
million) and the proceeds of the initial public offering of American Depositary
Shares representing Getty Class A Ordinary Shares. Approximately $29.3 million
was raised, of which approximately $21.8 million was used to repay short-term
borrowings.
On September 30, 1997, Getty Communications had cash balances of $33.0
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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CONTINGENCY RELATED TO GETTY TRADEMARKS
As discussed under "Getty Images--Getty Trademarks", in certain
circumstances Getty Investments may call for an assignment to it, for a nominal
sum, of all rights to the Getty Trademarks.
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, RATIO OF EARNINGS TO
<S> <C> <C> <C> <C> <C> <C>
FIXED CHARGES AND PERCENTAGES)
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%
--------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- -----
Ratio of earnings to fixed charges (3)...... 8.53 3.38 3.79
--------- --------- ---------
--------- --------- ---------
Net Cash provided by/(used in):
Operating activities...................... 5,202 6,957 13,502
Investing activities...................... (5,296) (24,582) (25,953)
Financing activities...................... (314) 18,920 64,290
Net increase/(decrease) in cash
equivalents............................... (408) 1,295 51,839
--------- --------- ---------
--------- --------- ---------
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.
(3) Ratio of earnings to fixed charges means the ratio of net income (before
fixed charges and income taxes) to fixed charges, where fixed charges are
the aggregate of interest, amortization of the costs relating to debt and an
allocation of rental charges to approximate equivalent interest.
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.
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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 the Dupe Master Collection, Getty Communications' core
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.
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, respectively, 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.
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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, 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.
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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
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 (46.5 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.
LIQUIDITY AND CAPITAL RESOURCES
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.
CASH FLOWS. 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 Chief Executive Officer, 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.
Mr. Bailey is a founder of Cambridge Associates, Inc., an investment consulting
firm, and has served as its President since its formation in May 1973. 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, including 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., an
independent provider of research and analysis on the computer hardware,
software, communications and related information technology industries, and a
non-executive director of Brunswick Corporation. Mr. Fernandez has been Chief
Executive Officer of Gartner Group, Inc. since April 1991. Prior to joining
Gartner Group, Mr. Fernandez was President and Chief Executive of Dataquests
Inc., Gavilan Computer Corporation and Zilog, Incorporated.
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.
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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' 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 February 1996. From 1989 to
December 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 until Mr. Mayes joined Getty Communications, 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 as Group Services Director in February 1997. From
1995 to January 1997, he was Managing Director of Wace Corporate Imaging. From
1988 to 1995, Mr. Smith worked in a number of production roles at RR Donnelley
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 as Managing Director, Tony Stone
Images and Hulton Getty in October 1997. From 1990 until joining the group in
October 1997, he held various divisional Chief Executive positions at Reed
Elsevier plc. 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. From 1996 until joining
Getty Communications, Mr. Woodhouse was Executive Director of Strategic
Development of Rennis Travel Pty, a travel and travel-related services company.
During 1995, he was an Associate Partner at PA Consulting Group, a London-based
international management consulting firm. From 1990 to 1995, Mr. Woodhouse held
various executive positions at The Thomas Cook Group Ltd., a travel and travel-
related services company.
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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 ten
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> <C>
PERCENT OF PERCENT OF
ISSUED TOTAL
NUMBER OF PERCENT SHARE VOTING
BENEFICIAL OWNER SHARES OF CLASS CAPITAL POWER(1)
- -------------------------------------------------------------- ----------------- ----------- ----------- -----------
Getty Class B Ordinary Shares(2):
Getty Investments(3)........................................ 10,954,210 81.4% 28.6% 69.0%
October 1993 Trust(4)....................................... 1,245,204 9.3 3.3 7.8
Crediton Limited(5)......................................... 1,245,204 9.3 3.3 7.8
Getty Class A Ordinary Shares:
Carlton Communications B.V.(6).............................. 3,738,762 15.6 9.8 2.4
Getty Investments........................................... 2,089,882 8.6 5.5 1.3
Directors and officers as a group; Getty Class A Ordinary and
Getty Class B Ordinary Shares............................... 4,152,208 -- 10.8 16.7
</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 an Isle of Man company of which the sole beneficiary is
Mr. Jonathan Klein. 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. Carlton and Getty Communications have agreed
to terminate such agreement in connection with the Transactions. Carlton
currently owns approximately 10 percent of the issued Getty Ordinary Shares.
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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. As a pioneer in the royalty-free segment, PhotoDisc has
established itself as the leader in terms of customer recognition and revenues
generated.
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 and has
established PhotoDisc as the premier brand for royalty-free images.
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 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. Established in 1992,
PhotoDisc believes that it was the first provider of high-resolution, royalty-
free digital images on CD-ROM. 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).
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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 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 PhotoDisc's award
winning (e.g., PC WEEK, 1997, Top 10 Sites for Electronic Commerce, and First
Place Award Online Marketing--The 1997 Software Summit Awards) 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 believes that the ease
of use of its Web site, coupled with its recognition within the industry, has
established PhotoDisc as the leader in the electronic delivery of images.
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
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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.
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's 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 16% of PhotoDisc's revenues in 1996 and the first nine
months 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
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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 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.
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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.
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 226 full-time employees, 108 of whom
were in sales and marketing, 57 of whom were involved in product and content
development and 61 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 executive offices in Seattle. 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.
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.
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The selected consolidated financial data as of and for the nine month
periods ended September 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 nine-month periods ended September 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>
NINE
MONTHS
ENDED
SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
----------------------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996 1996
--------- --------- --------- --------- --------- ---------
<CAPTION>
$ $ $ $ $ $
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO OF EARNINGS TO FIXED
CHARGES DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales.................................................... 387 1,480 4,709 12,512 28,231 19,831
Cost of sales............................................ 106 429 1,390 3,042 6,102 4,121
--------- --------- --------- --------- --------- ---------
Gross profit............................................. 281 1,051 3,319 9,470 22,129 15,710
Operating expenses....................................... 499 1,109 2,813 7,138 17,913 12,527
--------- --------- --------- --------- --------- ---------
Operating income/(loss).................................. (218) (58) 506 2,332 4,216 3,183
Other income/(expense)................................... 51 26 79 (40) 96 34
--------- --------- --------- --------- --------- ---------
Income before income tax expense......................... (167) (32) 585 2,292 4,312 3,217
Income tax expense....................................... -- -- -- 817 1,600 1,194
--------- --------- --------- --------- --------- ---------
Net income/(loss)........................................ (167) (32) 585 1,475 2,712 2,023
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Net income/(loss) per share.............................. (0.02) 0.00 0.07 0.13 0.23 0.18
Shares used in computing per share amounts............... 6,964 9,050 8,967 10,952 11,756 11,517
OPERATING DATA:
EBITDA(1)................................................ (161) 35 673 2,668 5,386 4,003
Ratio of earnings to fixed charges(2).................... -- -- 15.27 30.01 25.50 26.53
Deficiency of earnings to fixed charges(3)............... 167 32 -- -- -- --
Net Cash provided by/used in:
Operating activities................................... 215 (62) 298 939 4,743 4,004
Investing activities................................... (340) (104) (283) (1,000) (3,865) (2,491)
Financing activities................................... 186 105 85 200 5,198 5,198
--------- --------- --------- --------- --------- ---------
Net increase/(decrease) in cash and cash equivalents..... 61 (61) 100 139 6,076 6,711
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
<CAPTION>
<S> <C>
1997
---------
$
<S> <C>
STATEMENT OF INCOME DATA:
Sales.................................................... 30,318
Cost of sales............................................ 5,746
---------
Gross profit............................................. 24,572
Operating expenses....................................... 21,798
---------
Operating income/(loss).................................. 2,774
Other income/(expense)................................... 116
---------
Income before income tax expense......................... 2,890
Income tax expense....................................... 1,078
---------
Net income/(loss)........................................ 1,812
---------
---------
Net income/(loss) per share.............................. 0.14
Shares used in computing per share amounts............... 13,134
OPERATING DATA:
EBITDA(1)................................................ 4,516
Ratio of earnings to fixed charges(2).................... 12.16
Deficiency of earnings to fixed charges(3)............... --
Net Cash provided by/used in:
Operating activities................................... 3,785
Investing activities................................... (4,313)
Financing activities................................... (2,000)
---------
Net increase/(decrease) in cash and cash equivalents..... (2,528)
---------
---------
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT
----------------------------------------------------- SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C>
$ $ $ $ $ $
BALANCE SHEET DATA:
Cash and cash equivalents................................ 61 -- 100 239 6,315 3,787
Total assets............................................. 506 641 1,500 3,843 14,705 16,852
Long-term debt, net of current maturities................ 487 114 84 95 -- --
Total shareholders' equity............................... 19 (43) 514 1,598 10,437 10,269
</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. As defined by PhotoDisc, EBITDA may not be
comparable to other similarly titled measures used by other companies.
(2) Ratio of earnings to fixed charges means the ratio of net income (before
fixed charges and income taxes) to fixed charges, where fixed charges are
the aggregate of interest, amortization of the costs relating to debt and an
allocation of rental charges to approximate equivalent interest.
(3) Deficiency of earnings to fixed charges means the deficiency between income
(before fixed charges and income taxes) to fixed charges.
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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 to manipulate and edit digital images became
available 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.
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<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1996
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------
<S> <C> <C> <C> <C>
PERCENT OF PERCENT OF
1996 NET REVENUES 1997 NET REVENUES
--------- ------------- --------- -------------
<CAPTION>
$ $
(IN THOUSANDS, EXCEPT RATIO OF EARNINGS TO
FIXED CHARGES AND PERCENTAGES)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales.............................................................. 19,831 100.0% 30,318 100.0%
Gross profit....................................................... 15,710 79.2 24,572 81.0
Operating expenses................................................. 12,527 63.2 21,798 71.9
Operating income................................................... 3,183 16.1 2,774 9.1
Net income......................................................... 2,023 10.2 1,812 6.0
OPERATING DATA:
EBITDA(1).......................................................... 4,003 20.2% 4,516 14.9%
--------- ----- --------- -----
--------- ----- --------- -----
Ratio of earnings to fixed charges(2).............................. 26.53 12.16
Net cash provided by/(used in):
Operating activities............................................. 4,004 3,785
Investing activities............................................. (2,491) (4,313)
Financing activities............................................. 5,198 (2,000)
Net increase/(decrease) in cash and cash equivalents............... 6,711 (2,528)
</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.
(2) Ratio of earnings to fixed charges means the ratio of net income (before
fixed charges and income taxes) to fixed charges, where fixed charges are
the aggregate of interest, amortization of the costs relating to debt and an
allocation of rental charges to approximate equivalent interest.
SALES. PhotoDisc's sales for the nine months ended September 30, 1997 were
$30.3 million, an increase of $10.5 million or 53 percent over the nine months
ended September 30, 1996. This increase was due to continued expansion of
international sales, which increased 87 percent to $9.8 million, an increase of
$4.0 million or 521 percent in sales of single images from PhotoDisc's Web site,
which exceeded $500,000 in June for the first time, 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 $4.1 million in the nine months ended
September 30, 1996 to $5.7 million in the nine months ended September 30, 1997.
This increase was due to increases in the volume of products sold. As a
percentage of sales, gross profit increased from 79.2 percent to 81.0 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 $21.8 million or 71.9 percent of sales
for the nine months ended September 30, 1997 compared to $12.5 million or 63.2
percent of sales for the nine months ended September 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. In addition, approximately $400,000 of costs
associated with the proposed transaction with Getty Communications were expensed
as incurred during the nine months ended September 30, 1997. PhotoDisc employed
147 and 226 persons on a full-time basis as of September 30, 1996 and 1997,
respectively.
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Due to the investment in these departments, overall expenses increased at a
faster rate than revenue during the first nine 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 $116,000 in the nine
months ended September 30, 1997 compared to other income of $34,000 for the nine
months ended September 30, 1996. The increase was due to interest earned on the
proceeds of an equity investment completed in June 1996.
EBITDA. EBITDA increased 12.8 percent to $4.5 million from $4.0 million for
the nine months ended September 30, 1997, compared to the same period in the
prior year. As a percentage of sales, EBITDA declined from 20.2 percent for the
nine months ended September 30, 1996 to 14.9 percent for the nine months ended
September 30, 1997. This decline was due to the increases in overall operating
costs.
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 RATIO OF EARNINGS TO
FIXED CHARGES AND 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%
--------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- -----
Ratio of earnings to fixed charges(2)................ 15.27 30.01 25.50
Net cash provided by/(used in):
Operating activities............................... 298 939 4,743
Investing activities............................... (283) (1,000) (3,865)
Financing activities............................... 85 200 5,198
Net increase/(decrease) in cash and cash
equivalents........................................ 100 139 6,076
</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.
(2) Ratio of earnings to fixed charges means the ratio of net income (before
fixed charges and income taxes) to fixed charges, where fixed charges are
the aggregate of interest, amortization of the costs relating to debt and an
allocation of rental charges to approximate equivalent interest.
123
<PAGE>
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 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. See "--Liquidity and Capital
Resources" below for a discussion of operating, investing and financing cash
flows.
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 nine-month period
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<PAGE>
ended September 30, 1997 was $3.8 million compared to $4.0 million for the nine
months ended September 30, 1996. This decrease was due primarily to a decline in
operating income for the nine-month period ended September 30, 1997 compared to
the same period in 1996.
PhotoDisc's investing activities used cash of $283,000, $1.0 million, $3.9
million, $2.5 million and $4.3 million for the years ended December 31, 1994,
1995 and 1996, and the nine-month periods ended September 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 nine months ended September 30,
1997 compared to the nine months ended September 30, 1996 is primarily due to
the continued investment in new information systems.
PhotoDisc's financing activities provided cash of $85,000, $200,000, $5.2
million and $5.2 million for the years ended December 31, 1994, 1995 and 1996,
and the nine-month period ended September 30, 1996, respectively, and used $2.0
million in the nine month period ended September 30, 1997. 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. The use of cash during the nine
months ended September 30, 1997 resulted from the repurchase of 333,334 shares
of PhotoDisc Common Stock from a principal shareholder in August 1997. See
"--Certain Related Party Transactions".
As of September 30, 1997, PhotoDisc's principal sources of liquidity were
cash and short-term investments of approximately $3.8 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.
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.
FOREIGN EXCHANGE RATE RISK
Historically, no foreign country or geographical area has accounted for more
than 10% of PhotoDisc's sales in any of the periods presented. Futhermore, in
those international markets in which PhotoDisc participates, PhotoDisc has
attempted to match costs and revenues in terms of local currencies.
International selling, distribution, and support costs are generally paid in
local currencies and since much of PhotoDisc's international operating expense
is incurred in local currencies, the effect of fluctuating exchange rates is
partially mitigated. However, PhotoDisc anticipates that as it continues its
expansion on a global basis, there may be instances in which costs and revenues
will not be matched with respect to currency denomination. As a result,
PhotoDisc anticipates that increasing portions of its revenues, costs, assets
and liabilities may be subject to fluctuations in foreign currency valuations,
and that such changes in exchange rates may have a material adverse effect on
PhotoDisc's business, financial condition and results of operations.
125
<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 J. 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.................................. 29 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 and is a
member of the Compensation Committee. 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 January 1993 until April 1994,
Mr. Heston was a consultant to PhotoDisc. 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 September 1995 to March 1997.
She was also a senior management consultant with Satellite Market Resources from
September 1992 to November 1996 and a Seattle public school teacher from
September 1993 to June 1994. From August 1991 until August 1993, Ms. von Bargen
studied to receive her M.A. in Education from Seattle University. Ms. von Bargen
also holds a B.A. in Art and Psychology from the University of California, Santa
Cruz.
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
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<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 November 1994 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. From March 1996 until March 1997, she was Director of Content
Development. From September 1991 to May 1994, she was a graduate student at the
University of Washington. 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 variously as Vice
President of Asia Pacific and Vice President of International Micrografx, Inc.
and as President and Chairman of the Board of its Japanese subsidiary,
Micrografx K.K., from June 1992 until 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 1997 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 a Director of PhotoDisc since September 1997.
Prior to September 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.
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<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>
PERCENT OF
NUMBER OUTSTANDING
OF SHARES CAPITAL STOCK(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 J. 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) above. Mr. Torrance's address is 2013
Fourth Avenue, Seattle, Washington 98121.
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<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) above.
(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, who 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 the Marshall Building in Seattle,
Washington from Mr. Torrance at the current rate of $43,059.97 per month. A
portion of this office space, amounting to
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14,435 square feet, is subject to a lease 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. The remaining office and warehouse space
occupied by PhotoDisc in the Marshall building, amounting to a total of 22,914
square feet, is occupied pursuant to several oral agreements between PhotoDisc
and Mr. Torrance, which establish tenancies on a month-to-month basis. PhotoDisc
acts as agent with respect to the remaining 9,608 square feet in the Marshall
Building which is occupied by other tenants for which PhotoDisc is paid a
service and maintenance fee of $1,375 per month. PhotoDisc and Mr. Torrance are
currently in the process of negotiating a master lease under which PhotoDisc
will lease the entire Marshall Building (46,957 total square feet), of which
9,608 square feet will continue to be occupied by other tenants. This new lease
is expected to have a term of five years beginning November 1, 1997, will
provide for rent at the rate of $14.00 per square foot, which the Company
believes is a fair market rate, and under which Mr. Torrance will continue to
pay a monthly service and maintenance fee of $1,375. In addition, PhotoDisc has
made certain improvements to the Marshall Building in the amount of
approximately $360,000, for which it will be reimbursed by a reduction in
monthly lease payments ratably over the term of the lease. 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 50,000,000 shares of Getty Images Common Stock, and 5,000,000
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. Assuming that the Average Trading Price of Getty Communications
ADSs at Closing is $14.34 (which was the average closing price during the ten
trading days prior to December 18, 1997) and on the basis of the other
assumptions described in "Unaudited Condensed Pro Forma Consolidated Financial
Information", after giving effect to the Transactions, approximately 26.9
million shares of Getty Images Common Stock will be outstanding and
approximately 7.0 million additional shares of Getty Images Common Stock will be
reserved for issuance upon the exercise of options. (assuming that all currently
outstanding options to purchase Getty Ordinary Shares are rolled over at Closing
into options to purchase Getty Images Shares).
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 5,000,000 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 Getty Images 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 Getty Images Preferred Stock
outstanding and Getty Images currently has no plans to issue any Getty Images
Preferred Stock.
DELAWARE ANTI-TAKEOVER STATUTE
Getty Images is a Delaware corporation and subject to Section 203 of the
Delaware General Corporation Law, an anti-takeover 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
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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
anti-takeover effect with respect to transactions not approved in advance by the
Getty Images 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
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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
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 The
Bank of New York.
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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 the 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 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, 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 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 at which all shares 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.
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.
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
or 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 Getty Images 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
three-fourths 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 United Kingdom 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
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companies, such 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 and 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. 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 United Kingdom.
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 the 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 Bylaws of PhotoDisc (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 will consist of 55,000,000
shares of capital stock, consisting of (i) 50,000,000 shares of Getty Images
Common Stock and (ii) 5,000,000 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 listed
on a national securities exchange, authorized for quotation on the Nasdaq Stock
Market 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 at
which all shares 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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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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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. A preliminary allocation of the
purchase price has been reflected in the Pro Forma Consolidated Financial
Information to the extent that the excess of the purchase price over the
historical net asset position of PhotoDisc has been allocated to goodwill. A
final allocation of the purchase price is dependent upon certain valuations and
other studies that have not progressed to a stage where there is sufficient
information to make such an allocation in the accompanying Pro Forma
Consolidated Financial Information. Certain valuations of intangible assets,
including customers lists, trademarks and contracts will have to be carried out.
Getty Images will not complete the valuations until after the Closing. Getty
Images believes that the portion of the purchase price in excess of the existing
carrying value of PhotoDisc's net assets primarily comprises goodwill and other
long lived intangible assets such as trademarks and, accordingly, Getty Images
believes that, once the valuations and other studies are completed, the
resulting allocation of purchase price will not result in an overall result
significantly different from the preliminary allocation and period of
amortization assumed for the purposes of the Pro Forma Consolidated Financial
Information.
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 nine months ended September 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
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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.
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 $14.34 (which was the average closing price of the Getty
Communications ADSs on the Nasdaq National Market during the ten trading days
prior to December 18, 1997); (ii) the closing trading price of Getty
Communications ADSs on the Nasdaq National Market on the date immediately
preceding the Closing will be $15.75 (which was the closing trading price on
December 17, 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 $2,600,000; (iv) the aggregate
transaction expenses incurred by Getty Images will be $7,000,000; (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.
Based on these assumptions, the calculation of the Merger Consideration is
illustrated below:
Stock Consideration per share of PhotoDisc Common Stock:
<TABLE>
<CAPTION>
<S> <C> <C>
Starting number of shares of Getty Images Common Stock............................ 12,400,000
Less:
Amount of cash payment to holders of Series A Preferred Stock................... $3,361,601
Divided by the Average Trading Price of Getty Communications ADSs at Closing.... $ 14.34 (234,421)
Less:
50% of the Adjusted Closing Estimate of the Shared Expenses..................... $1,560,000
Divided by the Average Trading Price of Getty Communications ADSs at Closing.... $ 14.34 (108,787)
12,056,792
---------
Divided by the fully diluted number of shares of PhotoDisc Common Stock........... 13,440,731
---------
The PhotoDisc Exchange Ratio...................................................... 0.8970
---------
Multiplied by 0.8................................................................. 0.7176
---------
---------
Cash Consideration per share of PhotoDisc Common Stock:
Average Trading Price of Getty Communications ADSs at Closing................... $ 14.34
Multiplied by 0.9............................................................... $ 12.91
Multiplied by the PhotoDisc Exchange Ratio (0.8970)............................. $ 11.58
Multiplied by 0.2............................................................... $ 2.32
---------
---------
</TABLE>
An increase in the Average Trading Price of Getty Communications ADSs at
Closing from $14.34 by one U.S. dollar and an increase in the closing trading
price of Getty Communications ADSs on the Nasdaq National Market on the date
immediately preceding the Closing from $15.75 by one U.S. dollar would
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<PAGE>
leave the fully diluted pro forma loss per share for the nine-month period ended
September 30, 1997 unchanged at $0.10 and increase the fully diluted pro forma
loss per share from $0.20 to $0.21 for the year ended December 31, 1996. There
would be a corresponding increase in book value per share at September 30, 1997
from $9.91 to $10.21.
A decrease in the Average Trading Price of Getty Communications ADSs at
Closing from $14.34 by one U.S. dollar and a decrease in the closing trading
price of Getty Communications ADSs on the Nasdaq National Market on the date
immediately preceding the Closing from $15.75 by one U.S. dollar would reduce
the fully diluted pro forma loss per share from $0.10 to $0.09 for the
nine-month period ended September 30, 1997 and from $0.20 to $0.19 for the year
ended December 31, 1996. There would be a corresponding decrease in book value
per share at September 30, 1997 from $9.91 to $9.61.
The following table sets forth the Merger Consideration and certain pro
forma financial data for a range of Average Trading Prices of Getty
Communications ADSs at Closing and closing trading price of Getty Communications
ADSs on the Nasdaq National Market, based upon the assumptions described above:
<TABLE>
<CAPTION>
Average Trading Price of Getty Communications ADSs at
Closing............................................... $12.00 $14.34(1) $15.00 $18.00
<S> <C> <C> <C> <C>
Number of shares of Getty Images Common Stock to be
issued at the Effective Time per share of PhotoDisc
Common Stock.......................................... 0.7048 0.7176 0.7205 0.7310
Amount of cash to be paid at the Effective Time per
share of PhotoDisc Common Stock....................... $1.90 $2.32 $2.43 $2.96
Fully diluted pro forma loss per share for the
nine-month period ended September 30, 1997............ $0.05 $0.10 $0.09 $0.14
Fully diluted pro forma loss per share for the year
ended December 31, 1997............................... $0.14 $0.20 $0.20 $0.25
Book value per share at September 30, 1997.............. $8.81 $9.91 $9.70 $10.60
</TABLE>
- ------------------------------
(1) The average closing price of Getty Communications ADSs during the ten
trading days prior to December 18, 1997, the latest practicable date prior
to the date of this Prospectus. The closing trading price of Getty
Communications ADSs on the Nasdaq National Market on December 17, 1997 was
$15.75.
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UNAUDITED CONDENSED PRO FORMA CONSOLIDATED INCOME STATEMENT
NINE MONTHS ENDED SEPTEMBER 30, 1997
The following unaudited condensed pro forma income statement for the nine
months ended September 30, 1997 is derived from the unaudited historical
condensed consolidated income statement of Getty Communications for the nine
months then ended and the unaudited historical condensed consolidated income
statement of PhotoDisc for the nine 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>
ADJUSTMENTS
GETTY 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 AND RATIO OF EARNINGS TO FIXED
CHARGES DATA)
<S> <C> <C> <C> <C> <C>
Sales................................... 75,260 30,318 105,578
Cost of sales........................... (28,272)* (5,746) 921 (33,097)*
------- ----------- ------ ------------
Gross profit............................ 46,988 24,572 921 72,481
Selling, general and administrative
expenses............................... (32,981) (21,798) 631 (54,148)
------------
Amortization of intangibles............. (2,280) -- (6,814)(a) (9,094)
Depreciation............................ (5,678) -- (1,552) (7,230)
------- ----------- ------ ------ ------------
Operating income........................ 6,049 2,774 -- (6,814) 2,009
Net interest income/(expense)........... 1,078 161 (2,483)(b) (1,244)
Other expense........................... -- (45) (45)
Exchange losses......................... (177)* -- (177)
------- ----------- ------ ------ ------------
Income before income taxes.............. 6,950 2,890 -- (9,297) 543
Income taxes............................ (3,227) (1,078) 944(c) (3,361)
------- ----------- ------ ------------
Net income/(loss)....................... 3,723 1,812 -- (8,353) (2,818)
------- ----------- ------ ------ ------------
------- ----------- ------ ------ ------------
EBITDA.................................. 14,007 4,326 -- 18,333
------- ----------- ------ ------------
------- ----------- ------ ------------
Ratio of earnings to fixed charges...... 1.11
------------
------------
Net cash provided by/(used in):
Operating activities.................. 12,823 3,785 (2,415)(b) 14,193
Investing activities.................. (32,366) (4,313) (36,679)
Financing activities.................. (3,303) (2,000) (7,599)(d) (12,902)
Loss per share--primary................. (0.10)
------------
------------
--fully diluted............. (0.10)
------------
------------
Average number of shares
outstanding--primary................... 26,914
------------
------------
--fully diluted.............. 28,900
------------
------------
</TABLE>
- ------------------------
* GETTY COMMUNICATIONS' AND PRO FORMA COST OF SALES ARE EXCLUSIVE OF
DEPRECIATION, WHICH IS INCLUDED IN DEPRECIATION SEPARATELY BELOW.
SEE ACCOMPANYING NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL INFORMATION ON
PAGES 155 TO 160.
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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(1A) 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 22,129 724 75,711
Selling, general and administrative
expenses............................... (37,250) (17,913) 273 (54,890)
Amortization of intangibles............. (2,155) -- (9,085)(a) (11,240)
Depreciation............................ (5,486) -- (997) (6,483)
------- ----------- --- ------- ------------
Operating income........................ 7,967 4,216 -- (9,085) 3,098
Net interest income/(expense)........... (1,951) 94 (3,526)(b) (5,383)
Other income............................ -- 2 2
Exchange losses......................... (306) -- (306)
------- ----------- --- ------- ------------
Income before income taxes.............. 5,710 4,312 -- (12,611) (2,589)
Income taxes............................ (2,982) (1,600) 1,340(c) (3,242)
------- ----------- --- ------- ------------
Net income/(loss)....................... 2,728 2,712 -- (11,271) (5,831)
------- ----------- --- ------- ------------
------- ----------- --- ------- ------------
EBITDA.................................. 15,608 5,213 20,821
------- ----------- ------------
------- ----------- ------------
Deficiency of earnings to fixed
charges................................ 2,589
------------
------------
Net cash provided by/(used in):
Operating activities.................. 13,502 4,743 (3,435)(b) 14,810
Investing activities.................. (25,953) (3,865) (40,526)(3a) (70,344)
Financing activities.................. 64,290 5,198 91 (1b 40,074(d) 109,653
Loss per share--primary................. (0.22)
------------
------------
--fully diluted............. (0.20)
------------
------------
Average number of shares
outstanding--primary................... 26,914
------------
------------
--fully diluted.............. 28,900
------------
------------
</TABLE>
- ------------------------
* GETTY COMMUNICATIONS' AND PRO FORMA COST OF SALES ARE EXCLUSIVE OF
DEPRECIATION, WHICH IS INCLUDED IN DEPRECIATION SEPARATELY BELOW.
SEE ACCOMPANYING NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL INFORMATION ON
PAGES 155 TO 160.
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<PAGE>
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET
AT SEPTEMBER 30, 1997
The following unaudited condensed pro forma balance sheet at September 30,
1997 is derived from the unaudited historical condensed consolidated balance
sheet of Getty Communications at September 30, 1997 and the unaudited historical
condensed consolidated balance sheet of PhotoDisc at September 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 September 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.................... 33,006 3,787 (2,100) (452)(b) 34,241
Accounts receivable.......................... 23,813 2,454 26,267
Inventories.................................. -- 2,006 2,006
Income taxes receivable...................... -- 582 582
Prepaid expenses and other assets............ 5,334 596 5,930
------- ----------- ------ ------- -------------
Total current assets....................... 62,153 9,425 (2,100) (452) 69,026
Fixed assets, net............................ 37,061 6,448 43,509
Intangible assets............................ 66,683 249 181,704(a) 248,636
Other long-term assets....................... -- 730 730
Deferred assets.............................. 4,547 -- 4,547
------- ----------- ------ ------- -------------
Total assets............................... 170,444 16,852 (2,100) 181,252 366,448
------- ----------- ------ ------- -------------
------- ----------- ------ ------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable............................. 20,612 3,381 23,993
Accrued expenses............................. 16,135 2,381 18,516
Income taxes payable......................... -- 779 779
Short-term borrowing, including current
portion of long-term debt.................. 2,426 -- 2,426
------- ----------- -------------
Total current liabilities.................. 39,173 6,541 45,714
Long-term debt................................. 13,954 -- 4,882 35,192(b) 54,028
Deferred Taxes............................. -- 42 42
------- ----------- ------ ------- -------------
Total liabilities.......................... 53,127 6,583 4,882 35,192 99,784
------- ----------- ------ ------- -------------
Shareholders' equity
Common stock................................. 608 84 7 (430)(g) 269
Preferred stock.............................. -- 17 (17)(g) --
Additional paid-in capital................... 108,052 4,250 84 9,683(g) 122,069
Note receivable from shareholder............. -- (18) 18 --
Retained earnings............................ 8,203 5,938 (7,073) 1,135(g) 8,203
Cumulative translation adjustments........... 454 (2) 2(g) 454
Equity restructuring adjustments............. -- -- -- 135,669(g) 135,669
------- ----------- ------ ------- -------------
Total shareholders' equity................. 117,317 10,269 (6,982) 146,060 266,664
------- ----------- ------ ------- -------------
Total liabilities and shareholders'
equity................................... 170,444 16,852 (2,100) 181,252 366,448
------- ----------- ------ ------- -------------
------- ----------- ------ ------- -------------
</TABLE>
SEE ACCOMPANYING NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL INFORMATION ON
PAGES 155 TO 160.
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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>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------- -------------------
$ (IN THOUSANDS) $
<S> <C> <C>
COST OF SALES
Reclassification of credit card costs to selling, general and
administrative expenses.................................................. 409 395
Reclassification of depreciation in respect of images to depreciation...... 512 329
------ -----
921 724
------ -----
------ -----
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Reclassification of credit card costs from cost of sales................... (409) (395)
Reclassification of depreciation in respect of assets other than images to
depreciation............................................................. 1,040 668
------ -----
631 273
------ -----
------ -----
DEPRECIATION
Reclassification of depreciation, as above................................. (1,552) (997)
------ -----
------ -----
</TABLE>
156
<PAGE>
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NOTE 1--ADJUSTMENTS TO PHOTODISC HISTORICAL FINANCIAL STATEMENTS (CONTINUED)
(B) PHOTODISC BALANCE SHEET ADJUSTMENTS:
<TABLE>
<CAPTION>
AS AT SEPTEMBER 30, 1997
-------------------------
$
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS
Receipt of cash as a result of exercise of the outstanding warrants to purchase
an aggregate of 500,880 shares of PhotoDisc Common Stock at $0.125 per share
and 167,599 shares of PhotoDisc Common Stock at $0.1575 per share, which will
be exercised in connection with the Transactions or expire.................... 91
Closing Estimate of PhotoDisc's transaction expenses............................ (2,600)
Less: PhotoDisc transaction expenses incurred at September 30, 1997............. 409 (2,191)
---------
(2,100)
------
------
LONG TERM DEBT
Cash paid to holders of options over shares of PhotoDisc Common Stock prior to
the Effective Time............................................................ 4,882
------
------
COMMON STOCK
Par value of new shares issued as a result of exercise of warrants over shares
of 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
------
------
RETAINED EARNINGS
Closing estimate of PhotoDisc's transaction expenses............................ (2,600)
Less: PhotoDisc transaction expenses incurred at September 30, 1997............. 409 (2,191)
---------
Cash paid to holders of options over shares of PhotoDisc Common Stock prior to
the Effective Time............................................................ (4,882)
------
(7,073)
------
------
</TABLE>
157
<PAGE>
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NOTE 2--PRO FORMA ADJUSTMENTS TO INCOME STATEMENTS AND SUMMARIZED STATEMENTS OF
CASH FLOWS
The pro forma adjustments comprise the following:
(a) The acquisition of PhotoDisc generates goodwill of $181,704,000, based
on the preliminary allocation of purchase price (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 $6,814,000 for the nine-month
period ended September 30, 1997 and $9,085,000 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 $40,526,000 (see Note 3b).
Interest on this debt is payable at 1.25% above U.S. dollar LIBOR, which is
assumed to be 7.50% for the purposes of this Pro Forma Financial Information
(which was the rate quoted by BT Alex. Brown Incorporated on December 17, 1997).
The resulting interest charge to the income statements, had the combination
taken place on January 1, 1996, would have been as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED DECEMBER
SEPTEMBER 30, 1997 31, 1996
------------------- -------------------
$ (IN THOUSANDS) $
<S> <C> <C>
Interest at 7.25% per annum, reflecting repayment of
principal in accordance with the agreed repayment
profile.............................................. 2,415 3,435
Amortization of arrangement fee over a five-year
period............................................... 68 91
----- -----
2,483 3,526
----- -----
----- -----
</TABLE>
The variable interest rate assumed above is based on rates prevailing as at
December 17, 1997. A 1/8 percent variance in variable interest rates has an
impact of $34,000 and $48,000 on the pro forma interest expense for the
nine-month period ended September 30, 1997 and the year ended December 31, 1996,
respectively.
(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 $944,000 for the nine-month period
ended September 30, 1997 and $1,340,000 for the year ended December 31, 1996.
(d) The Transactions give rise to the following adjustments to cash (used
in)/provided by financing activities:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------- -----------------
$ (IN THOUSANDS) $
<S> <C> <C>
Proceeds of debt net of arrangement fee (see Note
3b).................................................. -- 40,074
Repayment of term debt (see Note 3b)................... (7,599) --
------ -------
(7,599) 40,074
------ -------
------ -------
</TABLE>
158
<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.......................................................................................... 28,384
Getty Images' transaction expenses................................................................. 7,000
Cash payment to holders of shares of PhotoDisc Common Stock, reflecting the difference between the
Adjusted Closing Estimate of PhotoDisc's transaction expenses and the Closing Estimate of
PhotoDisc's transaction expenses (assumed for the purposes of the Pro Forma Consolidated
Financial Information to be $2,600,000).......................................................... 260
-------------
DEBT REQUIRED (SEE NOTE 3B)........................................................................ 35,644
Stock Consideration--New Getty Images shares issued (7,755,352 @ $15.75)
(see Notes 3c and 3d)............................................................................ 122,147
Fair value of options over shares of PhotoDisc Common Stock converted to options over shares of
Getty Images Common Stock (see Note 3e).......................................................... 27,200
-------------
TOTAL PURCHASE PRICE............................................................................... 184,991
Estimated fair value of PhotoDisc (see Note 3f).................................................... (3,287)
-------------
GOODWILL ARISING ON THE MERGER..................................................................... 181,704
-------------
-------------
</TABLE>
(b) The debt required totalling $40,526,000, together with the associated
costs, are reflected in the pro forma balance sheet as follows:
<TABLE>
<CAPTION>
LONG-TERM DEBT
---------------
$
(IN THOUSANDS)
<S> <C>
Term debt.......................................................................................... 40,526
------
Cash paid to holders of shares of PhotoDisc Common Stock at Closing, reflected as an adjustment to
the PhotoDisc balance sheet...................................................................... (4,882)
------
35,644
Arrangement fee, paid from cash and cash equivalents............................................... (452)
------
35,192
------
------
</TABLE>
(c) 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.
(d) Of the number of shares of Getty Images Common Stock issued by way of
Stock Consideration, approximately 1.3 million are Escrow Shares. Escrow Shares
are included in the purchase price for accounting purposes.
(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.
(f) The estimated fair value of PhotoDisc is calculated as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
$
<S> <C>
Total shareholders' equity......................................................................... 10,269
Adjustments to PhotoDisc........................................................................... (6,982)
------
3,287
------
------
</TABLE>
159
<PAGE>
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NOTE 3--PRO FORMA ADJUSTMENTS TO BALANCE SHEET (CONTINUED)
(g) 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 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> <C>
COMMON STOCK
Elimination of shares of PhotoDisc Common Stock at par, following the exercise of
668,472 warrants over shares of PhotoDisc Common Stock........................... (91)
Elimination of Getty Ordinary Shares at par and issue of shares of Getty Images
Common Stock at a ratio of 1:2................................................... (417)
Shares of Getty Images Common Stock issued at par to PhotoDisc Shareholders........ 78
-------------
(430)
-------------
-------------
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................................... (4,334)
Elimination of additional paid-in capital of Getty Communications.................. (108,052)
Premium on shares of Getty Images Common Stock issued to holders of shares of
PhotoDisc Common Stock........................................................... 122,069
-------------
9,683
-------------
-------------
NOTE RECEIVABLE FROM SHAREHOLDER
Elimination of note receivable from shareholder.................................... 18
-------------
-------------
RETAINED EARNINGS
Elimination of PhotoDisc preacquisition retained earnings:
Reserves at September 30, 1997................................................... 5,938
Cash paid to holders of options over shares of PhotoDisc Common Stock prior to
the Effective Time............................................................. (4,882)
Closing Estimate of PhotoDisc's transaction expenses............................. (2,600)
Less: PhotoDisc transaction expenses incurred at September 30, 1997.............. 409 (2,191)
------------- -------------
(1,135)
-------------
-------------
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........................................................ 417
Elimination of additional paid-in capital of Getty Communications.................. 108,052
Fair value of options over shares of PhotoDisc Common Stock converted to options
over shares of Getty Images' Common Stock (see Note 3e).......................... 27,200
-------------
135,669
-------------
-------------
</TABLE>
(h) Options over shares of Getty Communications ADSs will convert into
equivalent options over shares of Getty Images Common Stock. This conversion
does not require the establishment of a new measurement date.
160
<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.
161
<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 December 19)............................................... 1.70 1.58 1.64 1.67
</TABLE>
- --------------------------
(1) The average of the Noon Buying Rates in effect on each day during the
relevant period. On December 19, 1997, the Noon Buying Rate was $1.6684 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.
162
<PAGE>
LIST OF DEFINED TERMS
<TABLE>
<CAPTION>
LOCATION OF
DEFINED TERM DEFINED TERM
- ---------------------------------------------------------------------------------------------------- ------------
<S> <C>
Adjusted Closing Estimate........................................................................... Page 51
Advent Atlantic..................................................................................... Page 128
Advent VII.......................................................................................... Page 128
Advent New York..................................................................................... Page 128
ADS Holders......................................................................................... Cover
ADS Record Date..................................................................................... Page 11
Affiliates.......................................................................................... Page 131
AGM................................................................................................. Page 136
Articles of Merger.................................................................................. Page 8
Average Trading Price of Getty Communications ADSs at Closing....................................... Cover
BARS................................................................................................ Page 6
briefs.............................................................................................. Page 96
BT Alex. Brown...................................................................................... Page 5
BT Alex. Brown Opinion.............................................................................. Page 5
Business Services Firms............................................................................. Page 38
capital............................................................................................. Page 135
Cash Consideration.................................................................................. Page 27
Carlton Agreement................................................................................... Page 92
Carlton............................................................................................. Page 11
Cause............................................................................................... Page 74
City Code........................................................................................... Page 139
Closing Estimate.................................................................................... Page 51
Closing............................................................................................. Cover
Closing Date........................................................................................ Page 64
Code................................................................................................ Page 38
Commission.......................................................................................... Page (i)
Companies Act....................................................................................... Cover
Company............................................................................................. Page 86
Corbis.............................................................................................. Page 20
Custodian........................................................................................... Page 133
Deposit Agreement................................................................................... Page 133
Depositary.......................................................................................... Cover
DGCL................................................................................................ Page 90
Digital Stock....................................................................................... Page 24
Dupe Master Collection.............................................................................. Page 93
dupes............................................................................................... Page 101
E&P................................................................................................. Page 55
EBITDA.............................................................................................. Page 15
Effective Time...................................................................................... Cover
EGM................................................................................................. Page 136
Employment Agreements............................................................................... Page 10
English High Court.................................................................................. Cover
EPS................................................................................................. Page 39
Escrow Agent........................................................................................ Page 61
Escrow Agreement.................................................................................... Page 9
Escrow Fund......................................................................................... Page 71
Escrow Shares....................................................................................... Page 9
</TABLE>
163
<PAGE>
<TABLE>
<CAPTION>
LOCATION OF
DEFINED TERM DEFINED TERM
- ---------------------------------------------------------------------------------------------------- ------------
<S> <C>
Exchange Act........................................................................................ Page (i)
Executive........................................................................................... Page 48
extraordinary resolutions........................................................................... Page 136
Extraordinary Corporate Event....................................................................... Page 68
Extraordinary Corporate Event Third Party........................................................... Page 68
Final Expense Amount................................................................................ Page 51
FTC................................................................................................. Page 6
Gamma Liaison....................................................................................... Page 94
Gamma Presse........................................................................................ Page 95
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 Affiliate...................................................................... Page 131
Getty Communications Articles of Association........................................................ Page 60
Getty Communications Board.......................................................................... Cover
Getty Communications Share Option Scheme............................................................ Page 4
Getty Communications Options........................................................................ Page 4
Getty Court Meeting................................................................................. Cover
Getty Demand Right.................................................................................. Page 73
Getty Deposit Agreement............................................................................. Cover
Getty EGM........................................................................................... Cover
Getty Group......................................................................................... Page 22
Getty Images........................................................................................ Cover
Getty Images Affiliate.............................................................................. Page 132
Getty Images Board.................................................................................. Page 8
Getty Images Bylaws................................................................................. Page 131
Getty Images Certificate of Incorporation........................................................... Page 25
Getty Images Common Stock........................................................................... Cover
Getty Images Incentive Plan......................................................................... Page 89
Getty Images Preferred Stock........................................................................ Page 130
Getty Images Shares................................................................................. Cover
Getty Investments................................................................................... Page 11
Getty Investments Board............................................................................. Page 32
Getty Investments Company Agreement................................................................. Page 91
Getty Investments Registration Rights Agreement..................................................... Page 73
Getty Ordinary Shares............................................................................... Cover
Getty Parties Shareholders' Agreement............................................................... Page 90
Getty Piggy-Back Right.............................................................................. Page 73
Getty Shareholders Circular......................................................................... Page 26
Getty Shareholders.................................................................................. Cover
Getty Shareholder Meetings.......................................................................... Cover
Getty Trademarks.................................................................................... Page 24
Getty Voting Shareholders........................................................................... Page 64
Good Reason......................................................................................... Page 74
Group............................................................................................... Page 72
HSR Act............................................................................................. Page 6
The Image Bank...................................................................................... Page 20
</TABLE>
164
<PAGE>
<TABLE>
<CAPTION>
LOCATION OF
DEFINED TERM DEFINED TERM
- ---------------------------------------------------------------------------------------------------- ------------
<S> <C>
Insolvency Act...................................................................................... Page 136
in-territory sales.................................................................................. Page 101
Internet............................................................................................ Page 1
Investors........................................................................................... Page 70
IRS................................................................................................. Page 54
Justice Department.................................................................................. Page 6
Loss................................................................................................ Page 66
Material Adverse Effect............................................................................. Page 65
Merger Sub.......................................................................................... Cover
Merger.............................................................................................. Cover
Merger Agreement.................................................................................... Cover
Merger Consideration................................................................................ Page 3
Merger Proposal..................................................................................... Cover
Net Purchase Price.................................................................................. Page 6
Non-U.S. Shareholder................................................................................ Page 52
Noon Buying Rate.................................................................................... Page (ii)
Offer Notice........................................................................................ Page 72
Offered Stock....................................................................................... Page 72
On-line Commerce Firms.............................................................................. Page 38
Option Plan......................................................................................... Page F-15
out-of-territory sales.............................................................................. Page 101
PDI................................................................................................. Page 10
PDI Demand Right.................................................................................... Page 73
PDI Piggy-Back Right................................................................................ Page 73
PDI Registration Rights Agreement................................................................... Page 73
PDI Shareholders.................................................................................... Page 10
Permitted Transferee................................................................................ Page 72
PhotoDisc........................................................................................... Cover
PhotoDisc Affiliate................................................................................. Page 131
PhotoDisc Articles of Incorporation................................................................. Page 26
PhotoDisc Board..................................................................................... Cover
PhotoDisc Bylaws.................................................................................... Page 144
PhotoDisc Common Stock.............................................................................. Cover
PhotoDisc Common Stock Warrants..................................................................... Page 29
PhotoDisc Common Shareholders....................................................................... Cover
PhotoDisc Exchange Ratio............................................................................ Page 27
PhotoDisc Image Collection.......................................................................... Page 2
PhotoDisc Options................................................................................... Page 4
PhotoDisc Record Date............................................................................... Page 12
PhotoDisc Share Certificates........................................................................ Page 61
PhotoDisc Shareholders.............................................................................. Cover
PhotoDisc Special Meeting........................................................................... Cover
PhotoDisc Stock Option Plan......................................................................... Page 4
PhotoDisc Voting Shareholders....................................................................... Page 78
PhotoDisc Voting Agreement.......................................................................... Page 78
Pro Forma Consolidated Financial Information........................................................ Page 149
Precedent Acquisitions.............................................................................. Page 46
Principal Shareholders.............................................................................. Page 9
Principal Shareholders' Representative.............................................................. Page 69
</TABLE>
165
<PAGE>
<TABLE>
<CAPTION>
LOCATION OF
DEFINED TERM DEFINED TERM
- ---------------------------------------------------------------------------------------------------- ------------
<S> <C>
Prospective Seller.................................................................................. Page 72
Proxy Rules......................................................................................... Page 133
Public Scheme Shares................................................................................ Page 11
Registration Rights Agreements...................................................................... Page 10
Registration Statement.............................................................................. Page (i)
rights-protected licensing.......................................................................... Page 80
royalty-free licensing.............................................................................. Page 80
Scheme of Arrangement............................................................................... Cover
Scheme Record Date.................................................................................. Page 76
Scheme Record Time.................................................................................. Page 76
Scheme Shares....................................................................................... Page 76
Section 212 Notice.................................................................................. Page 142
Securities Act...................................................................................... Page (i)
Series A Preferred Stock............................................................................ Cover
Shared Expenses..................................................................................... Page 51
Significant Stockholders............................................................................ Page 72
SOHO................................................................................................ Page 2
special resolutions................................................................................. Page 136
Stock Consideration................................................................................. Page 27
Stockholders' Agreement............................................................................. Page 9
Stockholders' Agreement Third Party................................................................. Page 72
Stockholders Transaction Agreement.................................................................. Page 9
Surplus............................................................................................. Page 135
Surviving Corporation............................................................................... Page 26
TA Ventures......................................................................................... Page 128
Ten Percent Shareholder............................................................................. Page 52
The Image Bank...................................................................................... Page 20
Tony Stone Images................................................................................... Page 15
Torrance Group...................................................................................... Page 22
Transaction Documents............................................................................... Page 67
Transactions........................................................................................ Cover
Treaty.............................................................................................. Page 51
U.K. GAAP........................................................................................... Page (ii)
U.S. GAAP........................................................................................... Page 6
U.S. Shareholder.................................................................................... Page 52
Visual Communications............................................................................... Page 20
WBCA................................................................................................ Page 8
Web................................................................................................. Page 1
</TABLE>
166
<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 nine months ended September 30, 1996
and 1997......................................................................... F-29
Consolidated Balance Sheets at December 31, 1996 and September 30, 1997............ F-30
Consolidated Statements of Cash Flows for the nine months ended September 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 September 30, 1997..... F-36
Consolidated Statements of Income for the years ended December 31, 1994, 1995 and
1996 and for the nine months ended September 30, 1996 and 1997..................... F-37
Consolidated Statements of Shareholders' Equity for the years ended December 31,
1994, 1995 and 1996 and for the nine months ended September 30, 1997............... F-38
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and
1996 and for the nine months ended September 30, 1996 and 1997..................... F-39
Notes to Consolidated Financial Statements........................................... F-40
</TABLE>
The Audited Consolidated Financial Statements and the Unaudited Interim
Consolidated Financial Statements of Getty Communications plc and Tony Stone
Associates Limited are presented in pounds sterling.
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 for the year ended December 31, 1996, 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 L863,000 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 Limited 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>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
SALES.................................................................... L40,553 L46,149
Cost of sales............................................................ 15,497 17,336
------- -------
GROSS PROFIT............................................................. 25,056 28,813
Selling, general and administrative expenses............................. 17,958 20,224
------- -------
OPERATING INCOME BEFORE AMORTIZATION AND DEPRECIATION.................... 7,098 8,589
Amortization of intangibles.............................................. 1,007 1,398
Depreciation............................................................. 2,574 3,482
------- -------
OPERATING INCOME......................................................... 3,517 3,709
Net interest (expense)/income............................................ (1,218) 661
Exchange (losses)........................................................ (226) (108)
------- -------
INCOME BEFORE INCOME TAXES............................................... 2,073 4,262
Income taxes............................................................. (1,213) (1,979)
------- -------
NET INCOME............................................................... L 860 L 2,283
------- -------
------- -------
NET INCOME PER SHARE..................................................... L 0.03 L 0.06
------- -------
------- -------
NET INCOME PER ADR(1).................................................... L 0.06 L 0.12
------- -------
------- -------
</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, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
<CAPTION>
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents......................................................... L34,441 L 20,432
Accounts receivable............................................................... 12,059 14,741
Prepaid expenses and other assets................................................. 2,184 3,302
------------ -------------
TOTAL CURRENT ASSETS.............................................................. 48,684 38,475
Fixed assets, net................................................................... 19,692 22,942
Intangible assets................................................................... 24,187 41,280
Deferred assets..................................................................... 2,981 2,815
------------ -------------
TOTAL ASSETS........................................................................ L95,544 L105,512
------------ -------------
------------ -------------
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable.................................................................. L10,708 L 12,760
Accrued expenses.................................................................. 5,229 9,988
Income taxes payable.............................................................. 1,104 --
Short-term borrowings, including current portion of long-term debt................ 1,700 1,502
------------ -------------
TOTAL CURRENT LIABILITIES......................................................... 18,741 24,250
Long-term debt...................................................................... 10,466 8,638
------------ -------------
TOTAL LIABILITIES................................................................... 29,207 32,888
------------ -------------
SHAREHOLDERS' EQUITY
Common stock...................................................................... 373 382
Additional paid-in capital........................................................ 63,261 67,281
Retained earnings................................................................. 2,618 4,961
Cumulative translation adjustments................................................ 85 --
------------ -------------
TOTAL SHAREHOLDERS' EQUITY........................................................ 66,337 72,624
------------ -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.......................................... L95,544 L105,512
------------ -------------
------------ -------------
</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>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................... L 860 L 2,283
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization.......................................... 3,581 4,880
Other items............................................................ -- 184
Net change in assets and liabilities................................... 2,284 516
-------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES................................ 6,725 7,863
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Business acquisitions, net of cash acquired............................ (10,988) (13,296)
Purchase of fixed assets............................................... (3,323) (6,551)
-------- -------
NET CASH USED IN INVESTING ACTIVITIES.................................... (14,311) (19,847)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of debt....................................................... 11,200 --
Changes in short-term borrowings....................................... (3,112) --
Payments on principal balance of debt.................................. (13,697) (2,025)
Proceeds from issuance of ordinary shares.............................. 20,312 --
-------- -------
NET CASH (USED IN)/PROVIDED BY FINANCING ACTIVITIES...................... 14,703 (2,025)
-------- -------
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS..................... 7,117 (14,009)
Cash and cash equivalents:
beginning of the period................................................ 1,223 34,441
-------- -------
end of the period...................................................... L 8,340 L20,432
-------- -------
-------- -------
</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
percent 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. 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 $26.4 million, including acquisition
costs, of which $6.6 million was settled by way of the issuance of 929,609 Getty
Class A shares. The balance was financed from cash resources. The excess of
purchase consideration over net assets acquired, estimated at $29.17 million,
has been allocated to goodwill.
Getty Communications is currently in discussions to acquire a visual content
company for payments of between L28 million and L29 million, of which between
L16 million and L17 million would be paid in the form of cash and approximately
L12 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 first quarter of 1998. 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). During the quarter ended September 30, 1997, 62,090 market options and
62,090 premium options originally granted in July 1996 lapsed.
F-32
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SHARE OPTION PLAN (CONTINUED)
In the event of the Scheme of Arrangement and Acquisition of PhotoDisc, Inc.
described in note 4 proceeding, options which have not otherwise vested will so
vest, for a period of one month following completion of that Scheme of
Arrangement.
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, including costs, is estimated at
$185,000,000, based on certain assumptions. The cash consideration payable to
shareholders of PhotoDisc, Inc. and the costs of the Merger Agreement, estimated
to amount to $41 million in total, are expected to be financed primarily by way
of a five-year term loan carrying interest of U.S. dollar LIBOR plus a margin of
1.25 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 L0.06 for the Company in the nine months ended
September 30, 1997 and is computed based on 38,603,000 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
F-33
<PAGE>
GETTY COMMUNICATIONS PLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. CONTINGENT LIABILITIES (CONTINUED)
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.
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 filed a motion
to dismiss certain of the claims on November 26, 1997. On November 24, 1997,
Getty Communications received a motion filed by the plaintiffs for a preliminary
injunction seeking, among other things, to enjoin the defendants from
disclosing, transferring or using confidential information and/or trade secrets
of Digital Stock and to enjoin the defendants from merging with or acquiring
PhotoDisc. A hearing on the preliminary injunction motion was held on December
22, 1997.
Getty Communications believes that the claims are without merit, denies the
allegations and intends to defend vigorously against the action. Getty
Communications further believes that the action will not have a material adverse
effect on its consolidated financial position or results of operations or on
completion of the pending acquisition of PhotoDisc.
7. CONTINGENCY RELATED TO GETTY TRADEMARKS
Getty Communications has agreed that in the event that Getty Communications
becomes controlled by a third party not affiliated with the Getty family, Getty
Investments L.L.C. will have the right to call for an assignment to it, for a
nominal sum, of all rights to the names Getty Communications and Hulton Getty on
giving 12 months' notice.
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 12, 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,
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 239 $ 6,315 $ 3,787
Trade accounts receivable, net of allowance of $103, $188 and $187............ 1,094 1,739 2,440
Other accounts receivable..................................................... 32 257 14
Inventories................................................................... 1,277 1,207 2,006
Deferred taxes................................................................ -- 171 582
Prepaid expenses.............................................................. 78 809 596
--------- --------- -------------
Total current assets...................................................... 2,720 10,498 9,425
Property and equipment:
Leasehold improvements........................................................ 17 95 130
Furniture and equipment....................................................... 289 936 1,123
Image Collection.............................................................. 531 1,800 2,887
Computer equipment............................................................ 630 2,296 5,013
--------- --------- -------------
1,467 5,127 9,153
Less accumulated depreciation................................................. (400) (1,205) (2,705 )
--------- --------- -------------
Total property and equipment.............................................. 1,067 3,922 6,448
Goodwill, net of accumulated amortization of $38................................ -- -- 249
Other, net of accumulated amortization of $145, $186 and $200................... 56 285 730
--------- --------- -------------
Total Assets.............................................................. $ 3,843 $ 14,705 $ 16,852
--------- --------- -------------
--------- --------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable........................................................ $ 933 $ 2,686 $ 3,381
Accrued payroll and related liabilities....................................... 185 756 1,266
Other accrued liabilities..................................................... 162 550 1,115
Taxes payable................................................................. 16 276 779
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 6,541
Long-term debt to bank, net of current maturities............................... 61 -- --
Long-term debt to shareholder, net of current maturities........................ 34 -- --
Deferred taxes.................................................................. -- -- 42
Commitments and contingencies................................................... -- -- --
--------- --------- -------------
Total liabilities......................................................... 2,245 4,268 6,583
--------- --------- -------------
Shareholders' equity:
Common stock, $.01 par value--authorized, 20,000,000 shares, issued and
outstanding, 1,108,942, 8,635,164 and 8,436,580 shares...................... 11 86 84
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 4,250
Note receivable from shareholder.............................................. -- -- (18 )
Retained earnings............................................................. 1,414 4,126 5,938
Foreign currency translation adjustment....................................... (2) (22) (2 )
--------- --------- -------------
Total shareholders' equity................................................ 1,598 10,437 10,269
--------- --------- -------------
Total liabilities and shareholders' equity................................ $ 3,843 $ 14,705 $ 16,852
--------- --------- -------------
--------- --------- -------------
</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
--------- --------- --------- NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1996 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales................................................... $ 4,709 $ 12,512 $ 28,231 $ 19,831 $ 30,318
Cost of sales:
Cost of royalties..................................... 655 1,158 2,416 1,735 2,530
Cost of finished product.............................. 735 1,884 3,686 2,386 3,216
--------- --------- --------- ----------- -----------
1,390 3,042 6,102 4,121 5,746
--------- --------- --------- ----------- -----------
Gross profit........................................ 3,319 9,470 22,129 15,710 24,572
Operating expenses:
Sales and marketing................................... 1,402 4,018 9,456 6,639 10,916
Customer service and fulfillment...................... 224 721 2,019 1,595 2,772
Product development................................... 461 802 2,306 1,523 2,867
General and administrative............................ 726 1,597 4,132 2,770 5,243
--------- --------- --------- ----------- -----------
Total operating expenses............................ 2,813 7,138 17,913 12,527 21,798
--------- --------- --------- ----------- -----------
Operating income.................................... 506 2,332 4,216 3,183 2,774
Other income (expense):
Interest income (expense)............................. (11) (28) 94 34 161
Other................................................. 90 (12) 2 -- (45)
--------- --------- --------- ----------- -----------
79 (40) 96 34 116
--------- --------- --------- ----------- -----------
Income before income tax expense.................... 585 2,292 4,312 3,217 2,890
Income tax expense.................................... -- 817 1,600 1,194 1,078
--------- --------- --------- ----------- -----------
Net income............................................ $ 585 $ 1,475 $ 2,712 $ 2,023 $ 1,812
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Unaudited pro forma information:
Income tax expense (see Note 7)....................... $ 199
---------
---------
Net income (see Note 7)............................... $ 386
---------
---------
Pro forma net income per share........................ $ 0.04 $ 0.13 $ 0.23 $ 0.18 $ 0.14
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Pro forma weighted average
shares outstanding.................................. 8,967 10,952 11,756 11,517 13,134
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</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 178,312 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).................................... 1,812
Issuance of 134,750 shares of common stock (unaudited).... 2 16 (18)
Repurchase of 333,334 shares of common stock
(unaudited)............................................. (4) (1,996)
Foreign currency translation (unaudited).................. 20
------ --------- ---------- ----- -------- -----
Balance, September 30, 1997 (unaudited)..................... $ 84 $ 17 $4,250 $(18) $5,938 $ (2)
------ --------- ---------- ----- -------- -----
------ --------- ---------- ----- -------- -----
<CAPTION>
TOTAL
-------
<S> <C>
Balance, January 1, 1994.................................... $ (43)
Net income................................................ 585
Repurchase of 178,312 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).................................... 1,812
Issuance of 134,750 shares of common stock (unaudited).... --
Repurchase of 333,334 shares of common stock
(unaudited)............................................. (2,000)
Foreign currency translation (unaudited).................. 20
-------
Balance, September 30, 1997 (unaudited)..................... $10,269
-------
-------
</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
--------- --------- --------- NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1996 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income............................................. $ 585 $ 1,475 $ 2,712 $ 2,023 $ 1,812
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................ 146 286 1,002 676 1,552
Deferred income taxes................................ -- 1 (172) (129) (369)
Loss on asset disposition............................ -- -- 50 -- --
Foreign currency translation adjustment.............. -- (2) (20) (3) 20
Cash provided (used) by changes in operating assets
and liabilities:
Accounts receivable................................ (336) (628) (870) (767) (458)
Inventories........................................ (322) (908) 70 (205) (799)
Prepaid expenses................................... 36 46 (731) (364) 213
Other assets....................................... -- -- (271) (174) (459)
Accounts payable................................... 138 361 1,753 2,403 695
Taxes payable...................................... -- 15 261 442 503
Accrued liabilities................................ 51 293 959 102 1,075
--------- --------- --------- ----------- -----------
Net cash provided by operating activities........ 298 939 4,743 4,004 3,785
Investing activities:
Purchase of property and equipment..................... (283) (1,000) (3,865) (2,491) (4,313)
Financing activities:
Net borrowings (payments) on revolving credit
agreements........................................... 166 544 (734) (734) --
Payments on long-term borrowings....................... (53) (76) (215) (215) --
Proceeds from long-term borrowings..................... -- 121 -- -- --
Dividend paid.......................................... -- (389) -- -- --
Preferred stock issuance............................... -- -- 7,147 7,147 --
Common stock repurchase................................ (28) -- (1,000) (1,000) (2,000)
--------- --------- --------- ----------- -----------
Net cash provided (used) by financing
activities..................................... 85 200 5,198 5,198 (2,000)
--------- --------- --------- ----------- -----------
Net increase (decrease) in cash and cash equivalents..... 100 139 6,076 6,711 (2,528)
Cash and cash equivalents:
Beginning of period.................................... -- 100 239 239 6,315
--------- --------- --------- ----------- -----------
End of period.......................................... $ 100 $ 239 $ 6,315 $ 6,950 $ 3,787
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest............................................. $ 13 $ 23 $ 44 $ 34 $ --
Income taxes......................................... -- 813 2,001 1,295 1,000
</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 SEPTEMBER 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 consist of raw materials and finished goods, and are valued at
the lower of cost or market on a first-in, first-out basis.
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. Image collection costs represents
capitalized production and image acquisition costs and refer to direct costs for
the purchase or development of images; such costs include scanning, direct
labor, overhead, and other costs related to the development of products. Costs
are charged to cost of sales over an initial estimated useful life of three
years. The remaining estimated useful life of images is evaluated periodically,
and adjusted as deemed appropriate based on units produced and estimated units
to be sold.
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 SEPTEMBER 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 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. Internet revenues are recognized when products are
down-loaded from the Company's Web site.
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 if such conversion had occurred at the beginning of the periods presented.
All outstanding preferred stock will be converted on a one-for-one basis into an
aggregate of 1,701,879 shares of common stock in connection with the merger
described below.
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.
In connection with the merger, all outstanding shares of the Company's
Series A Convertible Preferred stock will be converted on a one-for-one basis
into an aggregate of 1,701,879 shares of PhotoDisc common stock and all options
to purchase shares of PhotoDisc common stock that remain outstanding on the
closing of the merger will be assumed by Getty Images and become exercisable for
shares of common stock of Getty Images in a ratio equivalent to that used in
determining the merger consideration to be received by the shareholders of
PhotoDisc. Prior to and conditional on completion of the merger, PhotoDisc will
extend an offer to certain current holders of PhotoDisc options to purchase from
such holders options representing up to 20% of all shares subject to such
options. All outstanding warrants to
F-41
<PAGE>
PHOTODISC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
NOTE 1: SUMMARY OF BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
purchase shares of common stock of PhotoDisc will either be exercised prior to
completion of the merger or expire.
INTERIM FINANCIAL INFORMATION
The interim financial information as of September 30, 1997, and for the
nine-month periods ended September 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 nine-month period ended September 30, 1997 are not necessarily
indicative of the results to be expected for the entire year.
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 nine months ended September 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.
PRODUCT DEVELOPMENT COSTS
Product development costs consist of payroll and related expenses for
development and internet network operations personnel and consultants. Certain
costs directly related to the production of images,
F-42
<PAGE>
PHOTODISC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
NOTE 1: SUMMARY OF BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
such as photoshoot costs, and costs related to the scanning and editing of
images, are capitalized as a component of property and equipment. All other
product development costs are expensed as incurred.
NOTE 2: INVENTORIES
Inventories are composed of raw materials and finished products available
for sale as follows:
<TABLE>
<CAPTION>
SEPTEMBER
DECEMBER 31, 30,
-------------------- -----------
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Raw material (primarily packaging)........................... $ 346 $ 468 $ 1,198
Finished goods............................................... 931 739 808
--------- --------- -----------
$ 1,277 $ 1,207 $ 2,006
--------- --------- -----------
--------- --------- -----------
</TABLE>
NOTE 3: LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 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.
F-43
<PAGE>
PHOTODISC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
NOTE 4: EQUITY (CONTINUED)
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 of $4.23 per share, which was greater than the fair market value of the
Company's common stock as of the date the Series A Preferred stock was issued.
The conversion price is subject to possible adjustment 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.
In addition, in the event of an initial public offering of the Company's
common stock, or a merger, consolidation or other transaction in which more than
50 percent of the Company's common stock is disposed of, the holders of the
Company's Series A Preferred stock are entitled to receive additional cash
consideration in connection with the conversion of their shares into common
stock. The amount of cash consideration is determined based on a formula which
takes into account the timing of the transaction, the fully diluted valuation of
the Company and the original price of the Series A Preferred stock.
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
F-44
<PAGE>
PHOTODISC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
NOTE 4: EQUITY (CONTINUED)
retroactively adjusted for the stock split. During 1996, the Company repurchased
236,372 shares for $4.23 per share. During 1997, the Company repurchased 333,334
shares for $6.00 per share.
NOTE 5: COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is subject to legal proceedings and claims in the ordinary
course of business. The Company is not currently aware of any legal proceedings
or claims that the Company believes will have, individually or in the aggregate,
a material adverse effect on the Company's financial position or results of
operations.
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 was in compliance with such
covenants at December 31, 1996 and September 30, 1997.
OPERATING LEASES
The Company leases office space from an officer and shareholder under an
operating lease expiring December 2002. The Company has also advanced
approximately $360 for building improvements to the lessor, which will be repaid
ratably over the lease term. Lease payments of approximately $46 are due
monthly. Lease payments to the related party were $87, $170, $265, $181 and $357
for 1994, 1995 and 1996 and the nine months ended September 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.
F-45
<PAGE>
PHOTODISC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
NOTE 5: COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 3,000,000 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 generally 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 has agreed to pay an aggregate of
approximately $149 to two option holders upon their exercise of options to
purchase an aggregate of 859,200 shares should their options be about to
terminate or in connection with the occurrence of certain extraordinary
corporate events including the closing of the Merger Agreement
F-46
<PAGE>
PHOTODISC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
NOTE 6: EMPLOYEE BENEFITS (CONTINUED)
described in Note 1 above. The Company will record a compensation expense in the
period in which these payments occur. A summary of stock options, restated to
reflect the eight-for-one stock split, follows:
<TABLE>
<CAPTION>
SEPTEMBER
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996 30, 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 period... -- $ -- 1,650,400 $ 0.1575 1,650,400 $ 0.1575 2,151,300
Granted............................ 1,650,400 0.1575 -- 536,900 2.2200 610,000
Exercised.......................... -- -- -- (116,000)
Canceled........................... -- -- (36,000) 0.1575 (25,000)
---------- ---------- ---------- ----------
Outstanding, end of period......... 1,650,400 $ 0.1575 1,650,400 $ 0.1575 2,151,300 $ 0.6722 2,620,300
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Exercisable, end of period......... 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 period... $ 0.6722
Granted............................ 6.8726
Exercised.......................... 0.1575
Canceled........................... 1.6636
Outstanding, end of period......... $ 2.1290
Exercisable, end of period......... $ 0.3280
</TABLE>
The following table summarized information about common stock option outstanding
at December 31, 1996 and September 30, 1997:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 SEPTEMBER 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 6.88 1,422,400
$2.2200............................. 536,900 9.65 53,600 526,900 8.90 125,574
$4.2500............................. 87,750 9.45 1,252
$5.0000............................. 10,000 9.67
$6.0000............................. 280,000 9.70
$7.0000............................. 2,000 9.67
$9.0000............................. 225,250 9.91
$15.3000............................ 2,000 10.00
----------- ---------- ----------- ----------
2,151,300 8.14 1,407,334 2,620,300 7.95 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. Fair market value at the date
of both grants was deemed to be $0.1575 per share. The warrants expire on
February 17, 2000.
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-47
<PAGE>
PHOTODISC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 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>
SEPTEMBER
DECEMBER 31, 30,
-------------------- -----------
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Net income:
As reported................................................ $ 1,475 $ 2,712 $ 1,812
Pro forma.................................................. $ 1,442 $ 2,650 $ 1,609
</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 free
interest rates, 7.13%, 6.05%, and 5.77% for the years ended December 31, 1995
and 1996 and the nine months ended September 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 nine months
ended September 30, 1997 are comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER
DECEMBER 31, 30,
-------------------- -----------
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Current tax expense............................................ $ 816 $ 1,756 $ 1,307
Deferred tax expense........................................... 1 (156) (229)
--------- --------- -----------
$ 817 $ 1,600 $ 1,078
--------- --------- -----------
--------- --------- -----------
</TABLE>
F-48
<PAGE>
PHOTODISC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 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 September
30, 1997 are as follows:
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DECEMBER 31, SEPTEMBER 30,
-------------------- -------------
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Inventory........................................................ $ -- $ 64 $ 414
Allowance for bad debt and returns............................... 15 27 53
Prepaid expenses................................................. (11) (91) (102)
Property and equipment........................................... -- (43)
Accrued payroll and related liabilities.......................... (5) 58 19
Other accrued liabilities........................................ -- 112 199
--- --------- -----
$ (1) $ 171 $ 540
--- --------- -----
--- --------- -----
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ANNEX 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
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TABLE OF CONTENTS
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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........................................................................................... 3
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
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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
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(CONTINUED)
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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
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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
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EXHIBITS
<S> <C>
A Form of Stockholders' Transaction Agreement
B Form of Escrow Agreement
7.03(b) Form of Affiliate Letter
7.08 Significant Provisions 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>
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<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
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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 occurred only to the extent that the liability of
PhotoDisc for Taxes for all periods through the date of the PhotoDisc Interim
Financial Statements 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
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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 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
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.
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(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 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.
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(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
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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>
A-74
<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.
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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.
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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").
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EXHIBIT 9.01(k)
STOCKHOLDERS' AGREEMENT
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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").
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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.
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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.
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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.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
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
ratably 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.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
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.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
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>
A-92
<PAGE>
EXHIBIT 9.01(M)(II)
EMPLOYMENT AGREEMENT
FOR
JONATHAN KLEIN
<TABLE>
<S> <C>
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.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
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 ratably 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.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
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.
</TABLE>
A-95
<PAGE>
<TABLE>
<S> <C>
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
<TABLE>
<S> <C>
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.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
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 ratably 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.
</TABLE>
A-98
<PAGE>
<TABLE>
<S> <C>
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.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
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
- ----------- -----
<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................................................................................... 3
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.......................................................................................... 5
2.09. Affiliate and Tax Letters......................................................................... 6
2.10. Principal Stockholders' Representative............................................................ 6
2.11. Use of Intellectual Property...................................................................... 7
2.12. Escrow Agreement.................................................................................. 7
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....................................................................................... 8
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
</TABLE>
B-(i)
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
SECTION PAGE
- ----------- -----
<C> <S> <C>
4.08. No Third Party Beneficiaries...................................................................... 10
4.09. Amendment......................................................................................... 10
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............................................................................... 11
</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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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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<PAGE>
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
B-9
<PAGE>
(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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<PAGE>
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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<PAGE>
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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<PAGE>
<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>
B-13
<PAGE>
EXHIBITS A
MERGER AGREEMENT
(ATTACHED TO THIS PROSPECTUS AS ANNEX A.)
B-14
<PAGE>
EXHIBITS B
FORM OF ESCROW AGREEMENT
(ATTACHED AS AN EXHIBIT TO THE
MERGER AGREEMENT ATTACHED HERETO AS ANNEX A.)
B-15
<PAGE>
EXHIBIT 2.09(a)
FORM OF AFFILIATE LETTER
(ATTACHED AS AN EXHIBIT TO THE
MERGER AGREEMENT ATTACHED HERETO AS ANNEX A.)
B-16
<PAGE>
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>
- -------------------------------------------- --------------------------------------------
Shareholder Number and Class of Shares Owned
</TABLE>
B-17
<PAGE>
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
C-2
<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
D-1
<PAGE>
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 was prepared for the use of the Board of Directors of PhotoDisc,
does not constitute a recommendation to PhotoDisc's shareholders as to whether
they should approve the Merger 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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<PAGE>
(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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<PAGE>
(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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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 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.
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 December 22, 1997
+ 3.1 -- Form of Amended and Restated Certificate of Incorporation of Getty Images
as of completion of the Transactions
+ 3.2 -- Form of Bylaws of Getty Images as of completion of the Transactions
5.1 -- Opinion with respect to the legality of the securities registered hereby
8.1 -- Form of Opinion of Shearman & Sterling with respect to certain tax matters
8.2 -- Form of 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
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <C> <S>
+ 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 Communications plc 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 Communications plc and Mr.
Jonathan Klein
* 10.12 -- Form of Employment Agreement between Getty Images, Inc. and Crediton
Limited
* 10.13 -- Form of Getty Images, Inc. 1998 Stock Incentive Plan
* 10.14 -- Form of Amended and Restated Getty Parties Shareholders' Agreement
* 10.15 -- Form of Indemnity between Getty Images, Inc. and Getty Investments LLC
* 10.16 -- Registration Rights Agreement dated July 3, 1996 among Getty
Communications plc, Simon Thornley, Brian Wolske, Lawrence Gould,
Jonathan Klein and Mark Getty and Form of Amendment among Getty Images,
Inc., Getty Communications plc, Lawrence Gould, Jonathan Klein and Mark
Getty.
* 10.17 -- Registration Rights Agreement dated July 3, 1996 among Getty
Communications plc, Crediton Limited and October 1993 Trust and Form of
Amendment among Getty Images, Inc., Getty Communications plc, Crediton
Limited and October 1993 Trust.
* 10.18 -- Registration Rights Agreement dated July 3, 1996 among Getty
Communications plc, Hambro European Ventures Limited, Hambro Group
Investments Limited, RIT Capital Partners plc and Tony Stone and Form of
Amendment among Getty Images, Inc., Getty Communications plc, RIT
Capital Partners plc and Tony Stone.
* 10.19 -- Registration Rights Agreement dated July 25, 1997 between Getty
Communications plc and The Schwartzberg Family L.P. and Form of
Amendment among Getty Images, Inc., Getty Communications plc and The
Schwartzberg Family L.P.
* 10.20 -- Form of Registration Rights Agreement among Getty Images, Inc., Getty
Communications plc and Carlton Communications B.V.
* 10.21 -- Form of Restated Option Agreement among Getty Images, Inc., Getty
Communications plc and Getty Investments L.L.C.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <C> <S>
10.22 -- Facilities Agreement, dated March 14, 1995, among Merlview Limited, Tony
Stone Associates Limited and Midland Bank plc (incorporated by reference
from Exhibit 10.4 to Registration Statement No. 333-4996).
10.23 -- Facilities Agreement, dated April 2, 1996, among Getty Communications
Group Limited, Tony Stone Associates Limited, Hephaistos Limited, the
Hulton-Deutsch Collection Limited and Midland Bank plc (incorporated by
reference from Exhibit 10.5 to Registration Statement No. 333-4996).
10.24 -- Form of Indemnity among Getty Images, Inc., Getty Communications plc and
each of Mark Getty, Mark Torrance, Jonathan Klein, Lawrence Gould,
Andrew Garb, Manny Fernandez, Christopher Sporborg, Anthony Stone and
James Bailey.
* 21.1 -- Subsidiaries of Getty Images as of completion of the Transactions
23.1 -- Consent of Shearman & Sterling (included as part of Exhibit 5.1 and
Exhibit 8.1)
23.2 -- Consent of Heller Ehrman White & McAuliffe (included as part of Exhibit
8.2)
23.3 -- Consent of Coopers & Lybrand
23.4 -- Consent of Deloitte & Touche LLP
+ 24.1 -- Power of Attorney
* 99.1 -- Forms of proxy for voting Getty Communications capital stock
* 99.2 -- Form of Notice of Getty Shareholder Meetings to ADS Holders
* 99.3 -- Form of proxy for voting PhotoDisc capital stock
* 99.4 -- Form of Letter to Shareholders of PhotoDisc
* 99.5 -- Form of Notice of Special Meeting of Shareholders of PhotoDisc
99.6 -- Consent of BT Alex. Brown International
99.7 -- Consent of Robertson Stephens & Co.
* 99.8 -- Consents of Persons to be Named Directors of Getty Images
</TABLE>
- ------------------------
* To be filed by amendment.
+ Previously filed.
(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)
II-3
<PAGE>
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made,
a post effective amendment to this Registration Statement: (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represented no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of the Registration Fee" table
in the effective registration statement; (iii) to include any material
information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement; PROVIDED, HOWEVER, that (a)(i)
and (a)(ii) of this paragraph do not apply if the registration is on Form
S-3, Form S-8 or Form F-3, and the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission by the Registrant pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in the registration statement.
(b) 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 related 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.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(d) 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.
(e) 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.
(f) 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.
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<PAGE>
(g) 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.
(h) 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.
(i) 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.
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<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 December 22, 1997.
<TABLE>
<S> <C> <C>
By: /s/ MARK GETTY
-----------------------------------------
Mark Getty
</TABLE>
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 December 22, 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-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ----------- ----------------------------------------------------------------------------------------------
<C> <C> <S> <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 December 22, 1997
+3.1 -- Form of Amended and Restated Certificate of Incorporation of Getty Images as of completion of
the Transactions
+3.2 -- Form of Bylaws of Getty Images as of completion of the Transactions
5.1 -- Form of Opinion with respect to the legality of the securities registered hereby
8.1 -- Form of Opinion of Shearman & Sterling with respect to certain tax matters
8.2 -- Form of 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 Communications plc 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 Communications plc and Mr. Jonathan Klein
*10.12 -- Form of Employment Agreement between Getty Images, Inc. and Crediton Limited
*10.13 -- Form of Getty Images, Inc. 1998 Stock Incentive Plan
*10.14 -- Form of Amended and Restated Getty Parties Shareholders' Agreement
*10.15 -- Form of Indemnity between Getty Images, Inc. and Getty Investments LLC
*10.16 -- Registration Rights Agreement dated July 3, 1996 among Getty Communications plc, Simon
Thornley, Brian Wolske, Lawrence Gould, Jonathan Klein and Mark Getty and Form of Amendment
among Getty Images, Inc., Getty Communications plc, Lawrence Gould, Jonathan Klein and Mark
Getty.
*10.17 -- Registration Rights Agreement dated July 3, 1996 among Getty Communications plc, Crediton
Limited and October 1993 Trust and Form of Amendment among Getty Images, Inc., Getty
Communications plc, Crediton Limited and October 1993 Trust.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ----------- ----------------------------------------------------------------------------------------------
*10.18 -- Registration Rights Agreement dated July 3, 1996 among Getty Communications plc, Hambro
European Ventures Limited, Hambro Group Investments Limited, RIT Capital Partners plc and
Tony Stone and Form of Amendment among Getty Images, Inc., Getty Communications plc, RIT
Capital Partners plc and Tony Stone.
<C> <C> <S> <C>
*10.19 -- Registration Rights Agreement dated July 25, 1997 among Getty Communications plc and The
Schwartzberg Family L.P. and Form of Amendment among Getty Images, Inc., Getty Communications
plc and The Schwartzberg Family L.P.
*10.20 -- Form of Registration Rights Agreement among Getty Images, Inc., Getty Communications plc and
Carlton Communications B.V.
*10.21 -- Form of Restated Option Agreement among Getty Images, Inc., Getty Communications plc and Getty
Investments L.L.C.
10.22 -- Facilities Agreement, dated March 14, 1995, among Merlview Limited, Tony Stone Associates
Limited and Midland Bank plc (incorporated by reference to Exhibit 10.4 to Registration
Statement No. 333-4996).
10.23 -- Facilities Agreement, dated April 2, 1996, among Getty Communications Group Limited, Tony
Stone Associates Limited, Hephaistos Limited, the Hulton-Deutsch Collection Limited and
Midland Bank plc (incorporated by reference to Exhibit 10.5 to Registration Statement No.
333-4996).
*10.24 -- Form of Indemnity among Getty Images, Inc., Getty Communications plc and each of Mark Getty,
Mark Torrance, Jonathan Klein, Lawrence Gould, Andrew Garb, Manny Fernandez, Christopher
Sporborg, Anthony Stone and James Bailey.
*21.1 -- Subsidiaries of Getty Images as of completion of the Transactions
23.1 -- Consent of Shearman & Sterling (included as part of Exhibit 5.1 and Exhibit 8.1)
23.2 -- Consent of Heller Ehrman White & McAuliffe (included as part of Exhibit 8.2)
23.3 -- Consent of Coopers & Lybrand
23.4 -- Consent of Deloitte & Touche LLP
+24.1 -- Power of Attorney (contained on page II-4)
*99.1 -- Forms of proxy for voting Getty Communications capital stock
*99.2 -- Forms of Notice of Getty Shareholder Meetings to ADS Holders
*99.3 -- Form of proxy for voting PhotoDisc capital stock
*99.4 -- Form of Letter to Shareholders of PhotoDisc
*99.5 -- Form of Notice of Special Meeting of Shareholders of PhotoDisc
99.6 -- Consent of BT Alex. Brown International
99.7 -- Consent of Robertson Stephens & Co.
*99.8 -- Consents of Persons to be Named Directors of Getty Images
</TABLE>
- ------------------------
* To be filed by amendment.
+ Previously filed.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF SHEARMAN & STERLING]
December 22, 1997
Getty Images, Inc.
500 North Michigan Avenue
Suite 1700
Chicago, Illinois 60611
GETTY IMAGES, INC.
REGISTRATION STATEMENT ON FORM S-4 (NO. 333-38777)
Ladies and Gentlemen:
We have acted as counsel for Getty Images, Inc., a Delaware
corporation (the "Company"), in connection with the above-referenced
Registration Statement on Form S-4 filed with the Securities and Exchange
Commission on October 27, 1997 (as such may thereafter be amended or
supplemented, the "Registration Statement") with respect to the registration
under the Securities Act of 1933, as amended, of up to 27,025,389 shares of
Common Stock, par value $0.01 per share (the "Shares"), of the Company. We
understand that the Shares are to be issued as consideration in connection
the transactions contemplated by the Merger Agreement dated as of September
15, 1997 (the "Merger Agreement") by and among the Company, Getty
Communications plc, a public limited company organized under the laws of
England and Wales, PhotoDisc, Inc., a Washington corporation, and Print
Merger, Inc., a Washington corporation and a wholly owned subsidiary of the
Company, as described in the Registration Statement.
As such counsel and in connection with the opinions expressed below,
we have examined such corporate records of the Company, certificates of
public officials, officers of the Company and other persons, and such other
documents, agreements and instruments as we have deemed necessary as a basis
for the opinions hereinafter expressed. In our examinations, we have assumed
the genuineness of all signatures, the authenticity of all documents
submitted to us as originals and the conformity with the originals of all
documents submitted to us as
<PAGE>
2
copies. In expressing the opinions set forth below, we have also relied on
certain certificates of officers of the Company and certificates of public
officials.
Our opinions expressed below are limited to the General Corporation
Law of the State of Delaware and the federal law of the United States, and we
do not express any opinion herein concerning any other law.
Based upon and subject to the foregoing, having regard for such
other considerations as we deem relevant, we are of the opinion that the
Shares, when issued in the manner described in the Registration Statement,
will be legally issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the
Registration Statement and further consent to the use of our name wherever
appearing in the Registration Statement, including the Prospectus
constituting a part thereof, and any amendments thereto.
Very truly yours,
/s/ SHEARMAN & STERLING
CDD/MJC/JBB/AHW
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF SHEARMAN & STERLING]
December ___, 1997
Getty Communications plc
101 Bayham Street
London NW1 OAG
England
SCHEME OF ARRANGEMENT OF GETTY COMMUNICATIONS PLC
Gentlemen:
You have requested our opinion as to certain U.S. federal income tax
consequences of the Scheme of Arrangement to be entered into between Getty
Communications plc ("Communications") and Getty Images, Inc. ("Images").
Unless otherwise defined, capitalized terms used herein have the meanings
ascribed to them in the Prospectus contained in Amendment No. 1 dated
December 9, 1997, to the Registration Statement of Images on Form S-1
(Registration Statement No. 333-38777) (the "Registrations Statement") filed
with the Securities Exchange Commission. The Scheme of Arrangement is to
implemented as a precondition to the effectiveness of the merger (the
"Merger") of PhotoDisc, Inc. ("PhotoDisc") and Print Merger, Inc. ("Merger
Sub"). The Merger is being consummated pursuant to the Merger Agreement
dated as of September 15, 1997 (the "Merger Agreement"), among Images,
Communications, PhotoDisc and Merger Sub. This opinion is being delivered
pursuant to Section 9.03(f) of the Merger Agreement.
Pursuant to the Scheme of Arrangement at the Effective Time, subject
to the sanction of the English High Court, the requisite approvals of the
Communications shareholders and the satisfaction or waiver (where permissible)
of certain other conditions, Communications will become a wholly-owned
subsidiary of Images and each shareholder of Communications (including, for
these purposes, each holder of a Communications ADS) will receive shares of
Images Common Stock in exchange for his shares in Communications. [No
shareholder will be entitled to receive fractional shares in Images, and
pursuant to the Scheme of Arrangement the number of shares of Images Common
Stock to be received by
<PAGE>
any shareholder who would otherwise be entitled to receive a fractional share
will instead be rounded up to the next whole number.] Each Communications
share (other than shares owned by Images) will be canceled and retired and
will cease to exist.
The Merger will be accomplished contemporaneously with the Scheme of
Arrangement. The Merger Agreement provides that at the Effective Time,
PhotoDisc will merge with and into Merger Sub in accordance with applicable
Washington law. Following the Merger, the separate corporate existence of
PhotoDisc will cease and Merger Sub will continue as the surviving
corporation after the Merger. The holders of PhotoDisc Common Stock, other
than holders who exercise their right of dissent, will exchange each share of
their PhotoDisc Common Stock for a combination of shares of Images Common
Stock and cash as specified in the Merger Agreement. No shareholder will be
entitled to receive fractional shares in Images, and pursuant to the Merger
Agreement the number of shares of Images Common Stock to be received by any
holder of PhotoDisc Common Stock otherwise entitled to receive a fractional
share will instead be rounded up to the next whole number.
In delivering our opinion, we have reviewed the Scheme of
Arrangement, including all documents submitted to the English High Court in
connection therewith, the Merger Agreement, including all documents attached
as exhibits thereto, and the Registration Statement. We have assumed that
the representations and warranties contained in the Merger Agreement are
true, correct and complete through the Effective Time, and that the parties
have complied with and, if applicable, will continue to comply with, the
covenants contained in the Scheme of Arrangement and the Merger Agreement.
We have also assumed that statements as to factual matters contained in the
Registration Statement are true, correct and complete, and will continue to
be true, correct and complete through the Effective Time. Finally, we have
relied upon the representations made by Communications, Images and PhotoDisc
in letters to us dated___, as well as the representations made to us by
certain shareholders of Communications and PhotoDisc in letters dated ___ and
have assumed that each of such representations will continue to be true,
correct and complete through the Effective Time.
Based upon the foregoing, in reliance thereon and subject thereto,
and based upon the Internal Revenue Code of 1896, as amended (the "Code"),
the Treasury Regulations promulgated thereunder, judicial decisions, revenue
rulings and revenue procedures of the Internal Revenue Service, and other
administrative pronouncements, all as in effect on the date hereof, and
assuming that the Scheme of Arrangement will be consummated in accordance
with its terms and that the Merger and related transactions will be
consummated in accordance with the terms of the Merger Agreement, it is our
opinion that:
1. 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 exchange under section 351 of the Code.
<PAGE>
2. To the extent that the Scheme of Arrangement is treated as a
reorganization within the meaning of section 368(a) of the Code, both
Communications and Images will be a party to the reorganization within the
meaning of section 368(b) of the Code.
3. Except in the case of persons owing, directly, indirectly or
pursuant to the operation of certain constructive ownership rules, ten
percent or more of the voting power of Communications, no gain or loss will
be recognized on the exchange of Communications ADSs or Common Shares for
shares of Images Common Stock.
4. Each shareholder of Communications (including, for these
purposes, each holder of a Communications ADS) will obtain a tax basis in the
shares of Images Common Stock received pursuant to the Scheme of Arrangement
equal to the tax basis of such holder in the Communications Ordinary Shares
or ADSs, as the case may be, surrendered in exchange therefor.
5. The holding period of any shares of Images Common Stock
received pursuant to the Scheme of Arrangement will include the holding
period of the holder's Communications Ordinary Shares or ADSs, as the case
may be, surrendered in exchange therefor.
6. The Statements set forth under the caption "Certain Income Tax
Consequences" in the Registration Statement, insofar as they constitute
statements of U.S. federal income tax law or legal conclusions, accurately
summarize the material U.S. federal income tax consequences of the Scheme of
Arrangement and the ownership of shares of Images Common Stock.
No opinion is expressed as to any matter not specifically addressed
herein, including the accuracy of the representations or reasonableness of
the assumptions relied upon by us in rendering the opinions set forth herein.
Our opinion is based upon current U.S. federal income tax law and
administrative practice and we do not undertake to advise you or to
supplement our opinions as to any future changes in the U.S. federal income
tax law or administrative practice that may affect this opinion.
We hereby consent to the filing with the Securities and Exchange
Commission of this opinion as an exhibit to the Registration Statement and to
the use of our name in the section of the Registration Statement entitled
"United States Federal Income Tax Consequences of the Scheme of Arrangement."
In giving such consent, we do not concede that we are within the category of
persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
Shearman & Sterling
<PAGE>
December , 1997
PhotoDisc, Inc.
2013 Fourth Avenue, 4th Floor
Seattle, WA 98121
Ladies and Gentlemen:
You have requested our opinion regarding certain federal income tax
consequences of the proposed merger (the "Merger") of PhotoDisc, Inc.
("PhotoDisc"), with and into Print Merger, Inc. ("Merger Sub"), a wholly-owned
subsidiary of Getty Images, Inc. ("Getty"). Unless otherwise defined,
capitalized terms used herein have the meanings ascribed to them in the
Prospectus contained in Amendment No. 1 dated December 9, 1997, to the
Registration Statement of Getty on Form S-4 (Registration Statement No. 33-
38777) (the "Registration Statement") filed with the Securities and Exchange
Commission. We have acted as counsel to PhotoDisc in connection with the Merger
and have examined the Merger Agreement dated September 15, 1997, between
PhotoDisc and Getty (the "Agreement"), the exhibits and attachments thereto, and
the Registration Statement. In addition, we have received written
representations pertaining to the Merger from Getty, PhotoDisc and certain
shareholders of PhotoDisc. Our opinions are based upon the understanding that
the material facts as described in the Registration Statement, that the
representations made to us and the representations and warranties in the
Agreement and appurtenant documents are true, correct and complete, and that the
Merger will be effected in accordance with the terms set forth in the Agreement.
In rendering our opinions we have relied upon such documents and the foregoing
representations without undertaking independently to verify the accuracy and
completeness of the matters covered thereby.
Based upon the foregoing, it is our opinion that:
1. The Merger will constitute a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code of l986, as amended (the "Code" ).
2. Each of Getty and PhotoDisc will be a party to the reorganization within
the meaning of section 368(a) of the Code.
3. By virtue of 1. and 2., above, for federal income tax purposes:
a. A PhotoDisc shareholder receiving Getty stock in the Merger will not
recognize gain or loss in the Merger, except that the gain, if any,
will be recognized to the extent of the cash consideration received;
<PAGE>
PhotoDisc, Inc. Page 2
December , 1997
b. An exchanging PhotoDisc shareholder will have the same aggregate tax
basis in the Getty stock received (including the shares held in
escrow pursuant to the Escrow Agreement) as such shareholder had in
the PhotoDisc stock surrendered in exchange therefor, increased by the
amount of gain recognized in such exchange and decreased by the amount
of cash received;
c. The periods for which a PhotoDisc shareholder has held his or her
PhotoDisc stock will be included in computing such shareholder's
holding periods for the Getty stock received in the Merger, assuming
the PhotoDisc stock is held by the PhotoDisc shareholder as a capital
asset at the Effective Time;
d. Neither PhotoDisc nor Getty will recognize gain or loss solely as a
result of the Merger.
4. The statements under the caption "Certain Income Tax Consequences" in the
Registration Statement, insofar as they constitute statements of United
States federal income tax law or legal conclusions, accurately summarize
the material United States income tax consequences of the Merger to a
PhotoDisc shareholder.
* * * * *
Our opinion is subject to certain assumptions and qualifications, and is
based on the truth and accuracy of the representations of the parties in the
Agreement and in representation letters to be delivered by Getty and by you,
including representations related to the continued conduct of the historic
business of PhotoDisc and to the retention by the PhotoDisc shareholders of a
substantial proprietary interest in the business of Getty following the Merger.
Our opinions are limited to the federal income tax consequences of the
Merger and do not address the tax consequences of transactions effected prior to
or after the Merger (whether or not in connection with the Merger), nor the
effect of the Merger under the laws of the various state and local governments
or under the laws of any other jurisdiction. Moreover, they do not address
special rules which may be applicable to particular shareholders of PhotoDisc,
such as shareholders who acquired their shares pursuant to the exercise of
statutory stock options, shareholders which are dealers or foreign persons, or
shareholders who exercise dissenter's rights. We express no opinion regarding
any tax aspect or ramification of the Merger apart from the opinions
specifically set forth above.
<PAGE>
PhotoDisc, Inc. Page 3
December , 1997
An opinion of counsel does not bind the Internal Revenue Service or
preclude it or a court from taking a position contrary to the opinion. Our
opinion represents merely our last judgment as to the likely outcome of the
matters described above if litigated in an appropriate forum. This opinion is
based upon the Code, the Treasury Regulations issued thereunder, and judicial
and administrative interpretations thereof, all as in effect on the date of this
opinion. All of such authority is subject to change, including retroactive
change. We disclaim any obligation to advise of any developments in areas
covered by this opinion that occur after the date of this opinion.
This opinion is rendered in connection with the Agreement and has been
delivered to you for the purposes of satisfying the requirements of Sections
9.02(d) of the Agreement. We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement. In giving this consent, however, we do
not admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended. This opinion may not be
relied upon for any other purpose without our written consent.
Very truly yours,
Heller Ehrman White & McAuliffe
<PAGE>
The Registrant's subsidiaries, the state or other jurisdiction of
incorporation or organization of each, and the name under which such
subsidiaries do business (if any) are set forth below.
STATE OR COUNTRY NAME UNDER WHICH SUBSIDIARY
SUBSIDIARY OF INCORPORATION DOES BUSINESS (IF ANY)
- -------------- ----------------- --------------------------
ARTCAST CORPORATION Washington
FABULOUS FOOTAGE, INC. Massachusetts
FOTOGRAM-STONE SARL France
GAMMA LIAISON, INC. New York
GETTY COMMUNICATIONS GROUP England and Wales
FINANCE LIMITED
GETTY COMMUNICATIONS PLC England and Wales
GETTY IMAGES Belgium
GETTY IMAGES Denmark
GETTY IMAGES Holland
GETTY IMAGES Sweden
GETTY IMAGES HONG KONG LTD. Hong Kong
GETTY IMAGES LIMITED England and Wales
HULTON GETTY HOLDINGS LIMITED England and Wales
HULTON GETTY PICTURE COLLECTION England and Wales
LTD.
LIAISON AGENCY, INC. New York
LIAISON INTERNATIONAL, INC. New York
PHOTODISC AUSTRALIA PTY LIMITED Australia
PHOTODISC DEUTSCHLAND GMBH Germany
PHOTODISC EUROPE LIMITED England and Wales
PHOTODISC, INC. Washington
PHOTODISC JAPAN KABUSHIKI Japan
KAISHA
PHOTODISC INTERNATIONAL, INC. Barbados
PRINT MERGER, INC. Washington
TONY STONE ASSOCIATES LIMITED England and Wales
<PAGE>
STATE OR COUNTRY NAME UNDER WHICH SUBSIDIARY
SUBSIDIARY OF INCORPORATION DOES BUSINESS (IF ANY)
TONY STONE ASSOCIATES GMBH Germany
TONY STONE GMBH Austria
TONY STONE IMAGES/AMERICA INC. Illinois
TONY STONE IMAGES/CANADA, INC. Ontario
TONY STONE IMAGES/CHICAGO, INC. Illinois
TONY STONE IMAGES/LOS ANGELES, California
INC.
TONY STONE IMAGES/NEW YORK, New York
INC.
TONY STONE IMAGES/SEATTLE, INC. Washington
TONY STONE IMAGES SINGAPORE Singapore
TRIENERGY PRODUCTIONS California
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this Amendment No. 2 to the Registration Statement
No. 333-38777 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. We also consent to the
reference to our firm under the caption "Experts".
Coopers & Lybrand
Chartered Accountants
London
December 22, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this Amendment No. 2 to the Registration Statement
No. 333-38777 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, as amended.
We also consent to the reference to us under the headings "Selected
Consolidated Financial Data of PhotoDisc" and "Experts" in such Prospectus.
Deloitte & Touche LLP
Seattle, Washington
December 22, 1997
<PAGE>
EXHIBIT 99.6
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
By: /s/ BancAmerica Robertson Stephens
---------------------------------------------------------------------------
San Francisco
December 22, 1997
<PAGE>
CONSENT OF PERSON NAMED AS ABOUT TO BECOME A DIRECTOR
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I, Andrew Garb, hereby consent to be named as a person about to become
a director of Getty Images, Inc. in the Registration Statement on Form S-4 of
Getty Images, Inc. dated October ___, 1997.
/s/ ANDREW GARB
--------------------
Andrew Garb
Dated: October ___, 1997
<PAGE>
EXHIBIT 99.1(d)
CONSENT OF PERSON NAMED AS ABOUT TO BECOME A DIRECTOR
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I, Anthony Stone, hereby consent to be named as a person about to
become a director of Getty Images, Inc. in the Registration Statement on Form
S-4 of Getty Images, Inc. dated October ___, 1997.
/s/ ANTHONY STONE
--------------------
Anthony Stone
Dated: October ___, 1997
<PAGE>
3
EXHIBIT 99.1(d)
CONSENT OF PERSON NAMED AS ABOUT TO BECOME A DIRECTOR
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I, James Bailey, hereby consent to be named as a person about to become
a director of Getty Images, Inc. in the Registration Statement on Form S-4 of
Getty Images, Inc. dated October ___, 1997.
/s/ JAMES BAILEY
--------------------
James Bailey
Dated: October ___, 1997
<PAGE>
4
EXHIBIT 99.1(d)
CONSENT OF PERSON NAMED AS ABOUT TO BECOME A DIRECTOR
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I, Manny Fernandez, hereby consent to be named as a person about to
become a director of Getty Images, Inc. in the Registration Statement on Form
S-4 of Getty Images, Inc. dated October ___, 1997.
/s/ MANNY FERNANDEZ
-----------------------
Manny Fernandez
Dated: October ___, 1997
<PAGE>
5
EXHIBIT 99.1(d)
CONSENT OF PERSON NAMED AS ABOUT TO BECOME A DIRECTOR
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I, Christopher Sporborg, hereby consent to be named as a person about
to become a director of Getty Images, Inc. in the Registration Statement on Form
S-4 of Getty Images, Inc. dated October ___, 1997.
/s/ CHRISTOPHER SPORBORG
------------------------------
Christopher Sporborg
Dated: October ___, 1997
<PAGE>
6
EXHIBIT 99.1(d)
CONSENT OF PERSON NAMED AS ABOUT TO BECOME A DIRECTOR
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I, Mark Torrance, hereby consent to be named as a person about to
become a director of Getty Images, Inc. in the Registration Statement on Form
S-4 of Getty Images, Inc. dated October ___, 1997.
/s/ MARK TORRANCE
-----------------------
Mark Torrance
Dated: October ___, 1997
