<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 000-23747
GETTY IMAGES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 98-0177556
(State of Incorporation) (I.R.S. Employer Identification No.)
---------------------------------------
701 N. 34th STREET
SUITE 400
SEATTLE, WASHINGTON 98103
(206) 268 2000
(Address, including zip code, and telephone number, including area code,
of principal executive offices)
---------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding twelve months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past ninety days. Yes X No
As of November 1, 1999, there were 36,227,598 shares of the Registrant's
common stock, par value $0.01 per share, outstanding.
<PAGE> 2
GETTY IMAGES, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1999
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 20
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
2
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GETTY IMAGES, INC.
PART I.
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
GETTY IMAGES, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C>
Sales ........................................... $ 60,823 $ 48,975
Cost of sales ................................... 16,446 13,564
-------- --------
GROSS PROFIT .................................... 44,377 35,411
-------- --------
Selling, general and administrative expenses .... 36,520 25,646
Amortization of intangibles ..................... 19,792 10,007
Depreciation .................................... 6,205 3,795
Non-recurring integration and restructuring costs 7,438 4,618
-------- --------
69,955 44,066
-------- --------
OPERATING LOSS .................................. (25,578) (8,655)
Net interest expense ............................ (1,095) (800)
Net exchange gains/(losses) ..................... 615 (57)
-------- --------
LOSS BEFORE INCOME TAXES ........................ (26,058) (9,512)
Income taxes .................................... 1,691 (188)
-------- --------
NET LOSS ........................................ $(24,367) $ (9,700)
======== ========
Basic loss per share ............................ $ (0.69) $ (0.32)
======== ========
Diluted earnings per share ...................... N/A N/A
======== ========
</TABLE>
The accompanying notes on pages 7 to 10 are an integral part of these
consolidated financial statements.
3
<PAGE> 4
GETTY IMAGES, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998(1)
------------------ ---------------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C>
Sales ........................................... $ 167,930 $ 135,032
Cost of sales ................................... 45,051 39,080
--------- ---------
GROSS PROFIT .................................... 122,879 95,952
--------- ---------
Selling, general and administrative expenses .... 97,316 71,231
Amortization of intangibles ..................... 46,813 26,911
Depreciation .................................... 16,266 10,240
Non-recurring integration and restructuring costs 7,438 13,755
--------- ---------
167,833 122,137
--------- ---------
OPERATING LOSS .................................. (44,954) (26,185)
Net interest expense ............................ (2,868) (2,119)
Net exchange gains/(losses) ..................... 244 (116)
--------- ---------
LOSS BEFORE INCOME TAXES ........................ (47,578) (28,420)
Income taxes .................................... (477) (557)
--------- ---------
Net loss before extraordinary items ............. (48,055) (28,977)
Extraordinary items ............................. -- (830)
--------- ---------
NET LOSS ........................................ $ (48,055) $ (29,807)
========= =========
Basic loss per share ............................ $ (1.44) $ (1.04)
========= =========
Diluted earnings per share ...................... N/A N/A
========= =========
</TABLE>
(1) Reflects the combination of the unaudited consolidated statement of
operations of Getty Communications plc (the predecessor company) for the
period January 1, 1998 through February 9, 1998 and the unaudited
consolidated statement of operations of Getty Images, Inc. for the period
February 10, 1998 through September 30, 1998.
The accompanying notes on pages 7 to 10 are an integral part of these
consolidated financial statements.
4
<PAGE> 5
GETTY IMAGES, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................... $ 9,877 $ 16,150
Accounts receivable, net .................... 43,695 32,967
Prepaid expenses and other assets ........... 34,063 17,258
Inventories, net ............................ 5,422 2,834
--------- ---------
TOTAL CURRENT ASSETS ........................ 93,057 69,209
Fixed assets, net ........................... 79,436 62,757
Intangible assets, net ...................... 440,596 325,861
Deferred tax assets ......................... 7,071 5,036
--------- ---------
TOTAL ASSETS ................................ $ 620,160 $ 462,863
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ............................ 36,748 26,232
Accrued expenses ............................ 31,380 20,148
Income taxes payable ........................ -- --
Short-term debt ............................. 20,583 202
--------- ---------
TOTAL CURRENT LIABILITIES ................... 88,711 46,582
Long-term debt .............................. 76,260 72,354
--------- ---------
TOTAL LIABILITIES ........................... 164,971 118,936
--------- ---------
STOCKHOLDERS' EQUITY
Common stock ................................ 355 306
Exchangeable preferred stock ................ 16 --
Additional paid-in capital .................. 527,377 368,267
Retained deficit ............................ (76,314) (28,259)
Cumulative translation adjustments .......... 3,755 3,613
--------- ---------
TOTAL STOCKHOLDERS' EQUITY .................. 455,189 343,927
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .. $ 620,160 $ 462,863
========= =========
</TABLE>
The accompanying notes on pages 7 to 10 are an integral part of these
consolidated financial statements.
5
<PAGE> 6
GETTY IMAGES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998(1)
------------------ ---------------------
(IN THOUSANDS)
<S> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES .................... $ 430 $ 9,764
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Business acquisitions, net of cash acquired ........... (435) (78,667)
Purchase of fixed assets .............................. (30,198) (16,631)
--------- --------
NET CASH USED IN INVESTING ACTIVITIES ....................... (30,633) (95,298)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of debt ...................................... 20,000 119,569
Principal payments on capital lease obligations ....... (374) --
Payments on principal balance of debt ................. -- (67,098)
Proceeds from issuance of ordinary shares ............. 2,007 32,477
--------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES ................... 21,633 84,948
--------- --------
Net decrease in cash and cash equivalents ................... (8,570) (586)
Exchange rate differences arising from translation of foreign
currency balances ......................................... 2,297 892
Cash and cash equivalents
-- beginning of period 16,150 29,234
--------- --------
-- end of period $ 9,877 $ 29,540
========= ========
</TABLE>
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998(1)
------------------ ---------------------
(IN THOUSANDS)
<S> <C> <C>
Net loss ............................... $(48,055) $(29,807)
Other comprehensive income, net of tax:
Foreign currency translation adjustments 142 1,216
-------- --------
COMPREHENSIVE LOSS ..................... $(47,913) $(28,591)
======== ========
</TABLE>
(1) Reflects the combination of the unaudited condensed consolidated statement
of cash flows and the unaudited consolidated statement of comprehensive
income of Getty Communications plc (the predecessor company) for the period
January 1, 1998 through February 9, 1998 and the unaudited condensed
consolidated statement of cash flows and the unaudited consolidated
statement of comprehensive income of Getty Images, Inc. for the period
February 10, 1998 through September 30, 1998.
The accompanying notes on pages 7 to 10 are an integral part of these
consolidated financial statements.
6
<PAGE> 7
GETTY IMAGES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PREPARATION
The unaudited consolidated financial statements presented herein have been
prepared in accordance with the instructions to Form 10-Q and do not include all
the information and note disclosures required by generally accepted accounting
principles. The statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1998 (the "Annual Report"),
Commission file No. 000-23747, that was filed with the Commission on March 31,
1999. In the opinion of management, the accompanying consolidated financial
statements include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the Company's financial position and
results of operations. The results of the operations for the three and nine
month periods ended September 30, 1999 may not be indicative of the results that
may be expected for the full fiscal year.
The year end balance sheet data was derived from audited financial statements
but does not include all disclosures required by generally accepted accounting
principles.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." The standard
requires that an entity recognize all derivatives as either assets or
liabilities and measure those instruments at fair value. The new rules will be
effective for fiscal years beginning after June 15, 2000. The Company does not
believe that the new standard will have a material impact on its financial
results.
2. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include Getty Images, Inc.
and its subsidiaries, all of which are 100% owned, from the date of acquisition.
All material intercompany amounts and transactions have been eliminated in the
consolidated financial statements. The Company accounts for acquisitions using
the purchase method of accounting.
3. NON-RECURRING INTEGRATION AND RESTRUCTURING CHARGES
During the three month period ended September 30, 1999, the Company approved and
commenced a program to integrate all the Company's businesses, including the new
acquisitions Art.com and EyeWire, into four divisions to serve its four major
types of customers. This has resulted in integration and restructuring charges,
which are incremental and non-recurring, being incurred.
Integration costs in the three month period ended September 30, 1999 amounted to
$2.6 million and were associated with the activities of teams responsible for
integrating the various businesses of the Company for the benefit of future
operations and included items such as consulting and professional fees, systems
and process integration costs and content review costs. Content review costs
arose from an assessment of the compatibility of our images across our brands
following the decision to integrate all our businesses into four divisions.
These costs were expensed as incurred.
Restructuring costs, which amounted to $4.8 million in the three month period
ended September 30, 1999, were for estimated costs associated with the closure
of 14 facilities, employee termination and contract termination costs.
7
<PAGE> 8
Non-recurring integration and restructuring costs have been incurred in the
three month period ended September 30, 1999, as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------------------------
CHARGE UTILIZED PROVISION
------ -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
INTEGRATION COSTS
Consulting and professional fees .... $ 671 $ 671 $ --
Systems and process integration costs 1,423 1,423 --
Content review costs ................ 562 562 --
------ ------ ------
2,656 2,656 --
------ ------ ------
RESTRUCTURING COSTS
Property exit costs ................. 1,483 989 494
Asset writedowns .................... 905 905 --
Employee termination costs .......... 2,394 1,512 882
------ ------ ------
4,782 3,406 1,376
------ ------ ------
$7,438 $6,062 $1,376
====== ====== ======
</TABLE>
The charge for employee termination costs in the three month period ended
September 30, 1999, can be analysed as follows:
<TABLE>
<CAPTION>
OPERATIONAL
MANAGEMENT STAFF TOTAL
---------- ------------ -----
(IN THOUSANDS)
<S> <C> <C> <C>
Employee termination costs $1,690 $704 $2,394
====== ==== ======
Number of employees 13 54 67
====== ==== ======
</TABLE>
The unutilized provision of $1,376,000 at September 30, 1999 relates to property
exit costs and employee termination costs that will be substantially paid in the
remainder of 1999.
During the nine month period ended September 30, 1998, the Company approved and
commenced a program to integrate the businesses of the Company following the
acquisitions of PhotoDisc and Allsport in February 1998. This resulted in
integration and restructuring charges, which were incremental and non-recurring
being incurred.
Integration costs in the nine month and three month periods ended September 30,
1998 amounted to $3.7 million and $2.4 million respectively, and were associated
with the activities of teams responsible for integrating the various businesses
of the Company for the benefit of future operations and included items such as
consulting and professional fees, systems and process integration costs and
contract renegotiation costs. These costs were expensed as incurred.
The provision for restructuring costs, which amounted to $10.1 million and $2.2
million in the nine and three month periods ended September 30, 1998,
respectively, were for estimated exit costs associated with the closure of
certain operating facilities, including asset writedowns and termination costs.
4. PROVISION FOR INCOME TAXES
The Company provides for income taxes on an interim basis using its estimated
annual income tax rate. Excluding non-recurring integration and restructuring
costs, and the tax credits thereon, and the amortization of intangibles, which
is largely non tax deductible, the Company is providing for income taxes in 1999
at an effective annual tax rate of 39.4%.
5. EARNINGS PER SHARE
Diluted earnings per share are not given for the three or nine month periods
ended September 30, 1999 or September 30, 1998 due to the loss incurred in those
periods. Basic loss per share for the three and nine month periods ended
September 30, 1999 are computed on the basis of 35,513,000 and 33,273,000
weighted average number of shares in issue, respectively. Basic loss per share
for the three and nine month periods ended September 30, 1998 are computed on
the basis of 30,467,000 and 28,686,000 weighted average number of shares in
issue, respectively.
8
<PAGE> 9
As explained in Note 8, 1.56 million exchangeable shares at par value of $0.01
were issued to EyeWire stockholders on August 5, 1999 pursuant to the
acquisition of that company. When these shares are exchanged for shares of the
Company's common stock, 1.56 million shares will be reflected in our earnings
per share calculation.
6. FOREIGN CURRENCY TRANSLATION
Unrealized net exchange gains of $2,104,000 for the three month period ended
September 30, 1999 and unrealized net exchange losses of $1,526,000 for the nine
month period ended September 30, 1999 (three and nine month period ended
September 30, 1998: $nil) arose on the translation of certain intercompany
foreign currency transactions deemed to be of a long-term nature. These
transactions are not planned to be settled in the foreseeable future and are
reported in the same manner as foreign currency translation adjustments in
stockholders' equity in accordance with SFAS 52 "Foreign Currency Translation."
7. SEGMENT INFORMATION
Getty Images operates in one business segment and all intercompany transactions
are eliminated on consolidation. Revenues from external customers are
$167,930,000 for the first nine months of 1999 and $60,823,000 for the quarter
ended September 30, 1999 ($135,032,000 for the first nine months of 1998 and
$48,975,000 for the quarter ended September 30, 1998).
8. ACQUISITIONS
On August 5, 1999, the Company acquired all of the outstanding capital shares of
EyeWire Partners, Inc.. In the transaction, EyeWire stockholders received an
aggregate of 1.56 million exchangeable shares of a newly formed Nova Scotia
subsidiary of the Company. Each exchangeable share is exchangeable for one share
of the Company's common stock. The total market value of the acquisition was
$32,375,000. Goodwill of $34.7 million arising from the acquisition will be
amortized over seven years.
9. OTHER INFORMATION
On September 20, 1999, the Company signed a stock purchase agreement with
Eastman Kodak Company and Kodak S.A., an affiliate of Eastman Kodak Company, to
purchase all of the capital stock of The Image Bank, Inc. and The Image Bank
France S.A., which we collectively refer to as "The Image Bank," for
approximately $173.0 million plus approximately $10.0 million to compensate
Eastman Kodak Company for a tax election made for the Company's benefit. The
Image Bank is a leading provider of visual content to the advertising, design,
publishing, corporate, broadcast and editorial markets. The Company believes
that The Image Bank is the market leader in the film footage market and is a
leading source of contemporary stock photography, archival photography and
illustrative artwork worldwide. The Company currently expects to close this
acquisition on or before December 15, 1999.
On September 29, 1999, the Company filed a Registration Statement (which has not
yet become effective) for the public offering of up to 5,000,000 shares
(5,750,000 shares if the underwriters' over-allotment option is exercised) of
newly-issued common stock. The Company currently expects to close the offering
contemplated by the Registration Statement during November 1999.
10. SUBSEQUENT EVENTS
The Company has entered into an agreement, dated as of October 26, 1999, with
Getty Investments L.L.C. ("Getty Investments") providing for the purchase by
Getty Investments of 1,579,353 shares of the Company's common stock for $32.0
million in cash or approximately $20.261 per share. The purchase of the shares
by Getty Investments is due to be consummated on the business day immediately
preceding the closing of the acquisition of The Image Bank. The subscription is
subject to the inclusion of these new shares under the Company's existing
registration rights agreement with Getty Investments; the execution and delivery
of an indemnity agreement similar to that delivered in connection with the sale
of the Company's convertible subordinated notes; and the receipt by Getty
Investments of an appropriate legal opinion. The closing of the Getty
Investments stock purchase is not contingent on the closing of the Company's
current public stock offering or the acquisition of The Image Bank.
9
<PAGE> 10
11. PRO FORMA INFORMATION RELATING TO ACQUISITIONS (UNAUDITED)
The following unaudited pro forma information shows the results of the Company
for the nine month periods ended September 30, 1999 and September 30, 1998,
respectively, as if the acquisitions of PhotoDisc and Allsport had occurred on
January 1, 1998 and the acquisitions of Art.com and EyeWire had occurred on
January 1, 1999. The pro forma information includes adjustments related to the
financing of the acquisitions, including conversion of the EyeWire exchangeable
shares, 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 have actually occurred had the
combinations been in effect on the dates indicated or which may occur in the
future.
<TABLE>
<CAPTION>
UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1999 1998
--------- ---------
(IN THOUSANDS EXCEPT LOSS PER SHARE DATA)
<S> <C> <C>
Sales .............. $ 168,482 $ 141,824
Net loss ........... (74,569) (33,060)
Basic loss per share $ (2.03) $ (1.15)
</TABLE>
10
<PAGE> 11
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF GETTY IMAGES, INC.
We have reviewed the accompanying consolidated balance sheet of Getty Images,
Inc. and its subsidiaries as of September 30, 1999, and the related consolidated
statements of operations for each of the three month and nine month periods
ended September 30, 1999 and September 30, 1998, and the related consolidated
statement of comprehensive income and condensed consolidated statement of cash
flows for the nine month periods ended September 30, 1999 and September 30,
1998. These financial statements are the responsibility of the company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated interim financial statements for them
to be in conformity with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing standards,
the consolidated balance sheet as of December 31, 1998, and the related
consolidated statements of operations, stockholders' equity and of cash flows
for the year then ended (not presented herein), and in our report dated March
31, 1999 we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated balance sheet information as of December 31, 1998, is fairly stated
in all material respects in relation to the consolidated balance sheet from
which it has been derived.
PricewaterhouseCoopers
LONDON
England
November 11, 1999
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING SHOULD BE READ IN CONJUNCTION WITH OUR UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS AND THE NOTES THERETO, AND OTHER FINANCIAL INFORMATION
CONTAINED ELSEWHERE IN THIS REPORT ON FORM 10-Q. IN THE FOLLOWING DISCUSSION,
REFERENCES TO THE "COMPANY" "WE", "US" AND "OUR" ARE TO GETTY COMMUNICATIONS PLC
COMBINED WITH GETTY IMAGES, INC.. ALL FINANCIAL DATA REFERRED TO IN THE
FOLLOWING DISCUSSION HAS BEEN PREPARED IN ACCORDANCE WITH UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP).
IN ADDITION TO HISTORICAL INFORMATION, THE DISCUSSION IN THIS SECTION MAY
CONTAIN CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.
THE FORWARD-LOOKING STATEMENTS RELATE TO, AMONG OTHER THINGS, OPERATING RESULTS,
TRENDS IN SALES, GROSS PROFIT, OPERATING EXPENSES, EFFECTIVE TAX RATES,
ANTICIPATED EXPENSE LEVELS, LIQUIDITY AND CAPITAL RESOURCES, YEAR 2000 EXPENSES
AND THE EFFECT OF FOREIGN CURRENCY HEDGING TRANSACTIONS. OUR ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED BY THESE FORWARD-LOOKING
STATEMENTS DUE TO FACTORS INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH UNDER
THE SECTION ENTITLED "ITEM 1: BUSINESS - H. FACTORS THAT MAY AFFECT THE
BUSINESS" IN OUR FORM 10-K.
OVERVIEW
Founded in March 1995 as Getty Communications plc, Getty Images, Inc. is a
leading global visual content provider, offering imagery over the Internet and
through a diverse set of distribution channels and media including CD ROMs,
demonstration reels and catalogs. We estimate we control over 30 million still
images and more than 12,000 hours of film footage. We own or control visual
content across major categories of the industry. Through our e-commerce enabled
websites and our international network of company-operated offices as well as
agents, distributors and affiliates in 51 countries, we provide both business
and consumers with effective access to image and footage products. Since 1995,
we have been an active consolidator of many of the visual content industry's
leading brands, acquiring brands such as Tony Stone Images (tonystone.com), a
leading worldwide provider of contemporary stock photography; PhotoDisc
(photodisc.com), a pioneer in the development and marketing of digital stock
photography, which uses the royalty-free licensing model and the electronic
delivery of images; Allsport (allsport.com), a leading worldwide sports
photography provider; EyeWire (eyewire.com), a leading provider of royalty-free
imagery and visual content-related products and services to the business user
market; and Art.com (art.com), a leading provider of framed and unframed art and
art-related products to consumers on the Internet.
Our visual content product brands are organized into the following divisions to
serve our four major types of customers:
Creative Professional Division. Tony Stone Images and PhotoDisc, leaders in
licensed and royalty-free contemporary stock photography, and Energy Film
Library, a leading provider of stock film footage;
Press and Editorial Division. Allsport, a leading global provider of sports
imagery; Liaison Agency, a leading North American news and features agency;
Hulton Getty, one of the world's largest commercially available collections of
archival photography; and Online USA, Inc., a leading provider of celebrity news
and event photography over the Internet that we acquired in August 1999;
Business User Division. EyeWire, a leading provider of royalty-free imagery,
footage, audio, typefaces, illustration, clip art and other design products to
business users that we acquired in August 1999; and
Consumer Division. Art.com, a leading destination for custom framed and unframed
art and art-related supplies for consumers on the Internet that we acquired in
May 1999.
Our sales are primarily derived from the marketing of image reproduction and
broadcasting rights to a range of business customers. Sales generally consist of
a large number of relatively small transactions involving the sale or licensing
of single images, video and film clips or CD ROM products containing between 100
and 300 images. We use a variety of distribution platforms, including digital
distribution via the Internet and CD ROM, as well as analog distribution of 35mm
film, video and analog transparencies. Price is generally determined by
resolution size and the extent of rights granted over the use of the image or
clip and can vary significantly across geographic markets and customer groups.
We also generate sales from subscription or bulk purchase deals where customers
are provided access to imagery online. In the case of our consumer business, we
principally sell framed and unframed art products to consumers over the Internet
with payment typically being made using a credit card.
Revenue arises from three principal types of sales:
Fixed license sales are recognized when a license agreement has been completed
with the customer for the use of the image, and the image has been made
available for use. Fixed license pricing terms do not call for additional fees
beyond the fixed license amount, and our 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.
12
<PAGE> 13
Royalty-free sales, or sales in which the user pays a one-time fee for unlimited
use, are recognized upon the shipment of the CD ROM or at the time images are
downloaded by the customer.
Consumer sales are recognized upon shipment of the product.
Circumstances in which sales are refunded are rare, and refunds are netted in
the recognition of revenue. Sales are recorded at invoiced amounts less sales
tax, if applicable. "Digital sales" are defined as those sales that are
transacted on the Internet or by CD ROM, and "e-commerce sales" are defined as
the Internet portion of digital sales.
Our cost of sales primarily consists of commission payments to contributing
photographers and cinematographers. These suppliers are under contract with us
and receive payments of up to 50.0% of sales depending on the type of product
and where and how the product is sold. We own a significant number of the images
in our collections and these images do not require commission payments. Cost of
sales also includes, to the extent applicable, handling and shipping costs for
duplicate transparencies, the cost of CD ROM production and costs associated
with framing and shipping art products. As a result, our gross margin is
impacted by the mix of sales conducted digitally on the Internet, sales of
wholly-owned imagery, geographic distribution of sales and brand sales mix.
Our selling, general and administrative expenses include salaries and related
staff costs, premises and utility costs, and sales and marketing costs.
We amortize goodwill and depreciate the cost of the investment in duplicate
transparencies, digital files, archival picture collections, computer systems
and other fixed assets over their expected useful lives. The acquisitions of
PhotoDisc and Allsport in February 1998 have generated approximately $241.9
million in goodwill and $51.0 million in other intangibles. The acquisitions of
Art.com in May 1999 and EyeWire in August 1999 have generated approximately
$122.2 million and $34.7 million of goodwill, respectively. These acquisitions
will result in a substantial charge to be amortized against our earnings in
future periods. We are amortizing goodwill relating to PhotoDisc and Allsport
over 20 years, goodwill relating to Art.com over three years, and goodwill
relating to EyeWire over seven years. We amortize other intangibles over one to
three years.
As a result of our various acquisitions and their financial and goodwill
accounting effects on net income, we believe that EBITDA provides stockholders,
investors and analysts with an appropriate measure of our operating performance.
We define EBITDA as earnings before interest, taxes, exchange gains/(losses),
depreciation, amortization, non-recurring integration and restructuring costs
and extraordinary items. EBITDA should not be considered as an alternative to
operating income as an indicator of our operating performance or to cash flows
as a measure of our liquidity.
Following the acquisitions of PhotoDisc and Allsport in February 1998, we
commenced a program to integrate our then existing businesses. This resulted in
integration and restructuring charges totaling $13.8 million. The charges
included restructuring costs, severance costs, consulting and professional fees,
systems and process integration costs, and costs associated with contract
renegotiations and terminations.
Restructuring costs, amounting to $10.1 million in 1998, were for estimated exit
costs associated with the closure of certain operating facilities, including
asset writedowns and termination costs. The largest element of the asset
writedowns consisted of systems assets, primarily hardware and software, which
had shortened useful lives as a result of the restructuring plans. Termination
costs arose in relation to property related exit costs, termination of agents
and photographer contracts and employee terminations. Integration costs of $3.7
million were associated with the activities of teams responsible for integrating
our then existing businesses and included items such as consulting and
professional fees, systems and process integration costs and contract
renegotiation and termination costs.
During the three months ended September 30, 1999, we approved and commenced a
program to integrate all our businesses, including the new acquisitions Art.com
and EyeWire, into four divisions to serve our four major types of customers.
This resulted in integration and restructuring charges totaling $7.4 million.
The charges included restructuring costs, severance costs, consulting and
professional fees, systems and process integration costs and costs associated
with terminations.
Restructuring costs, amounting to $4.8 million in 1999 were for estimated exit
costs associated with the closure of 14 facilities, asset writedowns and
employee termination costs. The largest element of the asset writedowns
consisted of systems assets, primarily software which had shortened useful lives
as a result of the restructuring plans. Termination costs arose in relation to
property related exit costs and employee termination. Integration costs of $2.6
million were associated with the activities of teams responsible for integrating
our businesses and included items such as consulting and professional fees,
systems and process integration costs and content review costs. Content review
costs arose from an assessment of the compatibility of our images across our
brands following the decision to integrate all our businesses into four
divisions.
13
<PAGE> 14
UNAUDITED RESULTS OF OPERATIONS:
The following table is derived from our consolidated financial statements and
sets forth certain items for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
--------------------------------------------------------------
% OF % OF
1999 SALES 1998 SALES
--------- ------- --------- ------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales ...................................... $ 167,930 100.0% $ 135,032 100.0%
Gross profit ............................... 122,879 73.2% 95,952 71.1%
Selling, general and administrative expenses (97,316) (58.0%) (71,231) (52.8%)
Amortization of intangibles and
depreciation ............................... (63,079) (37.6%) (37,151) (27.5%)
Non-recurring integration and restructuring
costs ...................................... (7,438) (4.4%) (13,755) (10.2%)
Operating loss ............................. (44,954) (26.8%) (26,185) (19.4%)
Net interest expense ....................... (2,868) (1.7%) (2,119) (1.6%)
Net exchange gain/(loss) ................... 244 0.1% (116) (0.1%)
Income taxes ............................... (477) (0.3%) (557) (0.4%)
Extraordinary items ........................ -- -- (830) (0.6%)
Net loss ................................... (48,055) (28.6%) (29,807) (22.1%)
========= ====== ========== ======
OTHER OPERATING DATA:
EBITDA(1) .................................. $ 25,563 15.2% $ 24,721 18.3%
========= ====== ========== ======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30
--------------------------------------------------------------
% OF % OF
1999 SALES 1998 SALES
--------- ------- --------- -------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales ...................................... $ 60,823 100.0% $ 48,975 100.0%
Gross profit ............................... 44,377 73.0% 35,411 72.3%
Selling, general and administrative expenses (36,520) (60.0%) (25,646) (52.4%)
Amortization of intangibles and
depreciation ............................... (25,997) (42.7%) (13,802) (28.2%)
Non-recurring integration and restructuring
costs ...................................... (7,438) (12.2%) (4,618) (9.4%)
Operating loss ............................. (25,578) (42.1%) (8,655) (17.7%)
Net interest expense ....................... (1,095) (1.8%) (800) (1.6%)
Net exchange gain/(losses) ................. 615 1.0% (57) (0.1%)
Income taxes ............................... 1,691 2.8% (188) (0.4%)
Extraordinary items ........................ -- -- -- --
Net loss ................................... (24,367) (40.1%) (9,700) (19.8%)
======== ====== ======== ======
OTHER OPERATING DATA:
EBITDA(1) .................................. $ 7,857 12.9% $ 9,765 19.9%
======== ====== ======== ======
</TABLE>
(1)"EBITDA" is defined as earnings before interest, taxes, exchange
gains/(losses), depreciation, amortization, non-recurring integration and
restructuring costs and extraordinary items. EBITDA should not be considered
as an alternative to operating income as an indicator of our operating
performance or to cash flows as a measure of our liquidity.
14
<PAGE> 15
SALES
Our total sales increased from $135.0 million in the nine months ended September
30, 1998 to $167.9 million in the nine months ended September 30, 1999, an
increase of 24.4%, and from $49.0 million in the three months ended September
30, 1998 to $60.8 million in the three months ended September 30, 1999, an
increase of 24.2%. These increases were largely attributable to the continued
growth of our business-to-business brands, particularly the growth of revenues
from our e-commerce websites.
We experienced an increase in the rate of demand for both analog and digital
search, selection and fulfillment of imagery during the nine months ended
September 30, 1999, particularly in North America. Digital sales accounted for
30.1% of our sales or $40.6 million in the nine months ended September 30, 1998
and increased to 44.5% of our sales or $74.8 million in the nine months ended
September 30, 1999, representing an 84.0% growth. Digital sales accounted for
34.2% of our sales or $16.7 million in the three months ended September 30, 1998
and increased to 49.8% of sales or $30.3 million in the three months ended
September 30, 1999, representing an 80.9% growth. These increases were due, in
part, to the inclusion of Allsport's and PhotoDisc's digital sales for the full
nine months in 1999, as well as the inclusion of Art.com's and EyeWire's digital
sales since their acquisition in May and August 1999, respectively.
E-commerce sales accounted for $18.8 million of sales during the nine months
ended September 30, 1998 and more than doubled to $43.4 million, or 25.9% of
sales in the nine months ended September 30, 1999. E-commerce sales accounted
for $7.3 million or 14.9% of sales and $19.4 million or 31.8% of sales, in the
three months ended September 30, 1998 and 1999, respectively.
GROSS PROFIT
Our gross profit margin was 71.1% for the nine months ended September 30, 1998
and increased to 73.2% in the nine months ended September 30, 1999. Our gross
profit margin was 72.3% for the three months ended September 30, 1998, and
increased to 73.0% in the three months ended September 30, 1999. This result
reflects the increasing shift in sales mix to e-commerce with its lower cost of
sales, as well as continuing changes in our sales mix at the brand level.
OPERATING EXPENSES
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were 52.8% of sales in the nine
months ended September 30, 1998 or $71.2 million compared to 58.0% of sales, or
$97.3 million for the nine months ended September 30, 1999. Selling, general and
administrative expenses were 52.4% of sales, or $25.6 million and 60.0% of
sales, or $36.5 million for the three months ended September 30, 1998 and 1999,
respectively. The increase in selling, general and administrative expenses over
the comparable periods in 1998 was largely attributable to accelerated
investment in advertising and marketing costs associated with our new websites,
increased investment in management, new sales offices, and the development of
new products and new business systems. The acquisition of Art.com particularly
contributed to the increase in selling, general and administrative expenses. We
intend to continue to make the investments required to migrate our business from
an analog to a digital platform.
We are committed to managing selling, general and administrative expenses as we
further integrate our businesses, and implement new and standardized business
systems. As customers move towards digital image search, retrieval and payment,
we plan to streamline our support operations. We also intend to consolidate our
offices and other premises throughout the world in line with the recently
announced reorganization of our business into four divisions.
AMORTIZATION OF INTANGIBLES AND DEPRECIATION
Amortization of intangibles increased from $26.9 million in the nine months
ended September 30, 1998 to $46.8 million in the nine months ended September 30,
1999, an increase of 74.0%. Amortization of intangibles increased from $10.0
million in the three months ended September 30, 1998 to $19.8 million in the
three months ended September 30, 1999, an increase of 97.8%. These increases
were attributable to increased goodwill that arose from the acquisitions of
PhotoDisc and Allsport in February 1998, Art.com in May 1999 and EyeWire in
August 1999.
Depreciation increased from $10.2 million in the nine month period ended
September 30, 1998 to $16.3 million in the nine month period ended September 30,
1999, an increase of 58.8%. Depreciation increased from $3.8 million in the
three month period ended September 30, 1998 to $6.2 million in the three month
period ended September 30, 1999, an increase of 63.5%. These increases primarily
arose from the acquisitions of PhotoDisc and Allsport in February 1998, Art.com
in May 1999 and EyeWire in August 1999, together with increased capital
expenditures related to the development of our digital strategy. We expect
depreciation to continue to increase as a result of this increased investment.
15
<PAGE> 16
NON - RECURRING INTEGRATION AND RESTRUCTURING COSTS
During the nine and three months ended September 30, 1999, we approved and
commenced a program to integrate all our businesses, including the new
acquisitions Art.com and EyeWire, into four divisions to serve our four major
types of customers. This resulted in integration and restructuring charges
totaling $7.4 million. The charges included restructuring costs, severance
costs, consulting and professional fees, systems and process integration costs
and costs associated with terminations.
Integration costs in the nine and three months ended September 30, 1999 of $2.6
million were associated with the activities of teams responsible for integrating
our businesses for the benefit of future operations and included items such as
consulting and professional fees, systems and process integration costs and
content review costs. Content review costs arose from an assessment of the
compatibility of our images across our brands following the decision to
integrate all our businesses into four divisions. These costs were expensed as
incurred.
Restructuring costs, amounting to $4.8 million in the nine and three months'
ended September 30, 1999, were for estimated exit costs associated with the
closure of 14 facilities, asset writedowns and employee termination costs. The
largest element of the asset writedowns consisted of systems assets, primarily
software, which had shortened useful lives as a result of the restructuring
plans. Termination costs arose in relation to property related exit costs and
employee terminations.
Further costs associated with the non-recurring integration program, which
management anticipates will not exceed $2.5 million, will be recognized as
incurred. It is anticipated that the non-recurring integration and restructuring
program will be substantially complete by June 30, 2000. Management expects that
the total cash costs will amount to approximately $8.4 million.
Following the acquisitions of PhotoDisc and Allsport in February 1998 we
commenced a program to integrate our then existing businesses. This resulted in
integration and restructuring charges of $13.8 million in the nine months ended
September 30, 1998 and $4.6 million in the three months ended September 30,
1998. The charges included restructuring costs, severance costs, consulting and
professional fees, systems and process integration costs, and costs associated
with contract renegotiations and terminations.
Integration costs in the nine months and three months ended September 30, 1998
of $3.7 million and $2.4 million, respectively, were associated with the
activities of teams responsible for integrating our then existing businesses for
the benefit of future operations and included items such as consulting and
professional fees, systems and process integration costs and contract
renegotiation and termination costs.
Restructuring costs, amounting to $10.1 million in the nine months ended
September 30, 1998, and $2.2 million in the three months ended September 30,
1998, were for estimated exit costs associated with the closure of certain
operating facilities, including asset writedowns and termination costs. The
largest element of the asset writedowns consisted of systems assets, primarily
hardware and software, which had shortened useful lives as a result of the
restructuring plans. Termination costs arose in relation to property related
exit costs, termination of agents and photographers contracts and employee
terminations.
NET EXCHANGE GAINS/(LOSSES)
Our operating results are affected by exchange rate fluctuations to the extent
that we have receivables or payables that are denominated in a currency other
than the local currency. Exchange gains or losses arising on the translation of
these balances into local currency or on the settlement of these transactions
are recognized in our income statement.
Our policy is to hedge a majority of our contracted net receivables and payables
using a combination of forward exchange contracts and foreign currency term
loans. Net exchange gains were $244,000 in the nine months ended September 30,
1999, compared to a net exchange loss of $116,000 in the same period of 1998.
Net exchange gains were $615,000 in the three months ended September 30, 1999,
compared to a net exchange loss of $57,000 for the three months ended September
30, 1998.
16
<PAGE> 17
INCOME TAXES
The tax charge for the nine month period ended September 30, 1999 was $477,000
and the tax credit for the three month period ended September 30, 1999 was $1.7
million. This compares with a tax charge of $557,000 and $188,000 in the nine
and three month periods ended September 30, 1999, respectively. Excluding
non-recurring integration and restructuring costs, and the tax credits thereon,
and the amortization of intangibles, which is largely non tax deductible, the
Company had an effective tax rate of 39.4% for the nine months ended September
30, 1999, and 36.8% for the nine months ended September 30, 1998. The tax credit
arising from the non-recurring integration and restructuring costs was $2.7
million in both the nine and three month periods ended September 30, 1999 and
$4.0 million and $1.7 million for the nine and three month periods ended
September 30, 1998.
EBITDA
EBITDA increased from $24.7 million in the nine months ended September 30, 1998
to $25.6 million in the nine months ended September 30, 1999, an increase of
3.4%. EBITDA decreased from $9.8 million in the three months ended September 30,
1998 to $7.9 million in the three months ended September 30, 1999, a decrease of
19.5%. EBITDA as a percentage of sales decreased from 18.3% in the nine months
ended September 30, 1998 to 15.2% in the nine months ended September 30, 1999.
EBITDA as a percentage of sales decreased from 19.9% in the three months ended
September 30, 1998 to 12.9% in the three months ended September 30, 1999.
Excluding Art.com, EBITDA as a percentage of sales increased from 18.3% in the
nine months ended September 30, 1998 to 19.0% in the nine months ended September
30, 1999. Excluding Art.com, EBITDA as a percentage of sales, decreased from
19.9% in the three months ended September 30, 1998 to 18.9% in the three months
ended September 30, 1999. As with gross profit, our EBITDA, excluding Art.com,
has been impacted by our overall growth, including our growth through
acquisitions, the growth in digital sales, the increasing sales mix of
wholly-owned imagery, as well as operating efficiencies.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
------------------------------
1999 1998
--------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C>
Net cash provided by/(used in):
Operating activities .......... $ 430 $ 9,764
Investing activities .......... (30,633) (95,298)
Financing activities .......... 21,633 84,948
Exchange differences.......... 2,297 892
-------- --------
Net (decrease)/increase in cash
and cash equivalents ................... $ (6,273) $ 306
======== ========
</TABLE>
Net cash provided by operating activities amounted to $430,000 in the nine
months ended September 30, 1999 compared to $9.8 million in the nine months
ended September 30, 1998. The decrease was due to increased spending on
marketing and advertising, particularly at Art.com, and the production of new
contemporary stock photography catalogs.
Net cash used in investing activities in the nine months ended September 30,
1999 was $30.6 million, compared to $95.3 million in the same period last year.
The decrease primarily reflected the larger business acquisitions made in the
nine months ended September 30, 1998, offset in part by increased investment in
technology and related infrastructure in the nine months ended September 30,
1999.
Net cash provided by financing activities in the nine months ended September 30,
1999 was $21.6 million, primarily as a result of a $20.0 million short-term
revolving credit facility, which was obtained by the Company in the period to
fund additional working capital requirements and the acquisition of Art.com.
The acquisitions of PhotDisc and Allsport in February 1998 and other businesses
throughout the year resulted in a net cash outflow of $80.6 million, including
expenses. To fund this amount, we raised a net additional $47.2 million of debt
and Getty Investments LLC subscribed for an additional 1,518,644 shares of our
common stock, providing $28.0 million of additional capital.
On May 20, 1998, we raised $75.0 million from the issuance of our convertible
subordinated notes. Of these proceeds, $49.0 million was applied to the
repayment of term debt and $3.3 million to debt issuance costs. Also, in the
year ended December 31, 1998, we raised $5.3 million from the exercise of
options. At December 31, 1998, we had outstanding long term debt of $75.0
million and cash of $16.2 million.
17
<PAGE> 18
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." The standard
requires that an entity recognize all derivatives as either assets or
liabilities and measure those instruments at fair value. The new rules will be
effective for fiscal years beginning after June 15, 2000. The Company does not
believe that the new standard will have a material impact on its financial
results.
THE EURO CONVERSION
A new European currency, the Euro, was implemented in January 1999 to replace
the separate currencies of eleven Western European countries. This is requiring
changes in our operations as we modify systems and commercial arrangements to
handle the new currency. Modifications are necessary in operations such as
payroll, benefits and pension systems, contracts with suppliers and customers
and internal financial reporting systems. Although a three-year transition
period is expected during which transactions may also be made in the old
currency, we will use dual currency processes for our operations during the
transition period. We do not expect the cost of this effort to have a material
effect on our business or results of operations, however we cannot be sure that
all problems will be foreseen and corrected or that no material disruption of
our business will occur.
YEAR 2000 READINESS
The Year 2000 issue refers to the risk that systems, products and equipment
having date-sensitive components will not recognize the Year 2000 as a result of
computer programs using two digits rather than four to define the applicable
year. The use of noncompliant Year 2000 programs or our inability to update our
systems successfully may result in system failures, miscalculations or errors
which could cause disruption of operations, the corruption of data or other
business problems, including, among other things, a temporary inability to
process transactions and invoices, or engage in other business activities. In
addition to our computer systems, the Year 2000 issue may affect certain
embedded systems such as alarms, gates and time locks, lighting, security,
electrical supply control and backup equipment, and communication systems such
as switchboards, fax machines and cellular telephones.
In addition to Year 2000 issues related to our systems, we may be adversely
affected if our key suppliers or other material third party service providers
are unable or fail to adequately address the Year 2000 issue. Such suppliers can
include infrastructure suppliers in areas such as utilities, communications,
transportation and other services. While we are developing alternate power
generation sources for our most sensitive systems, the likelihood and effects of
failures in infrastructure systems and in the supply chain cannot be estimated.
We developed the Year 2000 Compliance Program (the "Program") to identify and
mitigate Year 2000 issues in our information systems, facilities and suppliers.
The Program can be divided into three phases: (1) evaluation, which includes
identifying issues, taking an inventory of the systems affected and developing
solutions to address the issues; (2) implementation, which includes deploying
program and software changes and completing necessary contingency plans; and (3)
testing, which includes performing applications and acceptance testing and
certification.
The goals of the Program are to ensure that we and our business divisions can
continue to function at optimal levels up to and beyond December 31, 1999, to
provide our customers and partners with our services throughout the affected
period and to ensure that key suppliers are Year 2000 compliant and that there
will be no disruption in our supply of services and products.
Our Chief Executive Officer, subject to our board of directors' oversight, is
responsible for the overall implementation of the Program and ensuring that we
become Year 2000 compliant by December 31, 1999.
As of September 30, 1999, the bulk of our systems were Year 2000 compliant, and
the remainder will reach compliance during the fourth quarter of 1999.
Contingency plans have been developed for any matter not resolved in 1999 that
may have a material negative impact on our final Year 2000 readiness.
Evaluation. We have inventoried all of our major hardware and software
platforms, as well as the relevant computer, embedded and communication systems,
which may be affected by the Year 2000 issue and assessed our needs to become
Year 2000 compliant. We have completed a review of the Year 2000 issues faced by
our material suppliers and evaluated the risks and dependencies associated with
those suppliers. The review of the Year 2000 issues faced by licensees and
agents has been completed.
18
<PAGE> 19
Implementation. We are in the advanced stages of our deployment of software and
hardware changes. Year 2000 compliance measures have been incorporated into all
new Internet initiatives, becoming our standard for all new contracts and have
been incorporated into our due diligence program when evaluating potential
acquisitions and partnerships.
In addition, we have developed our first stage contingency plan which addresses
the identification of alternative suppliers and distribution channels and the
implementation of manual systems if it becomes necessary. We are continuing to
review this process.
Testing. We will continue testing our computer, embedded and communication
systems as we complete the implementation of software and hardware changes.
We estimate that the expected total aggregate costs for our Year 2000 activities
and related systems changes will be approximately $2.5 million, of which
approximately $2.4 million has been spent as of September 30, 1999.
RISKS RELATED TO THE YEAR 2000 ISSUE
Although our efforts to be Year 2000 compliant are intended to minimize the
adverse effects of the Year 2000 issues on our operations and business, the
actual effects of the Year 2000 issue will not be known until 2000. If we fail
to become Year 2000 compliant in a timely manner, Year 2000 issues could have a
material adverse effect on our business, results of operations and financial
condition.
The Year 2000 disclosure set forth above is intended to be a "Year 2000
statement" as such term is defined in the Year 2000 Information and Readiness
Disclosure Act of 1998 (the "Year 2000 Act") and, to the extent such disclosure
relates to our Year 2000 processing or to products or services we offer, is
intended to be a "Year 2000 readiness disclosure" as such term is defined in the
Year 2000 Act.
OTHER INFORMATION
On September 20, 1999, the Company signed a stock purchase agreement with
Eastman Kodak Company and Kodak S.A., an affiliate of Eastman Kodak Company, to
purchase all of the capital stock of The Image Bank, Inc. and The Image Bank
France S.A., which we collectively refer to as "The Image Bank," for
approximately $173.0 million plus approximately $10.0 million to compensate
Eastman Kodak Company for a tax election made for the Company's benefit. The
Image Bank is a leading provider of visual content to the advertising, design,
publishing, corporate, broadcast and editorial markets. The Company believes
that The Image Bank is the market leader in the film footage market and is a
leading source of contemporary stock photography, archival photography and
illustrative artwork worldwide. The Company currently expects to close this
acquisition on or before December 15, 1999.
On September 29, 1999, the Company filed a Registration Statement (which has not
yet become effective) for the public offering of up to 5,000,000 shares
(5,750,000 shares if the underwriters' over-allotment option is exercised) of
newly-issued common stock. The Company currently expects to close the offering
contemplated by the Registration Statement during November 1999.
SUBSEQUENT EVENTS
We have entered into an agreement dated as of October 26, 1999, with Getty
Investments L.L.C. providing for the purchase by Getty Investments of 1,579,353
shares of the Company's common stock for $32.0 million in cash or approximately
$20.261 per share. The purchase of the shares by Getty Investments is due to be
consummated on the business day immediately preceding the closing of the
acquisition of The Image Bank. The subscription is subject to the inclusion of
these new shares under the Company's existing registration rights agreement with
Getty Investments; the execution and delivery of an indemnity agreement similar
to that delivered in connection with the sale of the Company's convertible
subordinated notes; and the receipt by Getty Investments of an appropriate legal
opinion. The closing of the Getty Investments stock purchase is not contingent
on the closing of the Company's current public stock offering or the acquisition
of The Image Bank.
On October 26, 1999, the Company issued an aggregate of 428,442 shares of its
common stock in exchange for all of the issued and outstanding capital stock of
American Royal Arts Corporation. American Royal Arts Corporation is a leading
provider of animation art.
On October 27, 1999, the Company acquired 95% of the membership interest in
Newsmakers L.L.C. for $950,000 of its common stock which has yet to be issued.
The price of the Company's common stock to be issued was based on the average
closing price per share, as reported on The Nasdaq National Market for the ten
day trading period ending on the second day prior to the close of the agreement.
Newsmakers L.L.C. is a premiere digital news agency covering current events,
news and celebrity photography.
19
<PAGE> 20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to a variety of risks, including changes in interest
rates affecting the return on its investments and foreign currency fluctuations.
In the normal course of business, the Company employs established policies and
procedures to manage its exposure to fluctuations in interest rates and foreign
currency values.
INTEREST RATE RISK
The Company's exposure to market rate risk for changes in interest rates relates
primarily to the Company's debt instruments, most of which are fixed-rate
borrowings.
<TABLE>
<CAPTION>
MATURITIES FAIR VALUE
----------------------------------------- SEPTEMBER 30,
1999 2001 2003 TOTAL 1999
DEBT INCLUDING CURRENT PORTION (US DOLLARS, IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Fixed rate $ 75,000 $ 75,000 $ 75,000
Average interest rate 4.75%
Variable rate $ 20,583 $ 1,000 $ 1,000 $ 22,583 $ 22,583
Average interest rate 7.16% 8.25% 8.25%
</TABLE>
FOREIGN CURRENCY RISK
We conduct our business primarily in the United States and the United Kingdom
and, therefore, our cashflows are primarily denominated in U.S. dollars and
United Kingdom pounds sterling. We are exposed to foreign exchange risk related
to foreign currency denominated assets and liabilities and cash. The
introduction of the euro does not significantly affect our foreign exchange
exposure.
Our functional currency is U.S. dollars. We have entered into forward foreign
currency exchange contracts to hedge our contracted net receivables denominated
in foreign currencies. The forward foreign currency exchange contracts typically
have a term of less than six months. All forward foreign currency exchange
contracts at September 30, 1999 were designated and accounted for as hedges.
The criteria we use for designating a contract as a hedge include the contract's
effectiveness in risk reduction. Gains and losses on these contracts, relating
to the hedged risk, are recognized as incurred, reflecting the income statement
treatment of the hedge items.
If an underlying hedged transaction is terminated earlier than initially
anticipated, the offsetting gain or loss on the related forward foreign exchange
contract would be recognized in income in the same period. In addition, since we
enter into forward contracts only as hedges, any change in currency rates would
not result in any material gain or loss, as any gain or loss on the underlying
foreign currency denominated balances would be offset by the loss or gain on the
forward contract.
The following tables present certain information regarding the Company's use of
financial instruments and should be read in conjunction with Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
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<PAGE> 21
FOREIGN EXCHANGE RISK
(CURRENCY AND US DOLLAR EQUIVALENTS IN THOUSANDS EXCEPT AVERAGE CONTRACTUAL
EXCHANGE RATE WHICH IS TO THE NEAREST SECOND DECIMAL POINT)
<TABLE>
<CAPTION>
FAIR VALUE
U.S. EQUIVALENT
MATURITIES SEPTEMBER 30, 1999
U.S. DOLLAR
1999 EQUIVALENT
<S> <C> <C> <C>
Buy Pound Sterling/sell Deutsche Mark 2,460 $ 1,342 $ 6
Average contractual exchange rate
(Deutsche Mark/Pound Sterling)
Buy Pound Sterling/sell French Franc 1,350 222 (2)
Average contractual exchange rate
(French Franc/Pound Sterling)
Buy Pound Sterling/sell Spanish Peseta 26,000 170 (3)
Average contractual exchange rate
(Spanish Peseta/Pound Sterling)
Buy Pound Sterling/sell Swedish Krone 1,350 169 (3)
Average contractual exchange rate
(Swedish Krone/Pound Sterling)
Buy Pound Sterling/sell Italian Lire 250,000 $ 139 $ (1)
Average contractual exchange rate
(Italian Lire/Pound Sterling)
</TABLE>
There are further forward exchange contracts at September 30, 1999 that are
together considered immaterial. The US dollar equivalent maturity value of these
contracts is $454,000. All foreign exchange risk contracts are foreign currency
forward exchange contracts between the indicated currency and the United Kingdom
Sterling (Pound Sterling).
Forward foreign exchange contracts between United Kingdom Sterling and German
Deutsche Mark, French Franc, Spanish Peseta, Swedish Krone and Italian Lire
account for 54 percent, 9 percent, 7 percent, 7 percent and 6 percent
respectively of the Company's total US dollar equivalents in forward foreign
exchange contracts.
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<PAGE> 22
PART II.
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On August 5, 1999, the Company acquired all of the outstanding capital shares of
EyeWire Partners, Inc., an Alberta corporation. In the transaction, EyeWire
stockholders received an aggregate of 1,561,010 exchangeable shares of a newly
formed Nova Scotia subsidiary of the Company. Each exchangeable share is
exchangeable for one share of the Company's common stock. In addition, the
183,318 outstanding EyeWire employee stock options were converted into options
to acquire an aggregate of 292,324 shares of the Company's common stock.
On August, 19, 1999, the Company issued an aggregate of 99,930 shares of its
common stock in exchange for all of the issued and outstanding capital stock of
Online USA, Inc..
ITEM 5. OTHER INFORMATION
On September 20, 1999, the Company signed a stock purchase agreement with
Eastman Kodak Company and Kodak S.A., an affiliate of Eastman Kodak Company, to
purchase all of the capital stock of The Image Bank, Inc. and The Image Bank
France S.A., which we collectively refer to as "The Image Bank," for
approximately $173.0 million plus approximately $10.0 million to compensate
Eastman Kodak Company for a tax election made for the Company's benefit. The
Image Bank is a leading provider of visual content to the advertising, design,
publishing, corporate, broadcast and editorial markets. The Company believes
that The Image Bank is the market leader in the film footage market and is a
leading source of contemporary stock photography, archival photography and
illustrative artwork worldwide. The Company currently expects to close this
acquisition on or before December 15, 1999.
On September 29, 1999, the Company filed a Registration Statement (which has not
yet become effective) for the public offering of up to 5,000,000 shares
(5,750,000 shares if the underwriters' over-allotment option is exercised) of
newly-issued common stock. The Company currently expects to close the offering
contemplated by the Registration Statement during November 1999.
The Company entered into an agreement dated as of October 26, 1999, with Getty
Investments L.L.C. providing for the purchase by Getty Investments of 1,579,353
shares of the Company's common stock for $32.0 million in cash or approximately
$20.261 per share. The purchase of the shares by Getty Investments is due to be
consummated on the business day immediately preceding the closing of the
acquisition of The Image Bank. The subscription is subject to the inclusion of
these new shares under the Company's existing registration rights agreement with
Getty Investments; the execution and delivery of an indemnity agreement similar
to that delivered in connection with the sale of the Company's convertible
subordinated notes; and the receipt by Getty Investments of an appropriate legal
opinion. The closing of the Getty Investments stock purchase is not contingent
on the closing of the Company's current public stock offering or the acquisition
of The Image Bank.
On October 26, 1999, the Company issued an aggregate of 428,442 shares of its
common stock in exchange for all of the issued and outstanding capital stock of
American Royal Arts Corporation. American Royal Arts Corporation is a leading
provider of animation art.
On October 27, 1999, the Company acquired 95% of the membership interests in
Newsmakers L.L.C. for $950,000 of its common stock which has yet to be issued.
The price of the Company's common stock to be issued was based on the average
closing price per share, as reported on The Nasdaq National Market for the ten
trading day period ending on the second day prior to the close of the agreement.
Newsmakers L.L.C. is a premiere digital news agency covering current events,
news and celebrity photography.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
Reference is made to the Index of Exhibits beginning on page 23 for a list of
all exhibits filed as a part of this report.
REPORTS FILED ON FORM 8-K
On September 27, 1999 the Company filed a Current Report on Form 8-K relating to
the execution of its agreement to acquire The Image Bank. This report was
modified, superceded and replaced in its entirety by a Current Report on Form
8-K/A filed on October 13, 1999.
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<PAGE> 23
GETTY IMAGES, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
INDEX TO EXHIBITS
Exhibit Number Description of Exhibit
2.1(1) Combination Agreement, dated as of August 5, 1999,
among Getty Images, Inc., 3032097 Nova Scotia
Limited, EyeWire Partners, Inc. and each of the
stockholders of EyeWire Partners, Inc.
2.2(2) Stock Purchase Agreement dated as of September 20,
1999 among Getty Images, Inc., Eastman Kodak
Company and Kodak S.A.
3.1.1(3) Amended and Restated Certificate of Incorporation of
Getty Images, Inc.
3.1.2(4) Certificate of Amendment to the Certificate of
Incorporation of Getty Images, Inc.
3.2(3) Bylaws of Getty Images, Inc.
10.1(1) Registration Rights Agreement, dated as of August 5,
1999, by and among Getty Images, Inc. and each of the
former stockholders of EyeWire Partners, Inc.
10.2 Employment Agreement between Getty Images, Inc. and
Christopher Roling.
10.3 Employment Agreement between Getty Images, Inc. and
Jonathan D. Klein.
27.1 Financial Data Schedule.
99.1 Subscription Agreement dated October 26, 1999
between Getty Images, Inc. and Getty
Investments L.L.C.
(1) Incorporated by reference from the Exhibits to the Registration
Statement of Getty Images, Inc. on Form S-3 filed September 3, 1999
(Registration No. 333-86587). (Exhibit number in the Form S-3 is
set forth in italics.)
(2) Incorporated by reference from the Exhibits to the Current Report on
Form 8-K/A, filed October 13, 1999. (Exhibit number in the
Form 8-K/A is set forth in italics.)
(3) Incorporated by reference from the Exhibits to the Form S-4
Registration Statement No. 333-38777 of the Registrant. (Exhibit number
in the Form S-4 is set forth in italics.)
(1) (4) Incorporated by reference from the Exhibits to the 8-K dated
November 10, 1998. (Exhibit number in the 8-K is set
forth in italics.)
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<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GETTY IMAGES, INC.
Date: NOVEMBER 11, 1999 By: /s/ Christopher J. Roling
----------------------------
Name: Christopher J. Roling
Title: Chief Financial Officer
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<PAGE> 25
EXHIBIT INDEX
Exhibit Number Description of Exhibit
2.1(1) Combination Agreement, dated as of August 5, 1999,
among Getty Images, Inc., 3032097 Nova Scotia
Limited, EyeWire Partners, Inc. and each of the
stockholders of EyeWire Partners, Inc.
2.2(2) Stock Purchase Agreement dated as of September 20,
1999 among Getty Images, Inc., Eastman Kodak
Company and Kodak S.A.
3.1.1(3) Amended and Restated Certificate of Incorporation of
Getty Images, Inc.
3.1.2(4) Certificate of Amendment to the Certificate of
Incorporation of Getty Images, Inc.
3.2(3) Bylaws of Getty Images, Inc.
10.1(1) Registration Rights Agreement, dated as of August 5,
1999, by and among Getty Images, Inc. and each of the
former stockholders of EyeWire Partners, Inc.
10.2 Employment Agreement between Getty Images, Inc. and
Christopher Roling.
10.3 Employment Agreement between Getty Images, Inc. and
Jonathan D. Klein.
27.1 Financial Data Schedule.
99.1 Subscription Agreement dated October 26, 1999
between Getty Images, Inc. and Getty
Investments L.L.C.
(1) Incorporated by reference from the Exhibits to the Registration
Statement of Getty Images, Inc. on Form S-3 filed September 3, 1999
(Registration No. 333-86587). (Exhibit number in the Form S-3 is
set forth in italics.)
(2) Incorporated by reference from the Exhibits to the Current Report on
Form 8-K/A, filed October 13, 1999. (Exhibit number in the
Form 8-K/A is set forth in italics.)
(3) Incorporated by reference from the Exhibits to the Form S-4
Registration Statement No. 333-38777 of the Registrant. (Exhibit number
in the Form S-4 is set forth in italics.)
(1) (4) Incorporated by reference from the Exhibits to the 8-K dated
November 10, 1998. (Exhibit number in the 8-K is set
forth in italics.)
<PAGE> 1
Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of this 1st day of July, 1999, by and
between GETTY IMAGES, INC., a Delaware corporation (the "Company"), whose
principal Employee offices are located at 2101 Fourth Avenue, Suite 500,
Seattle, WA 98121 and CHRISTOPHER ROLING, an individual residing at 5401 NE 85th
Street, Seattle, WA 98115 (the "Employee").
W I T N E S S E T H:
WHEREAS, the Employee is presently serving as Chief Financial
Officer of Getty Images, Inc. and currently resides in London. Effective July 1,
1999 the Employee agrees to perform these duties in Seattle, Washington and will
then reside in Washington; and
WHEREAS, both parties desire that the terms and conditions of
the Employee's employment with the Company be governed by the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the promises and the
mutual covenants herein contained, the parties hereto hereby agree as follows:
1. EMPLOYMENT AND DUTIES.
(a) General. The Company hereby employs the Employee,
effective as of the date hereof (the "Effective Date"), and the Employee's
period of continuous employment for statutory purposes began on December 15,
1998, and the Employee agrees upon the terms and conditions herein set forth to
serve, as Chief Financial Officer of the Company and shall perform all duties
customarily appurtenant to such position. In such capacity, the Employee shall
report directly to Jonathan Klein, the Chief Executive Officer, or to such other
person designated by the Board of Directors of the Company. The Employee's
principal place of business shall be 2101 Fourth Avenue, Suite 500, Seattle,
Washington 98121 or such other address as the Company may specify from time to
time.
(b) Services and Duties. For so long as the Employee is
employed by the Company, the Employee shall devote his full business time to the
performance of his duties hereunder; shall faithfully serve the Company; shall
in all respects conform to and comply with the lawful and good faith directions
and instructions given to him by Jonathan Klein, or such other person designated
by the Board of Directors of the Company; and shall use his best efforts to
promote and serve the interests of the Company.
(c) No Other Employment. For so long as the Employee is
employed by the Company, he shall not, directly or indirectly, render services
to any other person or organization for which he receives compensation without
the prior approval of Jonathan Klein, or such other person designated by the
Board of Directors of the Company. No such approval
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<PAGE> 2
will be required if the Employee seeks to perform inconsequential services
without direct compensation therefore in connection with the management of
personal investments or in connection with the performance of charitable and
civic activities, provided that such activities do not contravene the provisions
of Section 6 hereof.
2. TERM OF EMPLOYMENT. The term of the Employee's employment
under this Agreement (the "Term") shall commence on the Effective Date and
continue until it is terminated by either party giving the other at least six
months' written notice; provided, however, that in no event may a non-renewal
notice be given prior to July 1, 2000; and provided further, however, that, in
any event, the Term shall not extend beyond the last day of the month in which
the Employee attains age 65.
3. COMPENSATION AND OTHER BENEFITS. Subject to the provisions
of this Agreement, the Company shall pay and provide the following compensation
and other benefits to the Employee during the Term as compensation for all
services rendered hereunder and the covenants contained in Section 6 hereof:
(a) Salary. The Company shall pay to the Executive an annual
salary (the "Salary") at the initial rate of Two Hundred Twenty Thousand and
Fifty Dollars ($220,050.00), payable to the Employee in accordance with the
normal payroll practices of the Company for its employees as are in effect from
time to time. In addition, the Employee shall receive an annual foreign service
premium of ten percent of the salary and an annual accommodation adjustment of
Forty Eight Thousand Dollars ($48,000.00), payable as part of the normal payroll
practices. The foreign service premium and the accommodation adjustment
mentioned above are the net amounts that will be received by the Employee. The
company will be responsible for any tax due on these amounts. The amount of the
Employee's Salary shall be reviewed annually by the Board on or about July 1 of
each year during the Term beginning in the 2000 calendar year and may be
increased on the basis of such review and then-current market practices, but not
decreased below such amount.
(b) Annual Bonus. The Employee shall be eligible for 1999 and
each calendar year thereafter that begins during his employment to participate
in an annual incentive bonus program established by the Company, in accordance
with the policies of the Company, its subsidiaries and affiliates (hereinafter,
collectively the "Group") and subject to such terms and conditions as may be
approved annually by the Company. Under the terms of the annual incentive bonus
program, the Employee will be afforded the opportunity to earn up to a maximum
of sixty percent (60%) of his Salary (the "Bonus") and a minimum of twenty
percent (20%) in effect for the applicable calendar year, subject to the
achievement of the performance targets established by the Company for that year,
to be paid on a pro-rata basis in the event that the Employee is employed for
less than a full calendar year (for purposes of determining the 1999 bonus, the
Employee shall be deemed to have commenced employment as of January 1, 1999).
(c) Relocation Expenses. The Company shall pay to the
Employee all
2
<PAGE> 3
reasonable temporary housing expenses and moving expenses including: shipping of
personal and household effects and insurance for such effects; storage charges
for up to three (3) years; temporary accommodations for the Employee and his
family in Seattle for up to six 6 weeks; discounted business class flights for
the Employee and his family for initial move from London to Seattle; transport
and flights from Seattle to London for Employee and his family twice annually
(home visits); and a one time relocation allowance of Twenty Five Thousand Three
Hundred Ninety Dollars ($25,390.00) (six weeks salary) to cover miscellaneous
relocation expenses. Appendix A describes the relocation policy, expenses and
additional benefits to be paid in greater detail.
(d) Tax. The Company shall reimburse to the Employee costs
associated with the preparation of his annual US and UK personal tax returns by
PriceWaterhouseCoopers (not to exceed Twenty Five Hundred Dollars ($2,500.00)
per year).
(e) Expenses. The Company shall pay or reimburse the Employee
for all reasonable out-of-pocket expenses incurred by the Employee in connection
with his employment hereunder in accordance with Group. Such expenses shall be
paid upon the periodic submission of invoices and shall be paid reasonably
promptly after the date of such invoice. The reimbursement of expenses under
this Section 3(c) shall be subject to the Employee's providing the Company with
such documentation of the expenses as the Company may from time to time
reasonably request in accordance with the policies of the Group.
(f) Pension, Welfare and Fringe Benefits. During the Term, the
Employee shall be eligible to participate in the Company's pension, medical,
disability insurance plans applicable to Employees of the Company in accordance
with the terms of such plans as in effect from time to time. In addition, during
the Term, the Company shall maintain a life insurance policy on the life of the
Employee for the benefit of the Employee's estate providing a benefit equal to
the greater of (i) Seven Hundred Fifty Thousand Dollars ($750,000.00) or (ii)
four (4) times the Employee's Salary (and maximum Bonus). The Employee shall
also be provided with a car allowance and free parking at the place of
employment. Appendix A describes additional paid fringe benefits in greater
detail.
(g) Long-Term Incentive Program. During the Term, the Employee
shall participate in all long-term incentive plans and programs of the Group
that are applicable to its senior Employees in accordance with their terms and
in a manner consistent with his position with the Company.
(h) Holidays. In addition to the usual public and bank
holidays, the Employee shall be entitled to twenty (25) days paid vacation
annually, which shall be taken at such times as are approved by the Company. The
Employee shall be permitted to carry forward any portion of his vacation time
for up to one year and, upon the expiration of such one (1) year period, the
Employee shall be paid in lieu of such vacation days.
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<PAGE> 4
(i) Options. Future annual share options will be granted under
the rules of the Getty Images Stock Incentive Plan (or any subsequently amended
plan) and are at the discretion of the CEO but will not be less than an annual
grant amount of Fifteen Thousand (15,000) shares (or the minimum amount
specified in a subsequently revised Getty Images Stock Incentive Plan if greater
than Fifteen Thousand (15,000) shares per year). If there is a generally
applicable award of options or restricted shares to senior executives of Getty
Images other than the annual award of options, the Employee shall participate in
such award(s) on terms consistent with Getty Images' then current practices and
with awards made to other senior executives. In the event there is a Change in
Control (defined as it is for purposes of the Option Plan), the vesting of the
Options shall become immediately exercisable and the Employee shall be entitled
to retain such options, for the remainder of their respective terms, as if he
had remained an employee of the Company.
4. TERMINATION OF EMPLOYMENT. Subject to the notice and other
provisions of this Section 4, the Company shall have the right to terminate the
Employee's employment hereunder, and he shall have the right to resign, at any
time for any reason or for no stated reason.
(a) Termination for Cause; Resignation Without Good Reason.
(i) If, prior to July 1, 2000, the Employee's employment is terminated by the
Company for Cause or if the Employee resigns from his employment hereunder other
than for Good Reason, he shall be entitled to payment of the pro rata portion of
his Salary and accrued Bonus (for purposes of this Agreement, "accrued Bonus"
shall be determined using the number of days in the applicable calendar year
that the Employee was employed by the Company and the applicable performance
criteria under the bonus plan, in each case through the date of termination or
resignation) through and including the date of termination or resignation, as
well as any unreimbursed expenses. Except to the extent required by the terms of
any applicable compensation or benefit plan or program or as otherwise required
by applicable law, the Employee shall have no rights under this Agreement or
otherwise to receive any other compensation or to participate in any other plan,
program or arrangement after such termination or resignation of employment with
respect to the year of such termination or resignation and later years.
(ii) In addition, the Employee shall be entitled to retain the
then-vested portion of his options to purchase shares of the Company's common
stock until such options expire in accordance with their terms.
(iii) Termination for "Cause" shall mean termination of the
Employee's employment with the Company because of (A) willful, material or
persistently repeated non-performance of the Employee's duties to the Company
(other than by reason of the incapacity of the Employee due to physical or
mental illness) after notice by the Board of such failure and the Employee's
non-performance and continued, willful, material or persistent repeated
non-performance after such notice, (B) the indictment of the Employee for a
felony offense, (C) fraud against the Group or any willful misconduct that
brings the reputation of the Group into
4
<PAGE> 5
serious disrepute or causes the Employee to cease to be able to perform his
duties, (D) any other material breach by the Employee of any material term of
this Agreement, (E) the Employee files for personal bankruptcy under the United
States Bankruptcy Code, or (F) the Employee is unable to perform his duties, by
reason of disability, for a period of six (6) months or more.
(iv) Termination of the Employee's employment for Cause shall
be communicated by delivery to the Employee of a written notice from the Company
stating that the Employee has been terminated for Cause, specifying the
particulars thereof and the effective date of such termination. The date of a
resignation by the Employee without Good Reason shall be the date specified in a
written notice of resignation from the Employee to the Company. The Employee
shall provide at least thirty (30) days' advance written notice of resignation
without Good Reason.
(b) Involuntary Termination. (i) If, prior to July 1, 2000,
the Company terminates the Employee's employment for any reason other than Cause
or Employee resigns from his employment hereunder for Good Reason (collectively
hereinafter referred to as an "Involuntary Termination"), the Company shall pay
to the Employee his Salary and accrued Bonus up to and including the date of
such Involuntary Termination, as well as any unreimbursed expenses. In addition,
the Company shall continue to pay to the Employee as severance (the "Severance
Payments") in accordance with the Company's normal payroll practices, his
Salary, at the rate in effect immediately prior to such Involuntary Termination,
through and including July 1, 2000. Additionally, if Employee elects and is then
eligible, he is entitled to continued health insurance coverage ("COBRA
benefits") effective the first of the month following his termination date and
the Company agrees to pay for Employees' COBRA benefit premiums through July 1,
2000.
(ii) In addition, in the event of the Employee's Involuntary
Termination prior to July 1, 2000, all of the Employee's then-outstanding
options to purchase shares of the Company's common stock shall continue to vest
until July 1, 2000. The Employee shall be entitled to retain the vested portion
of his options as if he had remained an Employee until July 1, 2000.
(iii) Resignation for "Good Reason" shall mean resignation by
Employee because of (A) an adverse and material change in the Employee's duties,
titles or reporting responsibilities, (B) a material breach by the Company of
any term of the Agreement, (C) a reduction in the Employee's Salary or bonus
opportunity or the failure of the Company to pay the Employee any material
amount of compensation when due, (D) the assignment to Employee of any material
duties that are inconsistent with those described in Section 1 of this Agreement
without the Employee's consent, or (E) the Company's requirement that Employee
perform a substantial portion of his duties outside the Seattle, Washington
metropolitan area, except for travel in furtherance of the Company's business.
The Company shall have thirty (30) business days from the date of receipt of
such notice to effect a cure of the material breach described therein and, upon
cure thereof by the Company to the reasonable satisfaction of the
5
<PAGE> 6
Employee, such material breach shall no longer constitute Good Reason for
purposes of this Agreement.
(iv) The date of termination of employment without Cause shall
be the date specified in a written notice of termination to the Employee. The
date of resignation for Good Reason shall be the date specified in a written
notice of resignation from the Employee to the Company; provided, however, that
no such written notice shall be effective unless the cure period specified in
Section 4(b)(iv) above has expired without the Company having corrected, to the
reasonable satisfaction of the Employee, the event or events subject to cure.
(v) Anything in this Agreement to the contrary
notwithstanding, no amounts shall be payable under this Section 4(b) if the
Employee's employment with the Company ends, for any reason, on or after July 1,
2000.
5. LIMITATION ON PAYMENTS.
Notwithstanding anything herein to the contrary, if any of the
payments made hereunder would constitute a "parachute payment" (as defined in
Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the
"Code")), and the net after-tax amount of the parachute payment is less than the
net after-tax amount if the aggregate payments to be made to the Employee were
three times his "base amount" (as defined in Section 280G(b)(3) of the Code),
less One Dollar ($1.00), then the aggregate of the amounts constituting the
parachute payment shall be reduced to an amount that will equal three times the
base amount, less One Dollar ($1.00). The determinations to be made with respect
to this Section 5 shall be made by an independent accounting firm of national
standing (other than the Company's regular auditors). The accounting firm shall
be paid by the Company for its services performed hereunder.
6. PROTECTION OF THE COMPANY'S INTERESTS.
(a) No Competing Employment. For so long as the Employee is
employed by the Company and for one (1) year thereafter (such period being
referred to hereinafter as the "Restricted Period"), the Employee shall not,
without the prior written consent of the Board, 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 individual,
partnership, firm, corporation or other business organization or entity that
competes with the Group by providing any goods or services provided or under
development by the Group at the effective date of the Employee's termination of
employment under this Agreement; provided, however, that this Section 6(a) shall
not proscribe the Employee's ownership, either directly or indirectly, of either
less than five percent of any class of securities which are listed on a national
securities exchange or quoted on the automated quotation system of the National
Association of Securities Dealers, Inc..
6
<PAGE> 7
(b) No Interference. During the Restricted Period, the
Employee shall not, whether for his own account or for the account of any other
individual, partnership, firm, corporation or other business organization (other
than the Company), intentionally solicit, endeavor to entice away from the Group
or otherwise interfere with the relationship of the Group with, any key person
or team who is employed by or otherwise engaged to perform services for the
Group or any key person or team or entity who is, or was within the then most
recent twelve-month period, a customer, client or supplier of the Group.
(c) Secrecy. The Employee recognizes that the services to be
performed by him hereunder are special, unique and extraordinary in that, by
reason of his employment hereunder, he may acquire confidential information and
trade secrets concerning the operation of the Group, the use or disclosure of
which could cause the Group substantial losses and damages which could not be
readily calculated and for which no remedy at law would be adequate.
Accordingly, the Employee covenants and agrees with the Company that he will not
at any time, except in performance of the Employee's obligations to the Company
hereunder or with the prior written consent of the Board, directly or indirectly
disclose to any person any confidential information that he may learn or has
learned by reason of his association with the Group. The term "confidential
information" means any information not previously disclosed to the public or to
the trade by the Group with respect to the Company's, or any of its affiliates'
or subsidiaries', products, facilities and methods, trade secrets and other
intellectual property, systems, procedures, manuals, confidential reports,
product price lists, customer lists, financial information (including the
revenues, costs or profits associated with any of the Group's products),
business plans, prospects or opportunities.
(d) Exclusive Property. The Employee confirms that all
confidential information is and shall remain the exclusive property of the
Group. All business records, papers and documents kept or made by the Employee
relating to the business of the Group shall be and remain the property of the
Group. Upon the termination of his employment with the Company or upon the
request of the Company at any time, the Employee shall promptly deliver to the
Company, and shall not without the consent of the Board retain copies of, any
written materials not previously made available to the public, or records and
documents made by the Employee or coming into his possession concerning the
business or affairs of the Group; provided, however, that subsequent to any such
termination, the Company shall provide the Employee with copies (the cost of
which shall be borne by the Employee) of any documents which are requested by
the Employee and which the Employee has determined in good faith are (i)
required to establish a defense to a claim that the Employee has not complied
with his duties hereunder or (ii) necessary to the Employee in order to comply
with applicable law.
(e) Assignment of Developments. All "Developments" (as defined
below) that were or are at any time made, conceived or suggested by Employee,
whether acting alone or in conjunction with others, during Employee's employment
with the Group shall be the sole and absolute property of the Group, free of any
reserved or other rights of any kind on the part of Employee. During Employee's
employment and, if such Developments were made, conceived or suggested by
Employee during his employment with the Group, thereafter,
7
<PAGE> 8
Employee shall promptly make full disclosure of any such Developments to the
Group and, at the Group's cost and expense, do all acts and things (including,
among others, the execution and delivery under oath of patent and copyright
applications and instruments of assignment) deemed by the Group to be necessary
or desirable at any time in order to effect the full assignment to the Group of
Employee's right and title, if any, to such Developments. For purposes of this
Agreement, the term "Developments" shall mean all data, discoveries, findings,
reports, designs, inventions, improvements, methods, practices, techniques,
developments, programs, concepts, and ideas, whether or not patentable, relating
to the activities of the Group of which Employee is as of the date of this
Agreement aware or of which Employee becomes aware at any time during the Term,
excluding any Development for which no equipment, supplies, facilities or
confidential information of the Group was used and which was developed entirely
on Employee's own time, unless (i) the Development relates directly to the
business of the Group, (ii) the Development relates to actual or demonstrably
anticipated research or development of the Group, or (iii) the Development
results from any work performed by Employee for the Group (the foregoing is
agreed to satisfy the written notice and other requirements of Section 49.44.140
of the Revised Code of Washington).
(f) Injunctive Relief. Without intending to limit the remedies
available to the Company, the Employee acknowledges that a breach of any of the
covenants contained in this Section 6 may result in material irreparable injury
to the Group for which there is no adequate remedy at law, that it will not be
possible to measure damages for such injuries precisely and that, in the event
of such a breach or threat thereof, the Company shall be entitled to obtain a
temporary restraining order and/or a preliminary or permanent injunction
restraining the Employee from engaging in activities prohibited by this Section
6 or such other relief as may be required to specifically enforce any of the
covenants in this Section 6. Without intending to limit the remedies available
to the Employee, the Employee shall be entitled to seek specific performance of
the Company's obligations under this Agreement.
7. GENERAL PROVISIONS.
(a) Source of Payments. All payments provided under this
Agreement, other than payments made pursuant to a plan which provides otherwise,
shall be paid in cash from the general funds of the Company, and no special or
separate fund shall be established, and no other segregation of assets made, to
assure payment. The Employee shall have no right, title or interest whatever in
or to any investments which the Company may make to aid the Company in meeting
its obligations hereunder. To the extent that any person acquires a right to
receive payments from the Company hereunder, such right shall be no greater than
the right of an unsecured creditor of the Company; provided, however, that this
provision shall not be deemed to waive or abrogate any preferential or other
rights to payment accruing to the Employee under applicable bankruptcy laws by
virtue of the Employee's status as an employee of the Company.
(b) No Other Severance Benefits. Except as specifically set
forth in this Agreement, the Employee covenants and agrees that he shall not be
entitled to any other form
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of severance benefits from the Company, including, without limitation, benefits
otherwise payable under any of the Company's regular severance policies, in the
event his employment hereunder ends for any reason and, except with respect to
obligations of the Company expressly provided for herein, the Employee
unconditionally releases the Company and its subsidiaries and affiliates, and
their respective directors, officers, employees and stockholders, or any of
them, from any and all claims, liabilities or obligations under this Agreement
or under any severance or termination arrangements of the Company or any of its
subsidiaries or affiliates for compensation or benefits in connection with his
employment or the termination thereof.
(c) Tax Withholding. Payments to the Employee of all
compensation contemplated under this Agreement shall be subject to all
applicable tax withholding.
(d) Notices. Any notice hereunder by either party to the other
shall be given in writing by personal delivery, or certified mail, return
receipt requested, or (if to the Company) by telex or facsimile, in any case
delivered to the applicable address set forth below:
(i) To the Company: Getty Images, Inc.
2101 Fourth Avenue
Suite 500
Seattle, Washington 98121
(ii) To the Employee: Christopher Roling
5401 NE 85th Street
Seattle, WA 98115
or to such other persons or other addresses as either party may specify to the
other in writing.
(e) Representation by the Employee. The Employee represents
and warrants that his entering into this Agreement does not, and that his
performance under this Agreement and consummation of the transactions
contemplated hereby will not, violate the provisions of any agreement or
instrument to which the Employee is a party, or any decree, judgment or order to
which the Employee is subject, and that this Agreement constitutes a valid and
binding obligation of the Employee in accordance with its terms. Breach of this
representation will render all of the Company's obligations under this Agreement
void ab initio.
(f) Limited Waiver. The waiver by the Company or the Employee
of a violation of any of the provisions of this Agreement, whether express or
implied, shall not operate or be construed as a waiver of any subsequent
violation of any such provision.
(g) Assignment; Assumption of Agreement. No right, benefit or
interest hereunder shall be subject to assignment, encumbrance, charge, pledge,
hypothecation or setoff
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by the Employee in respect of any claim, debt, obligation or similar process.
The Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
or assets of the Company to assume expressly and to agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place.
(h) Amendment; Actions by the Company. This Agreement may not
be amended, modified or canceled except by written agreement of the Employee and
the Company. Any and all determinations, judgments, reviews, verifications,
adjustments, approvals, consents, waivers or other actions of the Company
required or permitted under this Agreement shall be effective only if undertaken
by the Company pursuant to authority granted by a resolution duly adopted by the
Board; provided, however, that by resolution duly adopted in accordance with
this Section 7(h), the Board may delegate its responsibilities hereunder to one
or more of its members other than the Employee.
(i) Severability. If any term or provision hereof is
determined to be invalid or unenforceable in a final court or arbitration
proceeding, (i) the remaining terms and provisions hereof shall be unimpaired
and (ii) the invalid or unenforceable term or provision shall be deemed replaced
by a term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision.
(j) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware (determined
without regard to the choice of law provisions thereof).
(k) Entire Agreement. This Agreement sets forth the entire
agreement and understanding of the parties hereto with respect to the matters
covered hereby and supersedes all prior agreements and understandings of the
parties with respect to the subject matter hereof.
(l) Headings. The headings and captions of the sections of
this Agreement are included solely for convenience of reference and shall not
control the meaning or interpretation of any provisions of this Agreement.
(m) Counterparts. This Agreement may be executed by the
parties hereto in counterparts, each of which shall be deemed an original, but
both such counterparts shall together constitute one and the same document.
(n) Disciplinary and Grievance Procedures. For statutory
purposes, there is no formal disciplinary procedure in relation to the
Employee's employment. The Employee shall be expected to maintain the highest
standards of integrity and behavior. If the Employee has any grievance in
relation to his employment or is not satisfied with any disciplinary procedure
taken in relation to him, he may apply in writing within 14 days of that
decision to the Board, whose decision shall be final. The foregoing shall not be
construed, however, to limit the Employee's remedies at law or otherwise.
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IN WITNESS WHEREOF, the parties have executed this Agreement
effective as of the day and year first written above.
GETTY IMAGES, INC.
By: ______________________________________
Name: Jonathan D. Klein
Title: Chief Executive Officer
EMPLOYEE
By: ______________________________________
Christopher Roling
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APPENDIX A
Recommended Policies for relocation of Christopher Roling from London to Seattle
OVERALL PRINCIPLES
1. Christopher Roling is viewed as an expatriate on assignment for three years.
2. Family includes spouse or partner, dependent children under 18 and other
persons living with or supported by the employee.
3. No consideration is made for loss of employee's spouse or partner's income.
4. Aim is to provide equivalent purchasing power abroad to at least maintain
home lifestyle.
All annual allowances or payments will apply to Christopher Roling for three
years.
RELOCATION
1. Getty Images will pay on production of invoices all reasonable relocation
and related insurance expenses for sea freight and up to the following
limits for airfreight (available for immediate needs ) (anything over
(pound)8,000 is taxable to the employee). 200kg by air for the employee
150kg by air for the spouse 100kg by air for each additional person
2. All storage charges will be paid by Getty Images for three years.
3. Hotel costs for employee and family in Seattle will be paid until longer
term accommodation (rental or purchase) is secured. Typically 6 weeks
maximum.
4. Discounted business class flights are paid for employee and family for
initial move from London to Seattle.
5. A one off general relocation allowance is paid of 6 weeks salary to cover
electrical goods, curtains and other goods that will need to be purchased.
REMUNERATION
1. Total remuneration is split between home and host currency as instructed by
expatriate.
2. Professional help with tax advice and tax returns is paid for by Getty
Images.
3. A Foreign Service Premium of 10% of base salary is paid to all expatriates
for the duration of the assignment. The Foreign Service Premium is paid gross
so that the employee gets a net 10% benefit as a result of moving to Seattle.
The Premium will be paid monthly throughout the expatriate period and is in
addition to any "normal" annual pay rise. It is also shown separately in the
pay roll. Pension and bonuses will be calculated on the basic salary i.e.
excluding the Foreign Service Premium.
4. No mobility premium is payable on moving.
5. A Goods and Services (cost of living) allowance linked to family size is paid
per the ORC efficient purchaser indices table. (This is currently negative
for London to Seattle but no deduction will be made).
6. No Hardship Allowances will be paid for Seattle.
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ACCOMMODATION
1. Housing Allowance will be loosely based on the ORC tables, expensive column,
research with local real estate agents and management judgement (see
individual sheets for estimates). This will be adjusted to enable the
employee to receive the amount net assuming they will use this as payment
towards the interest on a mortgage (after personal tax deductions and tax
rebates)
2. No home housing offset will be made (i.e. no account will be taken of the
accommodation arrangements in London).
3. Utility bills will be paid by Getty Images.
4. Real estate taxes will be paid by Getty Images over and above the
accommodation allowances provided to each individual. (for purchase only)
OTHER BENEFITS
1. Equivalent Healthcare benefits will be provided either by additional coverage
of home plan or by inclusion in local Seattle plan.
2. Any life assurance plans will be maintained from London.
3. Permanent Health Insurance and/or disability insurance will, where relevant,
continue to be paid by the company.
4. All employees will continue their UK pension arrangements.
5. A car or cash in lieu of a car (cash equivalency of $570.00/month,
$6,840.00/year) will be provided for Christopher Roling. In general,
employees who choose to take a car instead of the cash will be responsible
for arranging the leasing of the vehicle with the cost being borne by the
company.
6. Two economy class home leave trips will be provided for the employee and
their family annually. This will only be paid for flights to UK.
7. Holiday entitlement will not change.
8. No contribution will be made to children's education expenses.
REPATRIATION
1. Christopher Roling will be eligible to receive reimbursement for repatriation
costs to UK, equivalent to relocation costs outlined above, throughout the
first three years, on resignation at the host location or on termination by
Getty Images.
2. No assistance will be given for purchase of a new home in the UK.
EXTENSION OF ASSIGNMENT
Christopher Roling will migrate to a local package over his fourth year.
YEAR 4
Accommodation allowance, UK storage costs and utilities payments reduce to
50% of previous allowance. Health cover converts to local benefits package.
UK NI no longer paid.
Tax advice and tax returns still paid for
Employee still eligible for reimbursement of repatriation costs.
Vacation allowance remains the same
Car arrangements remain the same
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YEAR 5+
Salaries will be aligned to local salaries using an appropriate
benchmarking exercise. Employees lose their right to repatriation at the
company's expense. Vacation allowance remains the same All other benefits
are as for local employees.
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Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of this 1st day of June, 1999, by and
between GETTY IMAGES, INC., a Delaware corporation (the "Company"), whose
principal executive offices are located at 2101 Fourth Avenue, Suite 500,
Seattle, WA 98121, and JONATHAN D. KLEIN, an individual residing at 3815 East
John Street, Seattle, WA 98112-5007 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Executive is presently serving as Chief Executive
Officer of Getty Images, Inc. and currently resides in London. Effective 1st
August, 1999 the Executive agrees to perform these duties from Seattle,
Washington and will then reside in Washington; and
WHEREAS, in connection with his performance of services in the
United States and elsewhere, the Company seeks to employ the Executive and the
Executive seeks to be employed by the Company; and
WHEREAS, both parties desire that the terms and conditions of
the Executive's employment with the Company be governed by the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the promises and the
mutual covenants herein contained, the parties hereto hereby agree as follows:
1. EMPLOYMENT AND DUTIES.
(a) General. The Company hereby employs the Executive,
effective as of the date hereof (the "Effective Date"), and the Executive's
period of continuous employment for statutory purposes began on 14 March, 1995,
and the Executive agrees upon the terms and conditions herein set forth to serve
as Chief Executive Officer of the Company and shall perform all duties
customarily appurtenant to such position. In such capacity, the Executive shall
report directly and only to the Board of Directors of the Company (the "Board").
The Executive's principal place of business shall be 2101 Fourth Avenue, Suite
500, Seattle, Washington 98121 or such other address as the Company may specify
from time to time.
(b) Services and Duties. For so long as the Executive is
employed by the Company hereunder, and except as otherwise expressly provided in
Section 1(c) below, the Executive shall devote his full business time to the
performance of his duties hereunder; shall faithfully serve the Company; shall
in all respects conform to and comply with the lawful and good faith directions
and instructions given to him by the Board as the same are consistent with his
status and the term hereof; and shall use his best efforts to promote and serve
the interests of the Company. Specifically, the Executive shall be solely
responsible for the day-to-day operational management of the Company, its
subsidiaries and affiliates (hereinafter, collectively the "Group"), provision
of operational direction to the Executive Committee ("EC") and oversight of
corporate operations, sales, marketing and finance, management of the EC, and
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professional development of all direct reports. In addition, the Executive shall
share equal duties and authority with the Chairman for the financial performance
of the Group, the management of the Company's shareholders, the development of
strategic alliances and partnerships and the optimization of their commercial
benefits, communications to both internal and external audiences and external
relationships with business, industry and academic communities, and strategic
leadership. All employees of the Group (other than the Chairman) shall report,
either directly or indirectly, to the Executive.
(c) No Other Employment. Except as provided below, for so long
as the Executive is employed by the Company, he shall not, directly or
indirectly, render services to any other person or organization for which he
receives compensation without the prior approval of the Board. No such approval
will be required if the Executive seeks to perform inconsequential services
without direct compensation therefor in connection with the management of
personal investments or in connection with the performance of charitable and
civic activities, provided that such activities do not contravene the provisions
of Section 6 hereof. Notwithstanding the foregoing, the Company expressly agrees
that the Executive may continue to act as a non-executive director of the
Conservation Corporation Africa Limited and of Getty Investments LLC.
(d) Board Membership. The Executive shall be a member of the
Board. In addition, the Executive shall be entitled to attend the meetings of
all other committees of the Board, such as the Audit Committee and the
Compensation Committee, and shall be a member of any strategy committee of the
Board. After his initial term as director, the Company shall nominate the
Executive for reelection to the Board and shall use all reasonable efforts to
cause the Executive to be elected to such term.
(e) Payment for Services to be Performed; Obligations.
Compensation to be paid under this Agreement shall be made with regard to all
the Executive's services to be provided to the Group globally.
2. TERM OF EMPLOYMENT. The term of the Executive's employment
under this Agreement (the "Term") shall commence on the Effective Date and
continue until the second anniversary date of the Effective Date. Thereafter,
the Term shall continue until it is terminated by either party giving the other
at least twelve months' written notice of termination of the Term, with no such
notice to be given so as to expire before the third anniversary of the Effective
Date.
3. COMPENSATION AND OTHER BENEFITS. Subject to the provisions
of this Agreement, the Company shall pay and provide the following compensation
and other benefits to the Executive during the Term as compensation for all
services rendered hereunder:
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(a) Salary. The Company shall pay to the Executive an annual
salary (the "Salary") at the initial rate of Three Hundred Seventy Three
Thousand Seven Hundred and Fifty Dollars ($373,750.00), payable to the Executive
in accordance with the normal payroll practices of the Company for its executive
officers as are in effect from time to time. In addition for the first three
years, the Executive shall receive an annual foreign service premium of ten
percent of the salary ($37,375 for the initial period of one year) and an annual
accommodation adjustment of Seventy Two Thousand Dollars ($72,000.00), payable
as part of the normal payroll practices. The foreign service premium and the
accommodation adjustment mentioned above are the net after tax amounts that will
be received by the Executive. The company will be responsible for any tax due on
these amounts. The annual foreign service premium and the accommodation
allowance will be paid at fifty percent (50%) in year four and will not be paid
in year five. The amount of the Executive's Salary shall be reviewed annually by
the Board on or about June 1 of each year during the Term beginning in the 2000
calendar year and may be increased, but not decreased below such amount, on the
basis of such review and then-current market practices.
(b) Annual Bonus. The Executive shall be eligible for each
calendar year thereafter that begins with the Term to participate in an annual
incentive bonus program established by the Company in accordance with the
policies of the Group and subject to such terms and conditions as may be
approved annually by the Compensation Committee of the Board (the "Compensation
Committee"). Under the terms of the annual incentive bonus program, the
Executive will be afforded the opportunity to earn up to sixty percent (60%) of
his Salary (the "Bonus") in effect for the applicable calendar year if the
Company achieves the performance targets established by the Compensation
Committee for that year, to be paid on a pro-rata basis in the event that the
Executive is employed for less than twelve (12) months of any calendar year
within the Term (for purposes of determining the 1999 bonus, the Executive shall
be deemed to have commenced employment as of 1 January, 1999).
(c) Relocation Expenses. The Company shall provide the
Executive with all reasonable temporary housing expenses and moving expenses,
including: shipping of personal and household effects and insurance for such
effects; storage charges for up to three (3) years; temporary accommodations for
the Executive and his family in Seattle for up to six (6) weeks; business class
flights for the Executive and his family for the initial move from London to
Seattle; business class transport and flights from Seattle to London for
Executive and his family twice annually (home visits); and a one time relocation
allowance of Forty Three Thousand One Hundred Twenty Five Dollars ($43,125.00)
(six weeks salary) which is the amount net of tax, to cover miscellaneous
relocation expenses. In year four, 50% of all relocation benefits will be paid
by the company. In year five all relocation benefits cease except for vacation
allowance which remains the same. Appendix A describes the relocation policy,
expenses and additional benefits to be paid in greater detail and forms a part
of this Employment Agreement.
(d) Tax. The Company shall use a tax equalization approach to
compensation for the Executive. This means that the Executive will pay the same
amount of
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tax as if he were employed in the United Kingdom (UK) on a UK contract and did
not receive any of the additional benefits due as a result of the relocation.
These additional benefits are the foreign service premium, the one off
relocation allowance, the accommodation allowance and all relocation expenses
detailed above and in the appendix. Any additional tax due as a result of
receiving the additional benefits will be borne by the company. Hypothetical
withholding tax will be deducted from the Executive's pay on a monthly basis by
the company.
(e) Options. In the event that the Executive ceases to be an
employee of the Company for any reason other than (i) if he is terminated for
"Cause", "Disability" or on account of his death, or (ii) if he resigns without
"Good Reason" (as each such term is defined below), the vesting of the Options
shall accelerate and the Options shall become immediately exercisable and the
Executive shall be entitled to retain such options, for the remainder of their
respective terms, as if he had remained an employee of the Company. In the event
that the Executive ceases to be an employee of the Company because he is
terminated for Cause or resigns without Good Reason, the Executive shall be
entitled to retain the then-vested portion of such options as if he had remained
an employee of the Company, but the unvested portion of such options shall
lapse. In the event of the Executive's death or Disability (as defined below),
the vesting of the Options shall accelerate and all options thereunder shall
become immediately exercisable and shall remain outstanding for a period of
twelve (12) months.
(f) Pension Scheme and Life Insurance. During the Term, the
Company shall pay to Executive, in addition to the amounts payable under
Sections 3(a) through 3(d) above, an amount equal to twenty percent (20%) of his
Salary through equal monthly contributions in arrears into a personal pension
scheme for the benefit of the Executive, or, at the Executive's sole discretion,
the Company shall pay such amount to him as additional compensation. In
addition, during the Term, the Company shall maintain a life insurance policy on
the life of the Executive for the benefit of the Executive's estate providing a
benefit equal to the greater of (i) Seven Hundred Fifty Thousand Dollars
($750,000.00) or (ii) four (4) times the Executive's Salary (and maximum Bonus).
(g) Expenses. The Company shall pay or reimburse the Executive
for all reasonable out-of-pocket expenses incurred by the Executive in
connection with his employment hereunder and expressly agrees that it will
reimburse the Executive for his business class airfare on international flights
which are over five (5) hours in duration taken in connection with Company
business. Such expenses shall be paid upon the periodic submission of invoices
and shall be paid reasonably promptly after the date of such invoice. The
reimbursement of expenses under this Section 3(g) shall be subject to the
Executive's providing the Company with such documentation of the expenses as the
Company may from time to time reasonably request in accordance with the policies
of the Group. The Company also agrees that, in the event that the Executive is
required to travel abroad in connection with the performance of his duties
hereunder for a period in excess of two (2) weeks, the Company will reimburse
the Executive for the airfare, hotel and other transportation expenses of his
spouse and minor children so that they may accompany him on such trip.
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(h) Long-Term Incentive Program. During the Term, the
Executive shall participate in all long-term incentive plans and programs of the
Group that are applicable to its senior officers in accordance with their terms
and in a manner consistent with his position with the Company.
(i) Holidays. In addition to the usual public and bank
holidays, the Executive shall be entitled to thirty (30) days' paid vacation
annually, which shall be taken at such times as are approved by the Board. The
Executive shall be permitted to carry forward any portion of his vacation time
for up to one (1) year and, upon the expiration of such one year period, the
Executive shall be paid in lieu of such vacation days.
(j) Benefits. During the term, the Company will provide The
Executive with two automobiles of such make and models as the Board deems
appropriate and suitable for his status with the company for his and his spouses
sole use and will reimburse the Executive for all costs and expenses incurred by
the Executive in connection with the use of those vehicles, or, at the
Executives sole discretion, the Company shall pay an equivalent amount of such
perquisite to him as additional compensation. The Company shall install and pay
the rental and unit charges attributable to a dedicated busines telephone and/or
ISDN line at his home. During the Term, the Company shall also pay for the
Executive's purchase, line charges, rental and unit charges for his mobile
phones. The Company shall provide the Executive with a fax machine and computer
modem and ISDN line to be installed at the Executive's home and a suitable
desktop and laptop computer, as well as all ancillary equipment and maintenance
therefor. In addition, the Company will pay for the cost of the Executive's
membership in or subscriptions to the internel service provider of his choice,
and such professional memberhships and journals as are appropriate to his duties
under this agreement.
(k) Health and Dental Care. During the Term, the Executive
shall be eligible to participate in the Company's medical and disability plans
applicable to senior officers of the Company in accordance with the terms of
such plans as in effect from time to time. Specifically, the Executive, his
spouse and his children who are under the age of 18 shall participate in the
Regeance BlueShield Preferred Provider Plan (PPO) plan. In addition, the
Executive shall participate in the Company's permanent health insurance plan or
receive payment for his personal permanent health insurance plan, at his sole
discretion. The Executive shall participate in any disability plan of the
Company that replaces his Salary under this Agreement in the event that he
suffers a Disability (as defined in Section 4(d)).
4. TERMINATION OF EMPLOYMENT. Subject to the notice and other
provisions of this Section 4, as well as in Section 5.13 of the Bylaws of the
Company, the Company shall have the right to terminate the Executive's
employment hereunder, and he shall have the right to resign, at any time for any
reason or for no stated reason.
(a) Termination for Cause; Resignation Without Good Reason.
(i) If, prior to the expiration of the Term, the Executive's employment is
terminated by the Company for Cause or if the Executive resigns from his
employment hereunder other than for Good Reason,
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he shall be entitled to payment of the pro rata portion of his Salary, accrued
Bonus (for purposes of this Agreement, "accrued Bonus" shall be determined using
the number of days in the applicable calendar year that the Executive was
employed by the Company and the applicable performance criteria under the bonus
plan, in each case through the date of termination or resignation, and
supplemental pension contributions as described in Section 3(f),) through and
including the date of termination or resignation as well as any unreimbursed
expenses. Except to the extent required by the terms of any applicable
compensation or benefit plan or program or as otherwise required by applicable
law, the Executive shall have no rights under this Agreement or otherwise to
receive any other compensation or to participate in any other plan, program or
arrangement after such termination or resignation of employment with respect to
the year of such termination or resignation and later years
(ii) Termination for "Cause" shall mean termination of the
Executive's employment with the Company because of (A) willful, material or
persistently repeated non-performance of the Executive's duties to the Company
(other than by reason of the incapacity of the Executive due to physical or
mental disability) after notice by the Board of such failure and the Executive's
non-performance and continued, willful, material or persistent repeated
non-performance after such notice, (B) the indictment of the Executive for a
felony offense, (C) the commission by the Executive of fraud against the Group
or any willful misconduct that brings the reputation of the Company into serious
disrepute or causes the Executive to cease to be able to perform his duties, (D)
any other material breach by the Executive of any material term of this
Agreement, (E) the Executive is adjudged bankrupt or makes any arrangement or
composition with his creditors or has interim order made against him pursuant to
Section 252 of the Insolvency Act 1986.
(iii) Termination of the Executive's employment for Cause
shall be communicated by delivery to the Executive of a written notice from the
Company stating that the Executive has been terminated for Cause, specifying the
particulars thereof and the effective date of such termination. The date of a
resignation by the Executive without Good Reason shall be the date specified in
a written notice of resignation from the Executive to the Company. The Executive
shall provide at least 30 days' advance written notice of resignation without
Good Reason.
(b) Involuntary Termination. (i) If, prior to the expiration
of the Term, the Company terminates the Executive's employment for any reason
other than Disability or Cause or Executive resigns from his employment
hereunder for Good Reason (collectively hereinafter referred to as an
"Involuntary Termination"), the Company shall pay to the Executive his Salary
and accrued Bonus up to and including the date of such Involuntary Termination,
as well as any unreimbursed expenses. In addition, the Company shall continue to
pay to the Executive as severance (the "Severance Payments") within thirty (30)
days after the date of termination a lump sum payment in an amount equal to the
sum of his Salary at the rate in effect immediately prior to such Involuntary
Termination, plus his maximum Bonus as described in Section 3(b) and
supplemental pension contributions as described in Section 3(f), and benefits as
described in Section 3(j) and 3(k), in each case, for the remainder of the Term.
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All relocation benefits, both in this employment agreement and in the attached
Appendix will also be paid in full. Anything in this Agreement to the contrary
notwithstanding, no amounts shall be payable under this Section 4(b) if the
Executive's employment with the Company ends at the expiration of the Term in
accordance with Section 2.
(ii) Resignation for "Good Reason" shall mean resignation by
Executive because of (A) an adverse and material change in the Executive's
duties, titles or reporting responsibilities, (B) a material breach by the
Company of any term of the Agreement, (C) a reduction in the Executive's Salary
or bonus opportunity or the failure of the Company to pay the Executive any
material amount of compensation when due, (D) failure by the Company or the
Parent to nominate the Executive for reelection to the Board during the Term,
(E) the failure of the Executive to be reelected to the Board during the Term,
(F) the Company appoints a President without the Executive's prior written
approval, or (G) a relocation of the Executive's principal place of business
without his prior written consent. The Company shall have 30 business days from
the date of receipt of such notice to effect a cure of the material breach
described therein and, upon cure thereof by the Company to the reasonable
satisfaction of the Executive, such material breach shall no longer constitute
Good Reason for purposes of this Agreement.
(iii) The date of termination of employment without Cause
shall be the date specified in a written notice of termination to the Executive.
The date of resignation for Good Reason shall be the date specified in a written
notice of resignation from the Executive to the Company; provided, however, that
no such written notice shall be effective unless the cure period specified in
Section 4(b)(ii) above has expired without the Company having corrected, to the
reasonable satisfaction of the Executive, the event or events subject to cure.
(c) Termination following a Change in Control. In the event of
a Change in Control (defined as it is for purposes of the Option Plan), the
Executive shall have the right to resign his employment with the company and
will be entitled to receive within thirty (30) days a lump sum payment in an
amount equal to the Executive's Salary and benefits, at the rate in effect
immediately prior to such Involuntary Termination, plus his maximum Bonus as
described in Section 3(b) and supplemental pension contributions as described in
Section 3(f), and benefits as described in Section 3(j) and 3(k), and all
relocation benefits, both in this employment agreement and in the attached
Appendix will also be paid in full, for the reminder of the Term.
(d) Termination Due to Disability. In the event of the
Executive's Disability (as hereinafter defined), the Company shall be entitled
to terminate his employment on providing the Executive with six months' prior
written notice. If the Company terminates the Executive's employment due to
Disability, the Executive shall be entitled to receive, for the remainder of the
Term, his Salary, benefits and relocation benefits as described in Section 3(c)
at the rate in effect immediately prior to the Disability, plus his maximum
Bonus as described in Section 3(b) and supplemental pension contributions as
described Section 3(f), and benefits as described in Section 3(j) and 3(k), less
any amounts paid to the Executive under any
7
<PAGE> 8
disability plan of the Company. All relocation benefits, both in this employment
agreement and in the attached Appendix will also be paid in full. As used in
this Section 4(d), the term "Disability" shall mean a physical or mental
incapacity that substantially prevents the Executive from performing his duties
hereunder and that has continued for at least six of the last twelve months and
that can reasonably be expected to continue indefinitely. Any dispute as to
whether or not the Executive is disabled within the meaning of the preceding
sentence shall be resolved by a physician reasonably satisfactory to the
Executive and the Company, and the determination of such physician shall be
final and binding upon both the Executive and the Company.
(e) Death. In the event of the Executive's death, the
Executive's Beneficiary shall be entitled to receive within thirty (30) days a
lump sum payment in an amount equal to the Executive's Salary, at the rate in
effect immediately prior to his death, plus his maximum Bonus as described in
Section 3(b) and supplemental pension contributions as described in Section
3(f), and benefits as described in Section 3(j) and 3(k), in each case for the
remainder of the Term, less any death benefits which are provided to the
Executive's Beneficiary under the terms of any plan, program or arrangement for
the benefit of the Executive at the time of death. All relocation benefits, both
in this employment agreement and in the attached Appendix will also be paid in
full.
(f) Beneficiary. For purposes of this Agreement, "Beneficiary"
shall mean the person or persons designated in writing by the Executive to
receive benefits under a plan, program or arrangement or to receive the balance
of the Severance Payments, if any, in the event of the Executive's death, or, if
no such person or persons are designated by the Executive, the Executive's
estate. No beneficiary designation shall be effective unless it is in writing
and received by the Company prior to the date of the Executive's death.
5. LIMITATION ON PAYMENTS.
Notwithstanding anything herein to the contrary, if any of the
payments made hereunder would constitute a "parachute payment" (as defined in
Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the
"Code")), and the net after-tax amount of the parachute payment is less than the
net after-tax amount if the aggregate payments to be made to the Executive were
three times his "base amount" (as defined in Section 280G(b)(3) of the Code),
less One Dollar ($1.00), then the aggregate of the amounts constituting the
parachute payment shall be reduced to an amount that will equal three times the
base amount, less One Dollar ($1.00). The determinations to be made with respect
to this Section 5 shall be made by an independent accounting firm of national
standing (other than the Company's regular auditors). The accounting firm shall
be paid by the Company for its services performed hereunder.
6. PROTECTION OF THE COMPANY'S INTERESTS.
8
<PAGE> 9
(a) No Competing Employment. For so long as the Executive is
employed by the Company and, in circumstances where the Executive receives a
payment pursuant to Section 4(b), 4(c) or 4(d) or his employment is terminated
for Cause, but in no other circumstances, and continuing for the remainder of
the Term (such period being referred to hereinafter as the "Restricted Period"),
the Executive shall not, without the prior written consent of the Board,
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, Executive, partner, stockholder, consultant or
otherwise, any individual, partnership, firm, corporation or other business
organization or entity that competes with the Group by providing any goods or
services provided or under development by the Group at the effective date of the
Executive's termination of employment under this Agreement; provided, however,
that this Section 6(a) shall not proscribe the Executive's ownership, either
directly or indirectly, of either less than five percent of any class of
securities which are listed on a national securities exchange or quoted on the
automated quotation system of the National Association of Securities Dealers,
Inc. or any limited partnership investment over which the Executive has no
control.
(b) No Interference. During the Restricted Period, in
circumstances where the Executive receives a payment pursuant to Section 4(b),
4(c) or 4(d) or his employment is terminated for Cause, and in no other
circumstances, the Executive shall not, whether for his own account or for the
account of any other individual, partnership, firm, corporation or other
business organization (other than the Company), intentionally solicit, endeavor
to entice away from the Group or otherwise interfere with the relationship of
the Group with, any key person or team who is employed by or otherwise engaged
to perform services for the Group or any key person or team or entity who is, or
was within the then most recent twelve-month period, a customer, client or
supplier of the Group.
(c) Secrecy. The Executive recognizes that the services to be
performed by him hereunder are special, unique and extraordinary in that, by
reason of his employment hereunder, he may acquire confidential information and
trade secrets concerning the operation of the Group, the use or disclosure of
which could cause the Group substantial losses and damages which could not be
readily calculated and for which no remedy at law would be adequate.
Accordingly, the Executive covenants and agrees with the Company that he will
not at any time, except in performance of the Executive's obligations to the
Company hereunder or with the prior written consent of the Board, directly or
indirectly disclose to any person any secret or confidential information that he
may learn or has learned by reason of his association with the Group. The term
"confidential information" means any information not previously disclosed to the
public or to the trade by the Group with respect to the Group's, or any of its
affiliates' or subsidiaries', products, facilities and methods, trade secrets
and other intellectual property, systems, procedures, manuals, confidential
reports, product price lists, customer lists, financial information (including
the revenues, costs or profits associated with any of the Group's products),
business plans, prospects or opportunities.
9
<PAGE> 10
(d) Exclusive Property. The Executive confirms that all
confidential information is and shall remain the exclusive property of the
Group. All business records, papers and documents kept or made by the Executive
relating to the business of the Group shall be and remain the property of the
Group. Upon the termination of his employment with the Company or upon the
request of the Company at any time, the Executive shall promptly deliver to the
Company, and shall not without the consent of the Board retain copies of, any
written materials not previously made available to the public, or records and
documents made by the Executive or coming into his possession concerning the
business or affairs of the Group; provided, however, that subsequent to any such
termination, the Company shall provide the Executive with copies (the cost of
which shall be borne by the Executive) of any documents which are requested by
the Executive and which the Executive has determined in good faith are (i)
required to establish a defense to a claim that the Executive has not complied
with his duties hereunder or (ii) necessary to the Executive in order to comply
with applicable law.
(e) Assignment of Developments. All "Developments" (as defined
below) that were or are at any time made, conceived or suggested by Executive,
whether acting alone or in conjunction with others, during Executive's
employment with the Group shall be the sole and absolute property of the Group,
free of any reserved or other rights of any kind on the part of Executive.
During Executive's employment and, if such Developments were made, conceived or
suggested by Executive during his employment with the Group, thereafter,
Executive shall promptly make full disclosure of any such Developments to the
Group and, at the Group's cost and expense, do all acts and things (including,
among others, the execution and delivery under oath of patent and copyright
applications and instruments of assignment) deemed by the Group to be necessary
or desirable at any time in order to effect the full assignment to the Group of
Executive's right and title, if any, to such Developments. For purposes of this
Agreement, the term "Developments" shall mean all data, discoveries, findings,
reports, designs, inventions, improvements, methods, practices, techniques,
developments, programs, concepts, and ideas, whether or not patentable, relating
to the activities of the Group of which Executive is as of the date of this
Agreement aware or of which Executive becomes aware at any time during the Term,
excluding any Development for which no equipment, supplies, facilities or
confidential information of the Group was used and which was developed entirely
on Executive's own time, unless (i) the Development relates directly to the
business of the Group, (ii) the Development relates to actual or demonstrably
anticipated research or development of the Group, or (iii) the Development
results from any work performed by Executive for the Group (the foregoing is
agreed to satisfy the written notice and other requirements of Section 49.44.140
of the Revised Code of Washington).
(f) Injunctive Relief. Without intending to limit the remedies
available to the Company, the Executive acknowledges that a breach of any of the
covenants contained in this Section 6 may result in material irreparable injury
to the Group for which there is no adequate remedy at law, that it will not be
possible to measure damages for such injuries precisely and that, in the event
of such a breach or threat thereof, the Company shall be entitled to obtain a
temporary restraining order and/or a preliminary or permanent injunction
restraining the Executive from engaging in activities prohibited by this Section
6 or such other relief as may
10
<PAGE> 11
be required to specifically enforce any of the covenants in this Section 6.
Without intending to limit the remedies available to the Executive, the
Executive shall be entitled to seek specific performance of the Company's
obligations under this Agreement.
(g) The Executive shall during the continuance of his
employment (and shall procure that his spouse or partner and his minor children
shall comply) with all applicable rules of law, stock exchange regulations and
codes of conduct applicable to employees, officers and directors of the Company
and the Group for the time being in force in relation to dealings in the shares,
debentures and other securities of the Company or any unpublished share price
sensitive information affecting the securities of any other company with which
the Company has dealings (provided that the Executive shall be entitled to
exercise any options granted to him under any share option scheme established by
the Company or any member of the Group, subject to the rules of such scheme).
(h) The Executive shall in relation to any dealings in
securities of overseas companies comply with all laws of any foreign state
affecting dealings in the securities of such companies and all regulations of
any relevant stock exchanges on which such dealings take place.
(i) During the continuance of his employment the Executive
shall observe the terms of any policy issued by the Company in relation to
payments, rebates, discounts, gifts, entertainment or other benefits
(Gratuities") from any third party in respect of any business transacted or
proposed to be transacted (whether or not by him) by or on behalf of the Company
or any Associated Company.
7. GENERAL PROVISIONS.
(a) Source of Payments. All payments provided under this
Agreement, other than payments made pursuant to a plan which provides otherwise,
shall be paid in cash from the general funds of the Company, and no special or
separate fund shall be established, and no other segregation of assets made, to
assure payment. The Executive shall have no right, title or interest whatever in
or to any investments which the Company may make to aid the Company in meeting
its obligations hereunder. To the extent that any person acquires a right to
receive payments from the Company hereunder, such right shall be no greater than
the right of an unsecured creditor of the Company; provided, however, that this
provision shall not be deemed to waive or abrogate any preferential or other
rights to payment accruing to the Executive under applicable bankruptcy laws by
virtue of the Executive's status as an Executive of the Company.
(b) No Other Severance Benefits. Except as specifically set
forth in this Agreement, the Executive covenants and agrees that he shall not be
entitled to any other form of severance benefits from the Company, including,
without limitation, benefits otherwise
11
<PAGE> 12
payable under any of the Company's regular severance policies, in the event his
employment hereunder ends for any reason and, except with respect to obligations
of the Company expressly provided for herein, the Executive unconditionally
releases the Company and its subsidiaries and affiliates, and their respective
directors, officers, Executives and stockholders, or any of them, from any and
all claims, liabilities or obligations under this Agreement or under any
severance or termination arrangements of the Company or any of its subsidiaries
or affiliates for compensation or benefits in connection with his employment or
the termination thereof.
(c) Tax Withholding. Payments to the Executive of all
compensation contemplated under this Agreement shall be subject to all
applicable tax withholding.
(d) Notices. Any notice hereunder by either party to the other
shall be given in writing by personal delivery, or certified mail, return
receipt requested, or (if to the Company) by telex or facsimile, in any case
delivered to the applicable address set forth below:
(i) To the Company: Getty Images, Inc.
2101 Fourth Avenue
5th Floor
Seattle, Washington 98121
(ii) To the Executive: Jonathan D. Klein
3815 East John Street
Seattle, WA 98112-5007
or to such other persons or other addresses as either party may specify to the
other in writing.
(e) Representation by the Executive. The Executive represents
and warrants that his entering into this Agreement does not, and that his
performance under this Agreement and consummation of the transactions
contemplated hereby will not, violate the provisions of any agreement or
instrument to which the Executive is a party, or any decree, judgment or order
to which the Executive is subject, and that this Agreement constitutes a valid
and binding obligation of the Executive in accordance with its terms. Breach of
this representation will render all of the Company's obligations under this
Agreement void ab initio.
(f) Limited Waiver. The waiver by the Company or the Executive
of a violation of any of the provisions of this Agreement, whether express or
implied, shall not operate or be construed as a waiver of any subsequent
violation of any such provision.
(g) Assignment; Assumption of Agreement. No right, benefit or
interest hereunder shall be subject to assignment, encumbrance, charge, pledge,
hypothecation or setoff
12
<PAGE> 13
by the Executive in respect of any claim, debt, obligation or similar process.
The Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
or assets of the Company to assume expressly and to agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place.
(h) Amendment; Actions by the Company. This Agreement may not
be amended, modified or canceled except by written agreement of the Executive
and the Company. Any and all determinations, judgments, reviews, verifications,
adjustments, approvals, consents, waivers or other actions of the Company
required or permitted under this Agreement shall be effective only if undertaken
by the Company pursuant to authority granted by a resolution duly adopted by the
Board; provided, however, that by resolution duly adopted in accordance with
this Section 7(h), the Board may delegate its responsibilities hereunder to one
or more of its members other than the Executive.
(i) Severability. If any term or provision hereof is
determined to be invalid or unenforceable in a final court or arbitration
proceeding, (i) the remaining terms and provisions hereof shall be unimpaired
and (ii) the invalid or unenforceable term or provision shall be deemed replaced
by a term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision.
(j) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware (determined
without regard to the choice of law provisions thereof).
(k) Entire Agreement. This Agreement sets forth the entire
agreement and understanding of the parties hereto with respect to the matters
covered hereby and supersedes all prior agreements and understandings of the
parties with respect to the subject matter hereof.
(l) Headings. The headings and captions of the sections of
this Agreement are included solely for convenience of reference and shall not
control the meaning or interpretation of any provisions of this Agreement.
(m) Counterparts. This Agreement may be executed by the
parties hereto in counterparts, each of which shall be deemed an original, but
both such counterparts shall together constitute one and the same document.
(n) Disciplinary and Grievance Procedures. For statutory
purposes, there is no formal disciplinary procedure in relation to the
Executive's employment. The Executive shall be expected to maintain the highest
standards of integrity and behavior. If the Executive has any grievance in
relation to his employment or is not satisfied with any disciplinary procedure
taken in relation to him, he may apply in writing within 14 days of that
decision to the Board, whose decision shall be final. The foregoing shall not be
construed, however, to limit the Executive's remedies at law or otherwise.
13
<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Agreement
effective as of the day and year first written above.
GETTY IMAGES, INC.
By: ______________________________________
Name: Mark Getty
Title: Chairman of the Board
EXECUTIVE
By: ______________________________________
Jonathan D. Klein
14
<PAGE> 15
APPENDIX A
Agreement for relocation of Jonathan Klein from London to Seattle
OVERALL PRINCIPLES
1. Jonathan Klein (the employee) is viewed as an expatriate on assignment for
three years.
2. Family includes spouse or partner, dependent children under 18 and other
persons living with or supported by the employee.
3. No consideration is made for loss of employee's spouse or partner's income.
4. Aim is to provide equivalent purchasing power abroad to at least maintain
home lifestyle.
All annual allowances or payments will apply to Jonathan Klein for three years
and will then phase out over the next two years.
RELOCATION
1. Getty Images will pay on production of invoices all reasonable relocation and
related insurance expenses for sea freight and up to the following limits for
airfreight (available for immediate needs ) (anything over (pound)8,000 is
taxable to the employee). 200kg by air for the employee 150kg by air for the
spouse 100kg by air for each additional person
2. All storage charges will be paid by Getty Images for three years.
3. Hotel costs for employee and family in Seattle will be paid until longer term
accommodation (rental or purchase) is secured. Typically 6 weeks maximum.
4. Business class flights are paid for employee and family for initial move from
London to Seattle. 10. A one off general relocation allowance is paid of 6
weeks salary to cover electrical goods, curtains and other goods that will
need to be purchased.
REMUNERATION
1. Total remuneration is split between home and host currency as instructed by
expatriate.
2. Professional help with tax advice and tax returns is paid for by Getty
Images.
3. A Foreign Service Premium of 10% of base salary is paid to all expatriates
for the duration of the assignment. The Foreign Service Premium is paid gross
so that the employee gets a net 10% benefit as a result of moving to Seattle.
The Premium will be paid monthly throughout the expatriate period and is in
addition to any "normal" annual pay rise. It is also shown separately in the
pay roll. Pension and bonuses will be calculated on the basic salary i.e.
excluding the Foreign Service Premium.
4. Tax equalization is carried out. Employees pay no more or no less tax than in
London.
5. If required UK NI contributions will be continued, paid for by Getty Images.
6. No mobility premium is payable on moving.
7. A Goods and Services (cost of living) allowance linked to family size is paid
per the ORC efficient purchaser indices table. (This is currently negative
for London to Seattle but no deduction will be made).
8. No Hardship Allowances will be paid for Seattle.
15
<PAGE> 16
ACCOMMODATION
1. Housing Allowance will be loosely based on the ORC tables, expensive column,
research with local real estate agents and management judgement (see
individual sheets for estimates). This will be adjusted to enable the
employee to receive the amount net assuming they will use this as payment
towards the interest on a mortgage (after personal tax deductions and tax
rebates)
2. No home housing offset will be made (i.e. no account will be taken of the
accommodation arrangements in London).
3. Utility bills will be paid by Getty Images.
4. Real estate taxes will be paid by Getty Images over and above the
accommodation allowances provided to each individual.
5. Other costs related to the purchase and maintenance of a property in Seattle
will be borne by the company and will include:
Loan origination fees
Appraisal fees
Credit report fees
Flood fees
Application fee to US Bank
Tax registration
Property Insurance
Settlement or closing fee
Title insurance
Delivery fees
Recording fees
OTHER BENEFITS
1. Equivalent Healthcare benefits will be provided either by additional coverage
of home plan or by inclusion in local Seattle plan.
2. Any life assurance plans will be maintained from London.
3. Permanent Health Insurance and/or disability insurance will, where relevant,
continue to be paid by the company.
4. All employees will continue their UK pension arrangements.
5. Two cars or cash in lieu of a car will be provided for Jonathan Klein. In
general, employees who choose to take a car instead of the cash will be
responsible for arranging the leasing of the vehicle with the cost being
borne by the company.
6. Two business class home leave trips will be provided for the employee and
their family annually.
7. Holiday entitlement will not change.
8. No contribution will be made to children's education expenses.
REPATRIATION
1. Jonathan Klein will be eligible to receive reimbursement for repatriation
costs to UK, equivalent to relocation costs outlined above, throughout the
first three years, on resignation at the host location or on termination by
Getty Images.
2. No assistance will be given for purchase of a new home in the UK.
16
<PAGE> 17
EXTENSION OF ASSIGNMENT
Jonathan Klein will migrate to a local package over his fourth year.
YEAR 4
Accommodation allowance, UK storage costs and utilities payments reduce to
50% of previous allowance.
Health cover converts to local benefits package.
UK NI no longer paid.
Tax advice and tax returns still paid for
Employee still eligible for reimbursement of repatriation costs.
Vacation allowance remains the same
Car arrangements remain the same
YEAR 5+
Salaries will be aligned to local salaries using an appropriate
benchmarking exercise.
Employees lose their right to repatriation at the company's expense.
Vacation allowance remains the same.
All other benefits are as for local employees.
Local taxes will apply.
17
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 9,877
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<SALES> 167,930
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<PAGE> 1
Exhibit 99.1
Getty Investments L.L.C.
1325 Airmotive Way, Suite 262
Reno, Nevada 89502
October 26, 1999
Getty Images, Inc.
701 North 34th Street
Seattle, Washington 98103
Dear Sirs:
Getty Investments L.L.C., a limited liability company organized under
the laws of the State of Delaware ("Getty Investments"), hereby subscribes for
and offers to purchase, upon and subject to the conditions set forth below,
1,579,353 validly issued, fully paid and nonassessable shares (the "Shares") of
Common Stock, par value $0.01 per share ("Common Stock"), of Getty Images, Inc.,
a Delaware corporation ("Getty Images"), and to pay therefor in lawful money
U.S. $32,000,000 in the aggregate (the "Purchase Price"), by wire transfer in
immediately available funds. The Purchase Price shall be payable on the business
day preceding the Closing Date (as defined in the Stock Purchase Agreement,
dated as of September 20, 1999, among Getty Images, Eastman Kodak Company and
Kodak S.A.).
The obligations of Getty Investments to subscribe for, and the
obligations of Getty Images to issue to Getty Investments, the Shares pursuant
to this agreement shall be subject to:
(i) the execution and delivery by Getty Images and Getty
Investments of an amendment to the Registration Rights
Agreement, dated as of February 9, 1998, between Getty Images
and Getty Investments, pursuant to which the Shares shall be
entitled to the benefits of the Registration Rights Agreement;
(ii) the execution and delivery by Getty Images, Getty Investments
and the Investors named therein of an Indemnity Agreement in
the form to be agreed to by the parties in good faith, but
substantially in the form of the Indemnity Agreement delivered
by Getty Images to Getty Investments in connection with the
issuance by Getty Images of its 4.75% Convertible Subordinated
Notes due 2003; and
(iii) Getty Investments having received a legal opinion from Weil,
Gotshal & Manges LLP, counsel to Getty Images, in a form
agreed to by the parties but addressing the following matters
as to Getty Images: (a) due organization, valid existence and
good standing, (b) corporate power and authority to execute
this letter agreement and perform its obligations hereunder,
(c) due execution and delivery, (d) enforceability (subject to
customary exceptions), (e) due
<PAGE> 2
2
authorization and valid issuance of the Shares, (f) that the
execution and delivery of this agreement and the issuance of
the Shares will not conflict with any constitutional or
material agreement of Getty Images, (g) that the execution and
delivery of this agreement and the issuance of the Shares will
not conflict with or violate any law or governmental order,
(h) that the execution and delivery of this agreement and the
issuance of the Shares will not require any consent, approval
or filing, and (i) that it will not be necessary to register
the Shares under the Securities Act.
(iv) the expiration or early termination of any applicable waiting
period (and any extension thereof) under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
Getty Investments hereby represents and warrants to Getty Images that:
(a) it understands and acknowledges that the issuance and
subscription of the Shares pursuant to this letter agreement
have not been, and will not be, registered under the U.S.
Securities Act of 1933, as amended (the "Securities Act"), and
that the Shares will be issued to it in a transaction that is
exempt from the registration requirements of the Securities
Act in reliance upon the representations and warranties of
Getty Investments in this agreement. It understands and
acknowledges that the Shares cannot be offered or resold
within the United States or to or for the account or benefit
of U.S. persons except pursuant to registration under the
Securities Act or an available exemption from registration and
it agrees that it shall not resell the Shares except in
compliance with applicable securities laws;
(b) it is purchasing the Shares for its own account for investment
and not with a view to, or for resale in connection with, the
distribution hereof, and it has no present intention of
distributing any of the Shares;
(c) it understands and acknowledges that all certificates
representing the Shares shall bear, in addition to any other
legends required under applicable securities laws, the
following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"). 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
and may not be sold, pledged or otherwise transferred except
in accordance with an exemption from the registration
requirements of the Securities Act."
(d) it is an accredited investor within the meaning of Regulation
D under the Securities Act and it has such knowledge and
experience in financial and
<PAGE> 3
3
business matters that it is capable of evaluating the merits
and risk of its investment in the Shares pursuant to this
agreement;
(e) it has the financial ability to bear the economic risk of its
investment in the Shares pursuant to this agreement, it is
aware that it may be required to bear the economic risk of its
investment in the Shares for an indefinite period of time, and
it has no need for liquidity with respect to its investment
therein at this time; and
(f) the Shares were not offered or sold to Getty Investments by
any form of general solicitation or general advertising.
This letter agreement shall be governed by the laws of the State of New
York and shall only be amended by written consent of Getty Investments and Getty
Images.
Please confirm the above and accept this offer by signing in the space
provided below.
Very truly yours,
Getty Investments L.L.C.
By: _____________________________
Jan D. Moehl
Officer
Accepted and confirmed
as of October _____, 1999
Getty Images, Inc.
By: _______________________________
Jonathan D. Klein
Chief Executive Officer
