<PAGE>
================================================================================
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
SEATTLE FILMWORKS INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
SEATTLE FILMWORKS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON TUESDAY, FEBRUARY 9, 1999
TO THE SHAREHOLDERS OF SEATTLE FILMWORKS, INC.:
Notice is hereby given that the Annual Meeting of Shareholders of Seattle
FilmWorks, Inc. (the "Company") will be held at 10:00 a.m. Pacific Standard
Time, on Tuesday, February 9, 1999, at The Four Seasons Hotel, Metropole Room,
411 University Street, Seattle, Washington, 98101, for the following purposes:
1. To elect two (2) Directors to serve for three year terms.
2. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
Shareholders of record at the close of business on December 7, 1998, will be
entitled to notice of and to vote at the Annual Meeting and any adjournment or
postponement of the Annual Meeting.
By Order of the Board of Directors
/s/ Mich Kele Earl
Mich Kele Earl
Secretary
1260 - 16th Avenue West
Seattle, Washington 98119
December 31, 1998
_______________________________________________________________________________
YOUR VOTE IS IMPORTANT
======================
THE COMPANY INVITES ALL SHAREHOLDERS TO ATTEND THE ANNUAL MEETING IN PERSON.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE SIGN, DATE AND
RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED STAMPED ENVELOPE. THIS WILL ENSURE
THE PRESENCE OF A QUORUM AT THE MEETING. PROMPTLY SIGNING, DATING AND RETURNING
THE PROXY WILL SAVE THE COMPANY THE EXPENSE OF ADDITIONAL SOLICITATIONS. YOUR
PROXY IS REVOCABLE AT YOUR REQUEST AT ANY TIME BEFORE IT IS VOTED. ANY
SHAREHOLDER MAY ATTEND THE ANNUAL MEETING AND VOTE IN PERSON EVEN IF THAT
SHAREHOLDER HAS RETURNED A PROXY CARD.
YOUR COPY OF THE COMPANY'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 26,
1998 IS ENCLOSED.
________________________________________________________________________________
1
<PAGE>
SEATTLE FILMWORKS, INC.
1260 - 16TH AVENUE WEST
SEATTLE, WASHINGTON 98119
PROXY STATEMENT
GENERAL
The Company is furnishing this Proxy Statement and the enclosed proxy (which are
being mailed to shareholders on or about December 31, 1998) in connection with
the solicitation of proxies by the Board of Directors of Seattle FilmWorks, Inc.
(the "Company") for use at the Annual Meeting of Shareholders to be held on
Tuesday, February 9, 1999, at 10:00 a.m. local time at the Four Seasons Hotel,
Metropole Room, 411 University Street, Seattle, Washington 98101, and at any
adjournment thereof (the "Annual Meeting").
RECORD DATE AND OUTSTANDING SHARES
The Company has called the Annual Meeting for the purposes stated in the
accompanying Notice of Annual Meeting of Shareholders. All shareholders of
Common Stock of the Company ("Common Stock") as of the close of business on
December 7, 1998 (the "Record Date"), are entitled to vote at the meeting. As
of December 7, 1998, there were 16,242,011 shares of Common Stock outstanding.
The Company's Common Stock trades on the Nasdaq National Market under the symbol
FOTO. The last sale price for the Company's Common Stock as reported by Nasdaq
on December 7, 1998 was $3.188 per share.
QUORUM
A quorum for the Annual Meeting will consist of a majority of the outstanding
shares of Common Stock entitled to vote at the Annual Meeting, present in person
or by proxy. Shareholders of record who are present at the meeting in person or
by proxy and who abstain, including brokers holding customers' shares of record
who cause abstentions to be recorded at the meeting, are considered shareholders
who are present and entitled to vote and count toward the quorum.
VOTING
Each share of Common Stock outstanding on the Record Date is entitled to one
vote at the Annual Meeting. All shares represented by proxies will be voted in
accordance with shareholder directions. If the accompanying proxy is properly
signed and is not revoked by the shareholder, the shares it represents will be
voted at the Annual Meeting by the proxy holder in accordance with the
instructions of the shareholder. If no specific instructions are designated,
the shares will be voted as recommended by the Board of Directors.
The Company is not aware, as of the date hereof, of any matters to be voted upon
at the Annual Meeting other than as stated in the Proxy Statement and the
accompanying Notice of Annual Meeting of Shareholders. If any other matters are
properly brought before the Annual Meeting, the enclosed Proxy gives
discretionary authority to the persons named therein to vote the shares in their
discretion.
Under Washington law and the Company's Amended and Restated Articles of
Incorporation and Bylaws, if a quorum exists at the meeting, the two nominees
who receive the greatest number of votes cast for the election of directors by
the shares present in person or represented by proxy and entitled to vote shall
be elected directors. Abstentions will have no impact on the outcome of this
proposal since they have not been cast in favor of any nominee. There can be no
broker non-votes on this matter since brokers who hold shares for the accounts
of their clients have discretionary authority to vote such shares with respect
to the election of directors.
2
<PAGE>
REVOCABILITY OF PROXIES
A proxy may be revoked at any time before it is voted at the meeting. Any
shareholder who attends the meeting and wishes to vote in person may revoke his
or her proxy at that time. Otherwise, to revoke a proxy a shareholder must
deliver a proxy revocation, or another duly executed proxy bearing a later date,
to the Corporate Secretary of the Company, at 1260 16th Avenue West, Seattle,
Washington 98119, before the Annual Meeting or at the Annual Meeting. Attendance
at the Annual Meeting will not revoke a shareholder's proxy unless the
shareholder votes in person at the meeting.
SOLICITATION OF PROXIES
The proxy accompanying this Proxy Statement is solicited by the Board of
Directors of the Company. Proxies may be solicited by officers, directors, and
regular supervisory and executive employees of the Company, none of whom will
receive any additional compensation for their services. In addition, the Company
may engage an outside proxy solicitation firm to render proxy solicitation
services and, if so, will pay a fee for such services. Solicitations of proxies
may be made personally, or by mail, telephone, telecopier or messenger. The
Company, if requested, will pay persons holding shares of Common Stock in their
names or in the names of nominees, but not owning such shares beneficially, such
as brokerage houses, banks and other fiduciaries, for the expense of forwarding
materials to their principals. All of the costs of solicitation of proxies will
be paid by the Company. Proxies and ballots will be received and tabulated by
ChaseMellon Shareholder Services, an independent business entity not affiliated
with the Company.
3
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS
The following table sets forth information, as of November 30, 1998, with
respect to all shareholders known by the Company who beneficially own more than
5% of the Company's Common Stock. Except as noted below, each person or entity
has sole voting and investment power with respect to the shares shown.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNERSHIP CLASS
- ------------------------- ------------------------ -----------
<S> <C> <C>
T. Rowe Price Associates, Inc. (1) 2,102,000 12.7%
100 East Pratt Street
Baltimore, MD 21202
Fidelity Management & Research Company (2) 1,600,000 9.8%
Low-Priced Stock Fund
82 Devonshire Street
Boston, MA 02109
Gary R. Christophersen (3) 866,715 5.3%
1260 16th Avenue West
Seattle, WA 98119
- ------------------------------------------------------------------------------------
</TABLE>
(1) The holding shown is as ("Price Associates") in Securities Exchange
Act of February 12, 1998, as a Schedule 13G filed by of 1934, as
amended (the reported by T. Rowe Price Associates "Exchange Act").
Price Price Associates, Inc. pursuant to Rule 13d-1 Associates has
indicated under the that these shares are held by it in its capacity
as investment advisor to various individual and institutional
investors. According to the Schedule 13G filed by Price Associates,
Price Associates has sole dispositive power with respect to all of
these shares, sole voting power with respect to 427,200 of these
shares, and T. Rowe Price Small Cap Value Fund, Inc. has sole voting
power with respect to 1,425,000 of these shares.
(2) The holding shown Corp., the parent of Fidelity Management's dispose
of the 1,600,000 is as of December Fidelity Management & role as
investment shares owned by the 31, 1997, as Research Company adviser
to the Funds. However, the reported in a ("Fidelity Management"),
investment company of sole power to vote or Schedule 13G filed
pursuant to Rule 13d-1 Fidelity Low-Priced direct the voting of by
FMR under the Exchange Act. Stock Fund. Edward C. these shares
resides In its Schedule 13G, FMR Johnson III (Chairman with the
Funds' Boards Corp. has indicated that of FMR Corp.), FMR of
Trustees. Fidelity all of these shares are Corp. (through its
Management carries out held by Fidelity control of Fidelity the
voting of the shares Management as a result of Management), and the
under the written funds each has power to guidelines established by
the Funds' Boards of Trustees.
(3) Includes options to purchase 25,312 shares of Common Stock granted
under the Company's 1987 Stock Option Plan which are currently
exercisable or exercisable within 60 days.
ELECTION OF DIRECTORS
The Board of Directors of the Company currently consists of five directors
classified into three classes. The sole member of Class I is Douglas A.
Swerland. Currently, Class II directors are Peter H. van Oppen and Craig E.
Tall, and Class III directors are Gary R. Christophersen and Sam Rubinstein. At
the Annual Meeting, the shareholders will vote on the election of the two Class
II directors for a three-year term expiring at the Annual Meeting of
shareholders in 2002. At present, Class III directors will hold office until the
Company's 2000 Annual Meeting and the Class I director will hold office until
the Company's 2001 Annual Meeting. All directors hold office until the Annual
Meeting of shareholders at which their terms expire and the election and
qualification of their successors.
4
<PAGE>
The Board of Directors has unanimously nominated Peter H. van Oppen and Craig E.
Tall for re-election to the Board as the Class II directors. Although the Board
of Directors anticipates that Messrs. van Oppen and Tall will be available to
serve as directors of the Company, should either one of them not accept the
nomination, or otherwise be unable or unwilling to serve, it is intended that
proxies will be voted for the election of a substitute nominee designated by the
Board of Directors. The two Class II nominees receiving the highest number of
votes cast in the election of directors shall be elected Class II directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF BOTH NOMINEES.
Unless otherwise instructed, it is the intention of the persons named in the
accompanying form of proxy to vote shares represented by properly executed
proxies for election of Messrs. van Oppen and Tall.
The following chart indicates ownership of the Company's Common Stock by each
director of the Company, each executive officer named in the compensation tables
appearing later in this Proxy Statement, and by all directors and executive
officers as a group, all as of November 30, 1998.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
DIRECTORS: AGE OWNERSHIP CLASS
- ------------------------------------ ----------------- ----------------- ----------
<S> <C> <C> <C>
Gary R. Christophersen (1) 52 866,715 5.3%
Sam Rubinstein (2) 81 532,436 3.2%
Douglas A. Swerland (3) 53 106,313 *
Craig E. Tall (4) 52 145,969 *
Peter H. van Oppen (5) 46 34,750 *
ADDITIONAL NAMED EXECUTIVES:
Michael F. Lass (6) 44 359,670 2.2%
Case H. Kuehn (7) 46 55,114 *
All current directors and executive
officers as a group (7 persons) (8) 2,100,967 12.6%
- ----------------------------
* Percent of class is less than 1%
(1) Includes options to purchase 25,312 shares of Common Stock granted
under the Company's 1987 Stock Option Plan which are currently
exercisable or exercisable within 60 days. Does not include 22,275
shares of Common Stock held in trust for Mr. Christophersen's minor
children, beneficial ownership or of which Mr. Christophersen
disclaims.
(2) Includes options to purchase 175,500 shares of Common Stock which are
currently exercisable days or exercisable within 60 days.
(3) Includes options to purchase 94,500 shares of Common Stock which are
currently exercisable or exercisable within 60 days.
(4) Includes options to purchase 114,750 shares of Common Stock which are
currently exercisable or exercisable within 60 days.
(5) Includes options to purchase 33,750 shares of Common Stock which are
currently exercisable or exercisable within 60 days.
(6) Includes options to purchase 8,437 shares of Common Stock which are
currently exercisable or exercisable within 60 days.
(7) Includes options to purchase 46,405 shares of Common Stock which are
currently exercisable or exercisable within 60 days.
(8) Includes options to purchase 498,654 shares of Common Stock which are
currently exercisable or exercisable within 60 days.
</TABLE>
5
<PAGE>
GARY R. CHRISTOPHERSEN has been the Company's President and Chief Executive
Officer since August 1988. Mr. Christopersen joined the Company in January 1982
as Vice President-Operations and has served as a Director of the Company since
1982. From May 1983 to August 1988, Mr. Christophersen was a Senior Vice
President of the Company and its General Manager.
SAM RUBINSTEIN became a Director of the Company in March 1986. From June 1985
to May 1988, he was the Chairman of the Board and Chief Executive Officer of
Farwest Fisheries, Inc., a seafood processing and marketing firm. From 1974 to
December 1987, Mr. Rubinstein was the Chairman of the Board and Chief Executive
Officer of Bonanza Stores, Inc., an operator of variety stores and drugstores,
and, from February 1984 to January 1986, the Chairman of the Board and Chief
Executive Officer of Whitney-Fidalgo Seafoods, Inc., a seafood processor.
DOUGLAS A. SWERLAND became a Director of the Company in October 1988. In
December 1993, Mr. Swerland founded and became the Chairman and Chief Executive
Officer of SAVI, Inc., a clothing superstore retailer specializing in men's and
women's apparel and accessories. Mr. Swerland had been employed by Jay Jacobs,
Inc., the operator of a chain of specialty retail apparel stores, in various
capacities beginning in 1969, most recently as President and a director from
1978 to November 1993.
CRAIG E. TALL became a Director of the Company in October 1988. Since September
1990, Mr. Tall has been an Executive Vice President of Washington Mutual, Inc.,
a bank holding company. In addition, since April 1987, Mr. Tall has been an
Executive Vice President of Washington Mutual Bank.
PETER H. VAN OPPEN became a Director of the Company in October 1988. Since
February 1994, Mr. van Oppen has been Chairman and Chief Executive Officer of
Advanced Digital Information Corporation ("ADIC"), a manufacturer of automated
tape data libraries for network and workstation markets. ADIC was a wholly-
owned subsidiary of Interpoint Corporation, a diversified publicly-traded
manufacturer, until it was spun-off as a separate public company in October
1996. Mr. van Oppen served as a Director of Interpoint from 1984 to 1996,
President and Chief Executive Officer from 1989 to 1996 and Chairman and Chief
Executive Officer from 1995 through October 1996. Mr. van Oppen is also a
Director of ADIC, Spacelabs Medical, Inc., a provider of integrated healthcare
information systems and medical devices, and Key Technology, Inc., a
manufacturer of automated inspection and sorting systems.
BOARD AND COMMITTEE MEETINGS
The Board of Directors of the Company held a total of eleven meetings during the
fiscal year ended September 26, 1998. Each of the incumbent Directors attended
at least 75% of the aggregate of the total number of meetings held by the Board
of Directors and by all committees of the Board of Directors on which they
served.
The Board of Directors has an Audit Committee which consists of Messrs.
Rubinstein, Swerland, Tall, and van Oppen. The function of the Audit Committee
is to meet with the accounting staff of the Company and the independent
certified public accountants engaged by the Company to review (i) the scope and
findings of the annual audit, (ii) accounting policies and procedures and the
Company's financial reporting and (iii) internal controls employed by the
Company. The Committee's findings and recommendations are reported to management
and the Board of Directors for appropriate action. The Audit Committee held one
meeting during fiscal 1998.
6
<PAGE>
The Board of Directors has a Compensation Committee which consists of Messrs.
Swerland, Tall, and van Oppen. The Committee is responsible for establishing the
policies which govern the compensation of executive officers of the Company,
setting compensation levels for the President and Chief Executive Officer, and
reviewing the compensation packages for other executive officers recommended by
the President. The Compensation Committee has been appointed by the Board of
Directors to administer the Company's stock option and stock purchase plans.
The Compensation Committee held three meetings during fiscal 1998.
The Board of Directors does not have a standing nominating committee. The Board
of Directors will consider written proposals from shareholders for nominees or
directors which are submitted to the Secretary of the Company in accordance with
the procedures contained in this proxy statement under the caption, "Proposals
of Shareholders."
DIRECTORS' COMPENSATION
Currently, Directors who are not employees of the Company are each paid $500
each quarter and $200 for each Board of Directors meeting attended and $100 for
each telephonic meeting of the Board. In addition, Directors are entitled to
reimbursement for reasonable travel expenses, including lodging, incurred in
connection with attendance at Board meetings. Pursuant to the terms of the
Company's 1987 Stock Option Plan, each Director who is not an employee of the
Company is automatically granted an option to purchase 11,250 shares of the
Company's Common Stock, annually on the first Wednesday of March. Such options
have an exercise price equal to the fair market value of the Common Stock on the
date of grant and become exercisable in full at the end of the fiscal year in
which they are granted.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires directors, certain officers and
greater-than-10% shareholders ("Reporting Persons") of all publicly-held
companies to file certain reports ("Section 16 Reports") with respect to
beneficial ownership of such companies' equity securities.
Based solely on its review of the Section 16 Reports furnished to the Company by
its Reporting Persons and, where applicable, any written representation by them
that no Form 5 was required, all Section 16(a) filing requirements applicable to
the Company's Reporting Persons during and with respect to fiscal 1998 have been
complied with on a timely basis.
7
<PAGE>
REMUNERATION OF EXECUTIVE OFFICERS
The following table sets forth certain information concerning the compensation
paid by the Company for services rendered during fiscal years 1998, 1997 and
1996 to any person who served as Chief Executive Officer during fiscal 1998, and
the other executive officers of the Company as of September 26, 1998, whose
total salary and bonus exceeded $100,000 in fiscal 1998 (the "Named Executive
Officers"):
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
AWARDS
---------------------
NAME AND FISCAL ANNUAL COMPENSATION SECURITIES UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION (*)
- --------------------------- ------- --------------------- --------------------- ----------------
<S> <C> <C> <C> <C> <C>
Gary R. Christophersen 1998 $150,483 $ 30,588 33,750 $ 8,989
President, Chief 1997 150,000 70,315 33,750 11,842
Executive Officer 1996 150,530 126,100 33,750 11,565
and Director
Michael F. Lass 1998 $132,390 $ 14,737 11,250 $ 8,747
Vice President - 1997 125,765 25,611 11,250 11,819
Operations 1996 118,955 55,023 11,250 11,565
Case H. Kuehn 1998 $117,353 $ 13,501 11,250 $ 7,988
Vice President - Finance, 1997 111,058 27,738 11,250 11,602
Chief Financial Officer 1996 105,170 47,015 11,250 8,463
and Treasurer
- --------------------------
(*) These amounts represent Company contributions to the Seattle FilmWorks
401K Plan and payments for term life insurance,short-term disability
insurance and long-term disability insurance.
</TABLE>
8
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The Company has stock option plans pursuant to which options to purchase Common
Stock are granted to officers and key employees of the Company. The following
tables show stock option grants and exercises pertaining to the named Executive
Officers of the Company during fiscal year 1998, and the year-end potential
realizable value of all their outstanding options.
<TABLE>
<CAPTION>
INDIVIDUAL OPTIONS GRANTED POTENTIAL REALIZABLE
------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM (3)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ----------------------
GRANTED (1) FISCAL YEAR PRICE (2) DATE 5% 10%
---------- ------------ ------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Gary R. Christophersen 33,750 16.33% $9.0625 3/04/2003 $84,524 $186,757
Michael F. Lass 11,250 5.44% $9.0625 3/04/2003 $28,174 $ 62,252
Case H. Kuehn 11,250 5.44% $9.0625 3/04/2003 $28,174 $ 62,252
</TABLE>
- ----------------------------
(1) The Company's stock option plans are administered by the Compensation
Committee of the Board of Directors, which determines to whom options
are granted, the number of shares subject to each option, the vesting
schedule and the exercise price. The options granted in fiscal year
1998 vest in equal annual installments over four years. All options
granted to officers of the Company may be exercised for a period of
190 days following termination of employment.
(2) All options are granted with an exercise price equal to the fair
market value of the Company's Common Stock on the date of grant. The
exercise price may be paid by delivery of shares already owned by the
option holder with a market value equal to the aggregate exercise
price. With the permission of the Compensation Committee, the exercise
price may also be paid by withholding shares that would otherwise be
received by the option holder.
(3) Potential realizable value is based on the assumption that the stock
price of the Common Stock appreciates at the annual rate shown
(compounded annually) from the date of grant until the end of the five
year option term. These values are calculated based upon requirements
of the Securities and Exchange Commission and do not reflect the
Company's estimate or projection of future stock price performance.
The actual value realized may be greater or less than the realizable
value set forth in this table.
The vesting of options may be accelerated at the discretion of the administrator
of the option plans. Also, outstanding options will become immediately vested
and fully exercisable on the day before the first to occur of the following
events, unless a majority of the Board of Directors in office on the date such
an event occurs shall approve a resolution providing otherwise within three
business days after the event occurs:
(i) the acquisition by any person (with certain exceptions) of 30% or more
of any class of the Company's voting equity securities;
(ii) the purchase of 30% or more of any class of the Company's stock
pursuant to any tender or exchange offer, other than one made by the
Company; or
(iii) approval of any merger, consolidation, reorganization or other
transaction providing for the conversion or exchange of more than 50%
of the outstanding shares of the Company's stock into securities of a
third-party, or cash, or property, or a combination of any of the
foregoing.
9
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
The following table sets forth certain information as of September 26, 1998,
regarding options to purchase Common Stock held as of September 26, 1998, by
each of the Named Executive Officers, as well as the exercise of such options
during the fiscal year ended September 26, 1998. In addition, the following
table reports the values for in-the-money options, which values represent the
positive spread between the exercise price of such options and the fair market
value of the Company's Common Stock as of September 26, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT SEPTEMBER 26, 1998 (2) AT SEPTEMBER 26, 1998 (3)
SHARES ACQUIRED VALUE ------------------------------------------------------------
UPON EXERCISE REALIZED (1) EXERCISABLE/ UNEXERCISABLE EXERCISABLE/ UNEXERCISABLE
------------- ------------ ------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Gary R. Christophersen 257,808 $2,123,402 25,312 75,938 $0 $0
Michael F. Lass 283,500 $1,303,040 8,437 25,313 $0 $0
Case H. Kuehn 0 $ 0 46,405 37,970 $0 $0
- ----------------------------
(1) Value realized is calculated by subtracting the exercise price of the
option from the market value of a share of the Company's Common Stock
on the date of exercise and multiplying the difference thereof by the
number of shares purchased.
(2) Future exercisability is subject to vesting and the option holder
remaining employed by the Company.
(3) This value is the aggregate number of outstanding options at fiscal
year end multiplied by the difference between the closing price of the
Common Stock reported on the Nasdaq Nation Market System on September
26, 1998, less the exercise price of such options. There is no
guarantee that if and when these options are exercised they will
generate this value.
</TABLE>
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") for
fiscal year 1998, consisted of three members of the Board who are all non-
employee directors of the Company. The Committee is responsible for establishing
the policies which govern the compensation of executive officers of the Company,
setting compensation levels for the President and Chief Executive Officer and
reviewing the compensation packages for other executive officers recommended by
the President. The goal of the Committee in administering executive compensation
is to create a compensation plan which (i) rewards individual performance, (ii)
aligns the interests of the executive with the immediate and long-term interests
of the shareholders of the Company, (iii) ties a significant portion of
compensation to improvements in the Company's financial performance and (iv)
assists the Company in attracting and retaining key executives critical to the
long-term success of the Company.
The compensation package provided to executive officers consists primarily of
base salary, incentive bonus and long-term incentive in the form of stock
options.
Base Salary. It is the goal of the Committee that the combination of base
salary and incentive bonus paid to the Chief Executive Officer be within the
approximate range of cash remuneration paid to executives performing similar
duties for companies of comparable size in the Pacific Northwest. Although
generally available data on the compensation of chief executive officers in the
Pacific Northwest is considered, the experience of the members of the Committee
and their knowledge of the community and industry practice have been the primary
bases for this determination.
At his request, the base salary of the Chief Executive Officer has been
maintained roughly at the present level since 1993. The Chief Executive Officer
has requested additional benefits each year, primarily additional vacation days,
in lieu of a salary increase.
Base salaries for executive officers other than the CEO are determined
annually by the President and reviewed by the Committee. In determining salary
adjustments for executive officers, the CEO considers the individual officer's
historical performance against his or her job responsibilities and personal
compensation packages provided to executives performing similar duties for
companies of comparable size in the Pacific Northwest, the rate of inflation,
salary adjustments to be awarded to other executive officers of the Company and
other subjective factors. In addition, in fiscal 1996, the Company reviewed
salaries based on a survey prepared for the Company by Towers Perrin, an
international management consulting firm.
Incentive Bonus. The Company has an annual incentive compensation plan
pursuant to which executive officers and other managers and supervisory
personnel (approximately 75 persons during fiscal 1998) are eligible to receive
cash bonuses based on the Company's and their personal performance during the
year (the "Incentive Plan"). The factors used in determining payments under the
Incentive Plan are a specified percentage of each participant's base salary
("eligible base salary"), his or her performance against personal performance
goals, and the difference between the Company's actual operating income, before
income tax and bonuses, and its targeted growth in such income for the year
("Corporate Performance Percentage"). The Incentive Plan sets eligible base
salary percentages for the CEO at 60 percent and all other executive officers at
30 percent. The portion of each participant's eligible base salary which will be
multiplied by the Corporate Performance Percentage for the year is determined
based on points awarded for each participant's actual performance against his or
her personal performance goals. Performance goals for each executive officer are
determined by the CEO at the beginning of the fiscal year and reviewed by the
Committee. Examples of individual performance goals for fiscal 1998 included net
revenue targets, labor costs, gross margin percentage, administrative and
overhead expenses. The portion of the CEO's eligible base salary that is used
for determining his annual Incentive Plan payment is based on a weighted average
of the performance scores of the various managers who report to him. The total
payment pursuant to the Incentive Plan is subject to a maximum of 15% of income
before income tax and bonuses and no payment will occur for any year in which
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the Company falls more than 43% short of targeted income before income tax and
bonuses for that year. Incentive bonuses declined in fiscal 1998 based on the
Company's performance. Subjective assessments of performance may result in
adjustments in individual awards.
Stock Option Plans. The Committee administers the Company's stock option
plans under which options to purchase the Company's Common Stock may be granted
in an effort to align the interests of management with those of shareholders and
provide a reward for long-term performance. Historically, options granted by the
Company have been granted with an exercise price equal to the market price of
the Company's stock on the date of grant. Accordingly, options will have value
to the holder only if the Company's stock price increases. Outstanding options
generally become exercisable at a rate of 25% per year. All grants are subject
to possible acceleration of vesting in connection with certain events leading to
a change in control of the Company. Options are granted from time to time to
executive officers and other management and supervisory personnel based on
recommendations of the CEO, with the size of grants generally falling within
predetermined ranges tied to job grade. In administering the Company's stock
option plans, the Committee generally has sought to limit outstanding options to
approximately ten percent of outstanding shares. At the end of fiscal 1998,
outstanding options as a percent of the outstanding shares of common stock was
6.4%.
Under the Omnibus Budget Reconciliation Act of 1993, the federal income tax
deduction for certain types of compensation paid to the chief executive officer
and four other most highly compensated executive officers of publicly held
companies is limited to $1 million per officer per fiscal year unless such
compensation meets certain requirements. The Committee is aware of this
limitation and believes no compensation paid by the Company during fiscal 1999
will exceed the $1 million limitation.
COMPENSATION COMMITTEE
Peter H. van Oppen, Chairman
Douglas A. Swerland
Craig E. Tall
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended September 26, 1998, the Compensation Committee of
the Board of Directors consisted of Messrs. Swerland, Tall and van Oppen. None
of these individuals has served at any time as an officer or employee of the
Company.
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STOCK PRICE PERFORMANCE GRAPH
Shown on this page is a line-graph comparing cumulative total shareholder return
on Seattle FilmWorks, Inc. Common Stock for each of the last five fiscal years
to the cumulative total return for the Nasdaq Composite Index and the Nasdaq
Retail Index. This cumulative return includes the reinvestment of cash
dividends.
COMPARISON OF 5-YEAR CUMULATIVE RETURN
Among Seattle FilmWorks, Inc.
Nasdaq Composite Index and Nasdaq Retail Index
MEASUREMENT PERIOD SEATTLE NASDAQ NASDAQ
(FISCAL YEAR COVERED) FILMWORKS, INC. COMPOSITE INDEX RETAIL INDEX
1993 $100 $100 $100
1994 203 101 98
1995 367 139 108
1996 525 165 130
1997 438 227 149
1998 143 232 128
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INDEPENDENT AUDITORS
The Company has selected Ernst & Young LLP to continue as its independent
auditors for the current year. Representatives of Ernst & Young LLP are expected
to be present at the Annual Meeting and have the opportunity to make a statement
if they so desire and respond to appropriate questions.
OTHER BUSINESS
As of the date of this Proxy Statement, management knows of no other business
which will be presented for action at the meeting. If any other business
requiring a vote of the shareholders should come before the meeting, the persons
designated as your proxies will vote or refrain from voting in accordance with
their best judgment.
PROPOSALS OF SHAREHOLDERS
The Company's Bylaws provide that advance notice of nominations for the election
of directors at a meeting of shareholders must be delivered to or mailed and
received by the Company ninety (90) days prior to the date one year from the
date of the immediately preceding annual meeting of shareholders or, in the case
of a special meeting of shareholders to elect directors, the close of business
on the 10th day following the date on which notice of such meeting is first
given to shareholders. The Bylaws also provide that advance notice of proposals
to be brought before an annual meeting by a shareholder must be submitted in
writing and delivered to or mailed and received by the Company not later than
ninety (90) days prior to the date one year from the date of the immediately
preceding annual meeting of shareholders.
Each notice of a nomination or proposal of business must contain, among other
things, (i) the name and address of the shareholder who intends to make the
nomination or proposal; (ii) a representation that the shareholder is a holder
of record of stock of the Company entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice or to vote at the meeting for the proposal; (iii) a
description of all arrangements or understandings between the shareholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
shareholder and any material interest of such shareholder in any proposal to be
submitted to the meeting; (iv) such other information regarding each nominee or
proposals as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission; and (v)
with respect to any nominations, the consent of each nominee to serve as a
director of the Company if elected.
A copy of the full text of the provisions of the Company's Bylaws dealing with
shareholder nominations and proposals is available to shareholders from the
Secretary of the Company upon written request.
Shareholders who intend to have a proposal considered for inclusion in the
Company's proxy materials for presentation at the 2000 Annual Meeting must
submit the proposal to the Company no later than September 2, 1999. Shareholders
who intend to present a proposal at the 2000 Annual Meeting without inclusion of
such proposal in the Company's proxy materials are required to provide notice of
such proposal to the Company no later than November 11, 1999. The Company
reserves the right to reject, rule out of order, or take appropriate action with
respect to any proposal that does not comply with these and other applicable
requirements.
By Order of the Board of Directors
/s/ Mich Kele Earl
Mich Kele Earl
Secretary
December 31, 1998
Seattle, Washington
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1. ELECTION OF DIRECTORS: Election of the following nominees to serve a three
year term or until their respective successor is elected and qualified.
Nominees: Peter H. van Oppen
Craig E. Tall
FOR all WITHHOLD
nominees listed AUTHORITY
(except as marked to vote for all
to the contrary) nominees listed
[ ] [ ]
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below:
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"PLEASE MARK INSIDE BOXES SO THAT DATA PROCESSING
EQUIPMENT WILL RECORD YOUR VOTE."
In their discretion, the Proxies are authorized to vote upon such other business
as may properly come before the meeting or any adjournment or postponement
thereof. This Proxy, when properly executed, will be voted in the manner
directed herein by the undersigned. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" ITEM 1.
SIGNATURE(S)_____________________________________ DATED___________________1999
NOTE: Please sign exactly as your name appears on your stock certificate. When
shares are held jointly, each person sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. An
authorized person should sign on behalf of corporations, partnerships, and
associations and give his or her title.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY.
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FOLD AND DETACH HERE
<PAGE>
SEATTLE FILMWORKS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR ANNUAL
MEETING OF THE SHAREHOLDERS TO BE HELD FEBRUARY 9, 1999.
The undersigned hereby appoints Gary R. Christophersen and Case H. Kuehn, and
each of them, as Proxies, with full power of substitution, and hereby authorizes
them to represent and vote, as directed below, all the shares of Common Stock of
SEATTLE FILMWORKS, INC. held of record by the undersigned on December 7, 1998,
at the Annual Meeting of Shareholders to be held February 9, 1999, or any
adjournment or postponement thereof.
(CONTINUED, AND TO BE SIGNED ON THE OTHER SIDE)
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FOLD AND DETACH HERE
