EXHIBIT 10.1
PHOTOWORKS, INC.
SUBORDINATED CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
THIS SUBORDINATED CONVERTIBLE DEBENTURE PURCHASE AGREEMENT (the
"Agreement") is made as of the 25th day of April, 2001 (the "Effective Date") by
and among PHOTOWORKS, INC., a Washington corporation (the "Company"), and the
purchasers listed on Schedule 1 attached hereto (collectively, the
"Purchasers").
RECITALS
A. On the terms and subject to the conditions set forth herein, the
Purchasers are each willing to purchase from the Company, and the Company is
willing to sell and issue to each Purchaser a convertible debenture in the
principal amount set forth opposite each Purchaser's name on Schedule 1 attached
hereto and incorporated herein.
B. Capitalized terms not otherwise defined herein shall have the
meaning set forth in the form of Debenture (as defined below) attached as
Exhibit A.
NOW, THEREFORE, the parties hereby agree as follows:
1. Amount and Terms of the Debenture
1.1 The Debenture. Subject to the terms of this Agreement, each Purchaser
hereby agrees to purchase from the Company a subordinated convertible debenture
issued to such Purchaser or the nominee set forth next to such Purchaser's name
on Schedule 1 in the form attached hereto as Exhibit A (the "Debenture") in the
principal amount set forth on Schedule 1 opposite such Purchaser's name (the
"Debenture Amount") against the issuance and delivery by the Company of such
Debenture. As used herein, the term "Debentures" shall mean all debentures
originally delivered to the Purchasers pursuant to this Agreement, all
debentures issued in payment of any interest on such debentures, and all
debentures delivered in substitution or exchange for any such debentures and,
where applicable, shall include the singular number as well as the plural.
1.2 Restrictions. Without the approval of the holders of a two-thirds
majority in interest of Debentures and Series B Preferred Stock, voting as a
class on an "as converted" basis, the Company shall not purchase, redeem or
retire any shares of Company capital stock other than repurchases of capital
stock granted pursuant to the Company's stock option plan to employees,
directors or consultants, upon termination of employment or consultancy pursuant
to agreements currently in place and listed in the Schedule of Exceptions nor
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shall the Company issue any capital stock or other equity securities of any of
its subsidiaries.
1.3 Additional Debt. After the Closing, the Company may issue up to but not
more than an additional $7.5 million of subordinated convertible debentures or
capital stock of the Company (but not additional Debentures or Series B
Preferred Stock) without the approval of the holders of Debentures or Series B
Preferred Stock, provided, that any such additional subordinated convertible
debentures issued by the Company shall be pari passu with or subordinate to the
Debentures in all respects and any additional capital stock of the Company
issued by the Company shall not have a liquidation preference superior to and
shall otherwise be in all respects pari passu or subordinate to the Series B
Preferred Stock.
2. Definitions
For purposes of this Agreement the following terms shall have the
following meanings:
2.1 "Commission" shall mean the Securities and Exchange Commission.
2.2 "Intellectual Property" shall mean patents, patent applications,
trademarks, service marks, mask works, trade names, copyrights, trade secrets,
information, proprietary rights and processes.
2.3 "Incentive Plans" shall mean collectively the Incentive Stock Option
Plan as amended and restated as of April 1, 1996, the 1987 Stock Option Plan, as
amended and restated as of April 1, 1996, the 1993 Employee Stock Purchase Plan,
as amended and restated as of May 31, 1995, the 1999 Employee Stock Option Plan
dated October 20, 1999, the 1999 Stock Incentive Compensation Plan, approved by
the Company's board of directors on November 23, 1999, the Company's employment
letter with Howard Lee dated October 26, 2000 and the Company's employment
letter with Ben Calica dated October 31, 2000.
2.4 "Material Adverse Event" shall mean any change, event or effect that is
materially adverse to the general affairs, business, operations, assets,
condition (financial or otherwise) or results of operations of the Company and
its Subsidiaries taken as a whole; provided, however, that the following shall
not be taken into account in determining a "Material Adverse Event": (a) any
adverse change, event or effect that is directly attributable to conditions
affecting the United States economy generally unless such conditions adversely
affect such party in a materially disproportionate manner, and (b) any adverse
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change, event or effect that is directly attributable to conditions affecting
the Company's industry generally, unless such conditions adversely affect such
party in a materially disproportionate manner.
2.5 "Material Contracts" shall have the meaning ascribed to such term in
Section 5.12.
2.6 "Rights Agreement" shall mean the Investor Rights Agreement in the form
attached as Exhibit 2.6 hereto.
2.7 "Schedule of Exceptions" shall mean the schedule of exceptions to the
representations and warranties of the Company in Section 5. The Schedule of
Exceptions is attached as Exhibit 2.7 hereto.
2.8 "Securities Act" shall mean the Securities Act of 1933, as amended and
the rules and regulations of the Commission promulgated thereunder.
2.9 "SEC Reports" shall have the meaning ascribed to such term in Section
5.21.
2.10 "Subsidiary" shall mean any corporation, partnership or other entity
more than 50% of whose equity interests (measured by virtue of voting rights) in
the aggregate is owned by the Company or which is otherwise controlled by or
under common control with the Company.
2.11 "Transactional Agreements" shall mean this Agreement, the Rights
Agreement, and the Debentures.
3. The Closing
3.1 Closing Date. The closing of the purchase and sale of the Agreement
(the "Closing") shall be held on the Effective Date, or at such other time as
the Company and the Purchasers shall agree (the "Closing Date"). The Closing
shall take place at the principal executive offices of the Company located at
1260 16th Avenue West, Seattle, WA 98119.
3.2 Delivery. At the Closing (i) each Purchaser will deliver to the Company
a check or wire transfer funds in the amount of the principal amount indicated
next to such Purchaser's name on Schedule 1; and (ii) the Company shall issue
and deliver to such Purchaser a Debenture in favor of the nominee of such
Purchaser set forth on Schedule 1 payable in the principal amount paid by such
Purchaser.
3.3 Use of Proceeds. The Company shall use the proceeds from the sale of
Debentures for general corporate purposes.
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4. Purchasers Closing Conditions
Each Purchaser's obligations to purchase the Debenture at the Closing
are subject to the fulfillment as of such Closing of the following conditions,
any of which the Purchasers may waive in accordance with the terms hereof:
4.1 Representations and Warranties True. The Company's representations and
warranties set forth herein in Section 5 below shall be true and correct when
made and shall be true and correct in all material respects as of such Closing
as if made on and as of such date; and
4.2 Compliance with Covenants. The Company shall have performed and
complied with all agreements and conditions contained in this Agreement required
to be performed or complied with by it prior to or at the Closing and after
giving effect to the issue and sale of the Debentures, no Event of Default as
defined in the Debentures shall have occurred and be continuing.
4.3 Qualifications. All authorizations, approvals or permits, if any, of
any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Debenture, pursuant to this Agreement shall be duly obtained and effective as of
such Closing.
4.4 Officers Certificate. At the Closing, the President and Chief Executive
Officer of the Company shall deliver to the Purchasers a certificate in form and
substance satisfactory to Purchasers certifying as to:
(a) resolutions of the Company's Board of Directors authorizing and
approving all matters in connection with this Agreement and the transactions
contemplated hereby;
(b) the Company's by-laws in effect as of the Closing; and
(c) the Company's Articles of Incorporation, as amended in full force
and effect as of the Closing.
(d) the satisfaction of the conditions set forth in Sections 4.1, 4.2
and 4.3 above.
4.5 Opinion of the Company's Counsel. The Purchasers shall have received
from Heller Ehrman White & McAuliffe LLP, legal counsel for the Company, an
opinion dated the Closing Date, in the form of Exhibit 4.5.
4.6 Certificate of Existence. The Company shall deliver to the Purchasers
at the Closing a long-form Certificate of Existence issued by the Secretary of
State, as of a date in April, 2001 prior to the Closing, along with copies of
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the Articles of Incorporation, including all amendments thereto and all other
documents filed with the Secretary of State, each certified by the Secretary of
State.
4.7 Escrow. Prior to the Closing, the Company shall deliver executed
Debentures to the Purchasers counsel to be held in escrow pending the Closing.
4.8 Attorneys Fees. At the Closing, the Company shall pay by wire transfer
the fees and disbursements of counsel to Purchaser up to, but not in excess of,
$20,000.
5. Representations and Warranties of the Company to purchaserS.
Except as set forth in the Schedule of Exceptions, the Company hereby
represents and warrants to the Purchasers that:
5.1 Corporate Organization and Authority. The Company:
(a) is a corporation duly organized and validly existing under the
laws of the State of Washington;
(b) has the corporate power and corporate authority to own and operate
its properties and to carry on its business as now conducted and as currently
proposed to be conducted;
(c) is qualified as a foreign corporation in all jurisdictions in
which such qualification is required, other than those jurisdictions in which
its failure to so qualify would not constitute a Material Adverse Event; and
(d) by-laws and Articles of Incorporation, as amended, both in the
form delivered to the Purchasers, are in full force and effect as of the Closing
Date.
5.2 Capitalization. The authorized capital of the Company consists of:
(a) Preferred Stock. 2,000,000 shares of Preferred Stock, $0.01 par
value, of which 105,000 shares have been designated Series RP Preferred Stock
(none of which are outstanding), 15,000 shares have been designated as Series A
Preferred Stock of which 15,000 are outstanding, and on the Closing Date will
also include 36,830 shares designated Series B Preferred Stock (none of which
will be issued or outstanding prior to the Closing).
(b) Common Stock. 101,250,000 shares of Common Stock, $0.01 par value,
of which 16,525,605 shares are duly and validly issued (including, without
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limitation, issued in compliance with applicable federal and state securities
laws), fully paid, and nonassessable.
(c) Other Securities. As of the Closing Date, the Company will have
reserved for issuance: (a) 36,830 shares of Series B Preferred Stock for
issuance pursuant to the terms of this Agreement; (b) 3,683,000 shares of Common
Stock for issuance upon conversion of the Series B Preferred Stock; (c)
3,157,895 shares of Common Stock for issuance upon conversion of the Series A
Preferred Stock; (d) 105,000 shares of Series RP Preferred Stock, (e) 862,201
shares of Common Stock for issuance upon exercise of the warrants listed in the
Schedule of Exceptions; and (f) 4,041,291 shares of Common Stock for issuance
under the Company's Incentive Plans. Except for (i) the conversion privileges of
the Series A Preferred Stock, (ii) the conversion privileges of the Series B
Preferred Stock to be issued under this Agreement, (iii) the Investor Rights
Agreement dated February 14, 2000 (the "Original Investor Rights Agreement"),
(iv) the options and other rights granted under the Company's Incentive Plans
listed in the Schedule of Exceptions, and (v) the preferred share purchase
rights issued as a dividend on the Company's Common Stock pursuant to the Rights
Agreement between the Company and ChaseMellon Shareholder Services LLC, as
Rights Agent, dated December 16, 1999 attached as Exhibit 5.2, there are no
outstanding rights of first refusal, registration rights, preemptive rights or
other securities, rights, warrants, options, conversion privileges,
subscriptions, or other instruments or agreements, either directly or
indirectly, to purchase or otherwise acquire or issue or convertible into or
exercisable for any equity securities of the Company or with any holders of any
of the Company's securities.
5.3 Subsidiaries. The Company does not presently own, have any investment
in, or control, directly or indirectly, any Subsidiaries or other entities,
other than the following Subsidiaries: Seattle FilmWorks Manufacturing Company,
OptiColor, Inc. and FilmWorks Express Inc. Each of the Subsidiaries:
(a) is duly organized, validly existing and in good standing in the
state of its incorporation;
(b) has the corporate power and corporate authority to own and operate
its properties and to carry on its business as now conducted and as currently
proposed to be conducted; and
(c) is qualified as a foreign corporation in all jurisdictions in
which such qualification is required, other than those jurisdictions in which
its failure to qualify would not constitute a Material Adverse Event.
5.4 Corporate Power. The Company will have on the Closing Date all
requisite legal and corporate power and authority to execute and deliver the
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Transactional Agreements, to issue the Debentures, the Series B Preferred Stock
issuable upon conversion of the Debentures and the Common Stock issuable upon
conversion of the Series B Preferred Stock (the "Conversion Shares"), and to
carry out and perform its obligations under the terms of the Transactional
Agreements.
5.5 Financial Statements. The audited financial statements of the Company
as of and for the period ended September 30, 2000 and the unaudited balance
sheet of the Company as of December 30, 2000 and the unaudited statement of
operations for the quarterly period then ended (the "Financial Statements") are
complete and correct in all material respects, have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods indicated and fairly present the Company's financial
position as of those dates and the results of operations and changes in its
financial position for such periods then ended; provided however, that the
unaudited financial statements are subject to normal recurring year-end
adjustments (which are not expected to be material), and do not contain all
footnotes required under generally accepted accounting principles. Except as set
forth in the unaudited balance sheet of the Company as of December 30, 2000, the
Company has no material liabilities except for current liabilities incurred in
the ordinary course of business subsequent to December 30, 2000 which are not,
either individually or in the aggregate, materially adverse to the Company. The
Company has no material contingent obligations which are not disclosed in the
SEC Reports.
5.6 Authorization. All corporate action on the part of the Company, its
officers and directors and shareholders necessary for the authorization,
execution, delivery, and performance of all obligations under the Transactional
Agreements has been taken and no other action is required. The Transactional
Agreements constitute legally binding and valid obligations of the Company
enforceable in accordance with their respective terms, except to the extent that
such enforcement may be subject to applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium, fraudulent conveyance or other laws
relating to or affecting the rights of creditors generally, and such enforcement
may be limited by equitable principles of general applicability.
5.7 Valid Issuance. Each Debenture, when issued, sold, and delivered in
accordance with the terms and for the consideration expressed in this Agreement,
will be duly and validly issued (including, without limitation, issued in
compliance with applicable federal and state securities laws and without
violation of applicable usury laws) fully-paid and non-assessable. The Series B
Preferred Stock and the Conversion Shares have been duly and validly reserved
and, assuming the Series B Preferred Stock and Conversion Shares are issued in
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accordance with the Debentures and the Articles of Amendment, respectively, will
be duly and validly issued (including, without limitation, issued in compliance
with all applicable federal and state securities laws) fully-paid and
non-assessable and will be free of any liens or encumbrances other than any
liens or encumbrances created by or imposed thereon by the holders; provided,
however, that the Series B Preferred Stock and Conversion Shares may be subject
to restrictions on transfer under state and/or federal securities laws. The
Series B Preferred Stock and the Conversion Shares are not subject to any
preemptive rights or rights of first refusal.
5.8 Changes in Condition. Except as specifically set forth in this
Agreement, in the SEC Reports or the Schedule of Exceptions, since December 30,
2000, (a) the Company has not entered into any transaction which was not in the
ordinary course of business, (b) there has been no Material Adverse Event, (c)
the Company has not incurred any material tax liability, (d) there has been no
resignation or termination of employment of any executive officer or key
employee of the Company and the Company does not know of any impending
resignation or termination of employment of any such officer or key employee,
(e) there has been no labor dispute involving the Company or any of its
respective employees and, to the Company's knowledge, none is pending or
threatened, (f) there has been no waiver by the Company of a valuable right or
of a debt owing to the Company, (g) there has not been any satisfaction or
discharge of any material lien, claim or encumbrance or any payment of any
material obligation by the Company except in the ordinary course of business,
(h) there has been no direct or indirect loans made by the Company to any
shareholder, employee, officer or director of the Company, other than advances
made in the ordinary course of business, (i) there has been no material change
in any compensation arrangement or agreement with any executive officer,
director, key employee or shareholder, (j) the Company has not declared or paid
any dividend or other distribution of assets of the Company, (k) there has not
been any sale, assignment or transfer of any Intellectual Property, (l) the
Company has not incurred, assumed or guaranteed any debt, obligation or
liability except for immaterial amounts and for current liabilities incurred in
the ordinary course of business which are not, in the aggregate material, and
(m) there has not been any change in a Material Contract to which the Company is
a party or by which it is bound which would result in a Material Adverse Event
and to the knowledge of the Company no other fact or event is likely to occur,
with or without the passage of time, which could reasonably be expected to
result in a Material Adverse Event.
5.9 Litigation. Except as set forth in the Schedule of Exceptions, there is
no action, proceeding, or, to the Company's knowledge, investigation pending or
threatened, or any basis therefor known to the Company to which the Company or
any Subsidiary is a party or by which its or their assets are bound. There is no
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judgment, decree, or order of any court in effect against the Company and the
Company is not in default with respect to any order of any governmental
authority to which the Company is a party or by which it is bound. There is no
action, suit, proceeding, or investigation by the Company currently pending or
which the Company presently intends to initiate.
5.10 Patents and Other Proprietary Rights.
(a) To the Company's knowledge, the Company has sufficient title and
ownership of or sufficient right to use all Intellectual Property necessary for
its business as now conducted, and believes it can obtain, on commercially
reasonable terms, any additional rights necessary for its business as
contemplated at the Closing.
(b) No claims have been asserted by any person with respect to the
validity of the Company's ownership or right to use the Intellectual Property.
(c) The Company does not have any knowledge of, and the Company has
not given or received any notice of, any pending conflicts with or infringement
of the rights of others with respect to any Intellectual Property or with
respect to any license of Intellectual Property which are material to the
business of the Company.
(d) No action, suit, arbitration, or legal, administrative or other
proceeding, or investigation is pending, or, to the best knowledge of the
Company, threatened, which involves any Intellectual Property and the Company is
not subject to any judgment, order, writ, injunction or decree of any court or
any Federal, state, local, foreign or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, or any
arbitrator, and has not entered into or is not a party to any contract which
restricts or impairs the use of any such Intellectual Property in a manner which
would result in Material Adverse Event.
(e) The Company has not entered into any consent, indemnification,
forbearance to sue or settlement agreement with respect to Intellectual Property
other than in the ordinary course of business or which does not restrict its
business as presently proposed to be conducted.
(f) The Company is not aware that any of its employees is obligated
under any contract (including licenses, covenants or commitments of any nature)
or other agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would conflict with the Company's business as
proposed to be conducted.
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(g) The Company has not received any communications alleging that the
Company or its employees has violated or infringed any of the patents,
trademarks, service marks, trade names, copyrights, or trade secrets, or any
proprietary rights of any other person or entity.
(h) The Company has taken reasonable measures to protect the value
(and, to the extent applicable, the confidentiality and security) of all
Intellectual Property used in its products, services and business. The Company
has taken reasonable steps to ensure that employees and consultants who, either
alone or in concert with others, developed, invented, discovered, derived,
programmed or designed Intellectual Property, or who have knowledge of or access
to information about Intellectual Property, have entered into an Employee
Confidentiality, Inventions, and Non-Competition Agreement, substantially in the
form of Exhibit 5.10 to this Agreement.
5.11 Taxes.
(a) Except as disclosed in the Schedule of Exceptions, (i) All
federal, state, local, and foreign tax returns required to be filed by the
Company have been timely filed and are true in all material respects and (ii)
(A) all taxes, assessments, fees, and other governmental charges upon the
Company, or upon any of its properties, income, or franchises, shown in such
returns to be due and payable, (B) any assessments, penalties or interest
imposed, and (C) to the Company's knowledge, all other taxes due and payable by
the Company, have been paid or will be paid prior to the time they become
delinquent.
(b) Except as disclosed in the Schedule of Exceptions, the Company has
not been advised (i) that any of its tax returns have been or are being audited
as of the date hereof or (ii) of any deficiency in assessment related to its
federal, state or other taxes. The Company has not agreed to any extension of or
waived any statute of limitations relating to any taxes or such other payments.
The Company has no knowledge of any liability for any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.
5.12 Company's Contracts.
(a) Legality of Contracts. Except as disclosed in the SEC Reports and
as disclosed in the Schedule of Exceptions, the Company is not a party to or
bound by any contract, commitment or understanding which (i) is a material
contract (as defined in Item 601(b)(10) of Regulation S-K of the Commission)
which is to be performed after the date of this Agreement, (ii) involves a
license or grant of rights to or from the Company involving Intellectual
Property applicable to the business of the Company, (iii) contains provisions
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restricting the development, manufacture or distribution of the Company's
products or services, or (iv) provides indemnification by the Company with
respect to infringements of proprietary rights to which the Company or any
Subsidiary is a party (all of such types of contracts, communications and
understandings, collectively "Material Contracts"). All such contracts and
agreements are legally binding, valid, and in full force and effect in all
material respects.
(b) Dividends; Indebtedness. Except as disclosed in the SEC Reports
and as disclosed in the Schedule of Exceptions, the Company has not (i)
incurred, in the aggregate, any indebtedness for money borrowed in excess of
$150,000, (ii) made any loans or advances to any person, other than ordinary
advances for travel expenses, (iii) sold, exchanged or otherwise disposed of any
of its assets or rights or entered into any agreement or arrangement with
respect thereto, other than the sale of its inventory in the ordinary course of
business, or (iv) declared or paid any dividends, or authorized any distribution
upon or with respect to any class or series of its capital stock.
5.13 Compliance With Other Agreements. The Company is not in violation of
(i) any term or provision of its articles of incorporation or bylaws, each as in
effect as of the Closing, (ii) any material term or provision of any Material
Contract (iii) to the Company's knowledge, any decree, order, statute, rule or
regulation applicable to the Company, in each case, or in the aggregate, the
violation of which would constitute a Material Adverse Event. The execution,
delivery and performance of the Transactional Agreements by the Company will not
result in any violation of, be in conflict with, or constitute a default under,
with or without the passage of time or the giving of notice:
(a) any provision of the Company's articles of incorporation or
bylaws;
(b) any provision of any judgment, decree or order to which the
Company is a party or by which it is bound;
(c) any contract, agreement or commitment to which the Company or any
Subsidiary is a party or by which any of their respective assets are bound; or
(d) to the Company's knowledge, any statute, rule or governmental
regulation applicable to the Company.
5.14 Employees. The Company believes its relations with its employees are
satisfactory. The Company's employees are not represented by any labor unions
nor, to the Company's knowledge, is any union organization campaign in progress.
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The Company is not aware that any of its executive officers or key employees
intends to terminate employment nor does the Company have any present intention
to terminate the employment of any thereof.
5.15 Transactions with Affiliates. Except as disclosed in the SEC Reports,
no employee, officer, or director of the Company or member of his or her
immediate family is indebted to the Company, nor is the Company indebted (or
committed to make loans or extend or guarantee credit) to any of them other than
(i) for payment of salary and services rendered, (ii) reimbursement for
reasonable expenses incurred on behalf of the Company, and (iii) for other
standard employee benefits made generally available to all employees (including
stock option agreements outstanding under any Incentive Plans). To the Company's
knowledge, none of such persons has any direct or indirect ownership interest in
any firm or corporation with which the Company is affiliated or with which the
Company has a business relationship, or any firm or corporation that competes
with the Company, except that employees, officers, or directors of the Company
and members of their immediate families may own stock in publicly traded
companies that may compete with the Company. No member of the immediate family
of any officer or director of the Company is directly or indirectly interested
in any Material Contract with the Company. Except for agreements between the
Company and its employees pertaining to the terms of their employment or the
purchase of shares of Common Stock under the Incentive Plans, there are no
agreements, understandings or proposed transactions between the Company and any
of its officers, directors or affiliates.
5.16 Governmental and Third Party Consents. Subject to the accuracy of each
Purchaser's representations in Section 6 of this Agreement, no consent,
approval, order, or authorization of, or registration, qualification,
designation, declaration, or filing with, any federal, state, local, or
provincial governmental authority on the part of the Company is required in
connection with the entering into of any of the Transactional Agreements or the
issuance and sale of the Debentures, the Series B Preferred Stock or the
Conversion Shares or the consummation of the transactions contemplated by this
Agreement and the other Transactional Agreements, except for filings of Form D
required by federal and state securities laws.
5.17 Compliance with Laws; Permits. To its knowledge, the Company is not in
violation of any applicable statute, rule, regulation or restriction of any
government, administrative agency or instrumentality in respect of the conduct
of its business or the ownership of its properties. The Company has all material
franchises, permits, licenses, and any similar governmental authority necessary
for the conduct of its business as now being conducted by it and as currently
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proposed to be conducted. The Company is not in default under any of such
franchises, permits, license, or other similar authority.
5.18 Registration Rights. Except as disclosed in the Schedule of Exceptions
and except as required pursuant to the Original Investor Rights Agreement and
the Rights Agreement, the Company is not presently under any obligation, and has
not granted any rights to register any of the Company's presently outstanding
securities or any securities that may hereinafter be issued under the Securities
Act.
5.19 Offering. Assuming the accuracy of the representations and warranties
of each Purchaser contained in Section 6 hereof, the offer, sale and issuance of
the Debenture, the Series B Preferred Stock and the Conversion Shares will be
exempt from the registration requirements of the Securities Act and will have
been registered or qualified or are exempt from registration and qualification
under the registration, permit or qualification requirements of all applicable
state securities laws. Neither the Company nor any agent on its behalf will take
any action that would cause the loss of any such exemption.
5.20 Brokers and Finders. The Company has not retained any investment
banker, broker or finder in connection with the transactions contemplated by
this Agreement.
5.21 SEC Reports. The Company has filed with the Commission all required
forms, reports, registration statements and documents required to be filed by it
with the Commission and made all disclosures required by the Securities Act or
the Exchange Act (collectively, the "SEC Reports"), all of which complied as to
form when filed in all material respects with the applicable provisions of the
Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as the case may be. As of their respective dates the SEC
Reports (including all exhibits and schedules thereto and documents incorporated
by reference therein) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
5.22 Environmental. Except as would not, singly or in the aggregate,
reasonably be expected to result in a Material Adverse Event and to the best of
the Company's knowledge, (A) the Company is and in the past at all times has
been in compliance with all applicable Environmental Laws (as defined below),
(B) the Company has all permits, authorizations and approvals required under any
applicable Environmental Laws and is in compliance with the requirements of such
permits authorizations and approvals, and (C) there are no pending or, to the
best knowledge of the Company, threatened Environmental Claims against the
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Company. For purposes of this Section 5.22 references to the "Company" include
its Subsidiaries and all of its and their respective predecessors.
For purposes of this Agreement, the following terms shall have the following
meanings: "Environmental Law" means any United States (or other applicable
jurisdiction's) Federal, state, local or municipal statute, law, rule,
regulation, ordinance, code, policy or rule of common law and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgement, relating to the environment, health, safety
or any chemical, material or substance, use, disposition or exposure to which is
prohibited, limited or regulated by any governmental authority, including,
without limitation, as to labeling, storage, use, generation, disposition or
disposal. "Environmental Claims" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations or proceedings relating in any way to
any Environmental Law.
5.23 Properties. The Company does not own any real property. The Company
has good title to all its personal properties and other assets reflected on the
balance sheet included in the Financial Statements which are, in the aggregate,
in good repair (reasonable wear and tear excepted), suitable for their
respective uses, and free from any liens, charges or encumbrances, other than
those imposed in connection with the Company's credit facilities or capital
leases disclosed in the SEC Reports or the Schedule of Exceptions. Any real
properties held under lease by the Company are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the conduct of the business of the Company and are free
from any liens, charges or encumbrances, other than those imposed in connection
with the Company's credit facility or capital leases disclosed in the SEC
Reports or the Schedule of Exceptions.
5.24 ERISA Compliance. The Company and each Subsidiary have met the minimum
funding requirements of ERISA with respect to any employee benefit plans subject
to ERISA. No event has occurred resulting from the Company's or any Subsidiary's
failure to comply with ERISA that is reasonably likely to result in the Company
incurring any liability that could result in a Material Adverse Event.
6. Representations and Warranties of the Purchasers
Each Purchaser individually as to itself, represents and warrants to
the Company as follows:
6.1 Purchase for Own Account. The Purchaser represents that it is acquiring
the Debenture, the Series B Preferred Stock and the Conversion Shares
(collectively, the "Securities") solely for its own account and beneficial
interest for investment and not for sale or with a view to distribution of the
14
Securities or any part thereof, has no present intention of selling (in
connection with a distribution or otherwise), granting any participation in, or
otherwise distributing the same, and does not presently have reason to
anticipate a change in such intention.
6.2 Information and Sophistication. The Purchaser acknowledges that it has
received all the information requested from the Company and considers necessary
or appropriate for deciding whether to acquire the Securities. The Purchaser
represents that it has had an opportunity to ask questions and receive answers
from the Company regarding the terms and conditions of the offering of the
Securities and to obtain any additional information necessary to verify the
accuracy of the information given the Purchaser. The Purchaser further
represents that it or its investment adviser has such knowledge and experience
in financial and business matters that it is capable of evaluating the merits
and risk of this investment.
6.3 Ability to Bear Economic Risk. The Purchaser acknowledges that
investment in the Securities involves a high degree of risk, and represents that
it is able, without materially impairing its financial condition, to hold the
Securities for an indefinite period of time and to suffer a complete loss of its
investment.
6.4 Further Limitations on Disposition. Without in any way limiting the
representations set forth above, the Purchaser further agrees not to make any
disposition of all or any portion of the Securities unless and until:
(a) There is then in effect a Registration Statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such Registration Statement; or
(b) The Purchaser shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and if reasonably
requested by the Company, the Purchaser shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration under the Securities Act or any
applicable state securities laws.
(c) Notwithstanding the provisions of paragraphs (a) and (b) above, no
such registration statement or opinion of counsel shall be necessary for a
transfer by the Purchaser to (i) a shareholder or partner (or retired partner)
of the Purchaser, or transfers by gift, will or intestate succession to any
spouse or lineal descendants or ancestors, if all transferees agree in writing
to be subject to the terms hereof to the same extent as if they were a Purchaser
hereunder or (ii) any member or investment advisory client of Zesiger Capital
Group LLC.
15
6.5 Accredited Investor Status. The Purchaser is an "accredited
investor" as such term is defined in Rule 501 under the Securities Act.
7. Miscellaneous
7.1 Binding Agreement. The terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any third party any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
7.2 Governing Law. This Agreement shall be governed by and construed under
the laws of the State of Washington as applied to agreements among Washington
residents, made and to be performed entirely within the State of Washington.
7.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Delivery by facsimile to
the Company by the Purchasers and to the Purchasers by the Company of an
executed signature page to this Agreement by each Purchaser who shall previously
have been furnished the final form of this Agreement (other than Schedule 1
hereto) and by the Company shall constitute the execution and delivery of this
Agreement by each Purchaser and by the Company.
7.4 Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
7.5 Notices. Any notice required or permitted under this Agreement shall be
given in writing and shall be deemed effectively given upon personal delivery or
three days after deposit with the United States Post Office, postage prepaid,
addressed to the Company at 1260 16th Avenue West, Seattle, Washington 98119, or
to each Purchaser at its address shown on Schedule 1, or at such other address
as such party may designate by ten (10) days advance written notice to the other
party.
7.6 Modification; Waiver. No modification or waiver of any provision of
this Agreement or consent to departure therefrom shall be effective unless in
writing and approved by the Company and each Purchaser to be bound thereby.
7.7 Expenses. The Company shall pay all costs and expenses incurred by the
Company and the Purchasers with respect to the negotiation, execution, delivery
and performance of this Agreement and the Debenture; provided, however, that the
16
Company shall only reimburse the reasonable fees and expenses of the Purchasers
and Purchasers counsel up to Twenty Thousand Dollars ($20,000), including any
representation related to the conversion of the Debenture). If action is
instituted to collect the Debenture or to enforce obligations hereunder by the
Purchasers, the Company promises to pay all costs and expenses, including,
without limitation, reasonable attorneys' fees and costs, incurred in connection
with such action. The Company hereby waives notice of default, presentment or
demand for payment, protest or notice of nonpayment or dishonor and all other
notices or demands relative to this instrument.
7.8 Validity. If any provision of this Agreement is judicially determined
to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
7.9 Survival of Warranties. The representations, warranties and covenants
of the Company and the Purchasers contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing, such survival to continue for two (2) years commencing as of the
Closing. Such representations, warranties and covenants shall in no way be
affected by any investigation of the subject matter thereof made by or on behalf
of the Purchasers or the Company.
7.10 Entire Agreement. This Agreement, the Exhibit and Schedule hereto
including the Debenture, and the Investor Rights Agreement constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and no party shall be liable or bound to any other in any manner
by any representations, warranties, covenants and agreements except as
specifically set forth herein.
17
IN WITNESS WHEREOF, the parties have executed this SUBORDINATED
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT as of the date first written above.
COMPANY:
PHOTOWORKS, INC.
By: /s/ Howard Lee
---------------------------
Howard Lee, Chief Executive
Officer and President
THE PURCHASERS, LISTED ON
SCHEDULE 1:
BY: ZESIGER CAPITAL GROUP LLC,
AGENT AND ATTORNEY IN FACT
By: /s/ Albert Zesiger
---------------------------
Name: Albert Zesiger
Title:
----------------------
18
SCHEDULES AND EXHIBITS
Schedule 1 Purchasers
Exhibit A: Form of Convertible Subordinated Debenture
Exhibit 2.6: Form of Investor Rights Agreement
Exhibit 2.7: Schedule of Exceptions
Exhibit 4.5: Opinion of Company Counsel
Exhibit 5.2: Rights Agreement between the Company and ChaseMellon
Shareholder Services LLC, as Rights Agent, dated December 16, 1999
Exhibit 5.10: Form of Employee Confidentiality, Inventions, and
Non-Competition Agreement
Schedule 1
SCHEDULE OF PURCHASERS
Name of Purchaser* Nominee for Purchaser Principal Amount of Debenture
------------------ --------------------- -----------------------------
Purchased
1. NFIB Serp Assets Huland & Co $ 39,750
2. Public Employee Retirement Mellon Bank NA custodian $ 639,750
System of Idaho for PERSI-Zesiger Capital
3. City of Stamford Firemen's Pension Fund City of Stamford Firemen's Pension Fund $ 189,750
4. The Jenifer Altman Foundation Batrus & Co. $ 99,750
5. Asphalt Green, Inc. Cudd & Co. $ 30,000
6. Dean Witter Foundation Tice & Co. $ 129,750
7. Lazar Foundation Hare & Co. $ 45,000
8. HBL Charitable Unitrust HBL Charitable Unitrust $ 45,000
9. Helen Hunt Cudd & Co. $ 65,250
10. Peter Looram Peter Looram $ 35,250
11. Mary C. Anderson Mary C. Anderson $ 65,250
12. Murray Capital, LLC Murray Capital, LLC $ 50,250
13. Meehan Foundation Meehan Foundation $ 35,250
14. Domenic J. Mizio Domenic J. Mizio $ 90,000
15. Morgan Trust Co. of the Morgan Trust Co. of the $ 165,000
Bahamas Ltd. as Trustee U/A/D Bahamas Ltd. as Trustee U/A/D
11/30/93 11/30/93
16. Susan Uris Halpern Hare & Co. $ 99,750
17. Theeuwes Family Trust, Felix Theeuwes Family Trust, Felix $ 50,250
Theeuwes Trustee Theeuwes Trustee
18. Wells Family LLC Atwell & Co. $ 300,000
19. Albert L. Zesiger Albert L. Zesiger $ 150,000
20. Barrie Ramsay Zesiger Barrie Ramsay Zesiger $ 99,750
21. Wolfson Investment Partners LP Wolfson Investment Partners LP $ 75,000
Total $2,499,750
----- ----------
*Address for each Purchaser:
c/o Zesiger Capital Group LLC
320 Park Avenue, 30th Floor
New York, NY 10022
Attn: Albert L. Zesiger
Exhibit A:
Form of Convertible Subordinated Debenture
[TO BE ATTACHED - See Current Report Exhibit 4.1]
Exhibit 2.6
Form of Investor Rights Agreement
[TO BE ATTACHED - See Current Report Exhibit 10.2]
Exhibit 2.7
SCHEDULE OF EXCEPTIONS/DISCLOSURES
The following is a complete list of exceptions, amended as of the Closing (as
defined in the Agreement) of the Subordinated Convertible Debenture Purchase
Agreement by and among the Company and the Purchasers listed therein (the
"Agreement"), known to the Company, to the representations and warranties
contained in the Agreement. Section numbers correspond to the section numbers
used in the Agreement. Any matter set forth herein as an exception to a section
of the Agreement shall be deemed to be an exception to all other applicable
sections to the Agreement if reasonably apparent it would be an exception to
such other sections.
Section 5.2(c)(e):
- -----------------
Imperial Bank: 72,727 common share warrants issued December 20, 2000
$1.00 per share
Series A Preferred Shareholders: 789,474 common shares warrants
issued February 14, 2000, $6.00 per share
Section 5.2(c)(iv):
- ------------------
See Exhibit A: Grant Summary Report
Section 5.2:
- -----------
See ATTACHMENT 6
Section 5.5:
- -----------
Preliminary quarterly financial statements for the quarter ended March 31, 2001
will be reviewed with Zesiger Capital Group and Howard Lee.
Section 5.8
Historically the Company has annual merit increases which are effective
at the beginning of each fiscal year. No annual merit increases were given at
the beginning of fiscal year 2001. The Company reviews and adjusts wages and
salaries and offers incentive plans as part of normal business procedures. The
Compensation Committee of the Board of Directors has overall responsibility for
compensation particularly as it relates to the CEO.
As part of its workforce reductions the Company eliminated two Vice
President positions as a reduction in force. January 26, 2001 - Stephen Brown,
VP-Product Development/Business Development. March 16, 2001 - William Ledbetter,
VP-Information Technology Services.
On February 2, 2001, the Company entered into an agreement to purchase
selected assets related to the Web site of ememories.com for a cash purchase
price of $155,000 plus shipping and related transition expenses. The transaction
is expected to close in April 2001.
On March 14, 2001, the Company purchased assets of Storycatcher.com. As
part of the transaction, the Company paid $16,000 in cash at closing and signed
a one year note payable (due March 14, 2002) for $40,000 (includes principal and
interest). In addition, the Company issued 86,500 shares of PhotoWorks common
stock which is held back for one year pending no material liabilities arise from
purchase of the Storycatcher.com assets.
Section 5.9:
- -----------
The following actions are pending against the Company:
In the Matter of CERTAIN LENS-FITTED FILM PACKAGES,
United States International Trade Commission - Investigation No. 337-TA-406
This investigation was commenced by the U.S. International Trade
Commission (ITC) in March, 1998, based on a Complaint filed with the ITC on
February 13, 1998 by Fuji Photo Film Co., Ltd. (Fuji) against a number of
importers, including the Company's OptiColor subsidiary. The Complaint alleges
that the respondents were infringing a number of U.S. patents, owned by Fuji, on
single use cameras, through the importation and resale in the United States of
single use cameras, primarily previously used cameras which have been
reconditioned for use with new film. The Complaint sought orders excluding the
alleged infringing cameras from importation into the United States and
prohibiting further sales of such products which have been imported. An
evidentiary hearing before an ITC Administrative Law Judge ("ALJ") was held in
November 1998. In February, 1999, the ALJ issued an initial decision in favor of
Fuji, which the ITC Commissioners subsequently decided to let stand. The ITC
Commissioners issued a final order in June, 1999, prohibiting the Company and
its subsidiaries, and the other respondents, from importing and selling imported
infringing single-use cameras, including recycled single-use cameras.
2
The Company, and two of the other respondents who sell large volumes of
recycled single-use cameras, have appealed the ITC Commissioner's order to the
Federal Circuit Court of Appeals. A decision is expected shortly. In the appeal,
as in the ITC proceedings, the issues have been and are vigorously contested,
and at this time their resolution cannot be predicted with any degree of
certainty. The Company's attorneys are therefore unable to express an opinion as
to whether an unfavorable outcome for OptiColor is probable or remote.
There is risk that Fuji might bring a civil action against OptiColor
and the Company for damages for patent infringement by reason of sales of
cameras which have been found in the ITC proceeding to infringe Fuji patents. In
June, 1999, Fuji brought civil action for patent infringement against three
other companies and stated in a press release that it is reviewing its options
with respect to other companies involved in the sale of products that infringe
Fuji patents. If such an action were brought against the Company, the ITC
decision would not be binding in the civil proceeding and would not prevent
OptiColor and the Company from raising and litigating all available defenses. At
this time we are unable to express an opinion as to the likelihood that such an
action would be brought by Fuji. For reasons expressed above, the Company's
attorneys cannot express an opinion as to whether, if such an action were
commenced, an unfavorable outcome for OptiColor or the Company would be probable
or remote. Further, the Company's attorneys lack sufficient information to be
able to express any estimate of what the maximum liability in such an action
would be in the event of an unfavorable outcome.
OptiColor, Inc., a subsidiary of PhotoWorks, Inc. has designed and manufactured
a preloaded camera (single-use) that we believe does not infringe any of the
Fuji patents. We have been importing the preloaded cameras and just recently had
one shipment held in customs. The Company and its counsel (Derek Fryberg -
Heller Ehrman) are researching the issue. We do not believe the cameras infringe
and will be released from customs.
Drinkard, et al vs. PhotoWorks, Inc.
A complaint has been filed against the Company, since twice
amended, by six individual plaintiffs who are suing on their own behalf
and purportedly on behalf of a class of all private citizens and
non-governmental entities who have received from the Company, and had
the Company process, "C-41" 35mm color film from the Company or who
have received replacement rolls of film from the Company after film
processing. This complaint alleges that the Company has engaged in
unfair and deceptive practices by allegedly misrepresenting that film
received from the Company must be processed only by the Company and
that replacement film is "free". This complaint requests injunctive and
declaratory relief and restitution and damages in unspecified amounts,
3
and also requests trebling of damages and recovery of litigation
expenses pursuant to the Washington Consumer Protection Act. The court
has not yet determined whether the individual plaintiffs will be
permitted to prosecute the suit as a class action. The Company filed a
motion for summary judgment dismissing the claims of four of the
plaintiffs (two of the plaintiffs were added to the action by an
amendment to the Complaint a few days before filing of the summary
judgment motion). This motion was denied.
Management and Plaintiff's Counsel are diligently working
towards an out of court settlement regarding future business conduct,
distribution of film and discount coupons to the public, and disclosure
of film processing information. A summary of the terms of settlement
will be published in USA Today, Popular Photography and Photo Trade
News pursuant to standard class action procedures. The Company believes
this settlement will be reached in early April 2001. The agreed to
settlement must then be approved by the court. ( ATTACHMENT 1 --------
Notice to Class and Proposed Class Action Settlement).
Onkor, Ltd.
By letter dated October 1, 1999, Onkor, Ltd. informed the Company that
its product, PhotoWorks Cards appeared to fall within the scope of allowed
claims in two of their U.S. Patents (Pat. No. 5,552,994 and 5,748,484). The
letter requested the Company to respond and indicated that if the Company did
feel that its system fell within the scope of one of Onkor's claims, that the
Company would be requested to enter into a licensing agreement with Onkor. In
response to the Company's request, without admitting that the system fell within
the scope of Onkor's patents, Onkor has forwarded the Company a copy of their
standard Patent License Agreement.
Pictra, Inc.
On August 24, 2000, an attorney for Pictra, Inc. ("Pictra"), sent
notice to the Company that the Company may be infringing on Pictra's rights
granted in 6 U.S. patents owned by Pictra relating to photo albums on the
internet. The Company has requested copies of the patents to review and respond
to Pictra's letter. The Company is currently reviewing Pictra's patents. No
suits have been filed.
Picture Vision
A subsidiary of Kodak, Picture Vision has been granted patents on core
processes of scanning photographic film and presenting an online retail store
based on such images. It is possible that some of the Company's current
processes might infringe such patents. There has been no communication from
Kodak or Picture Vision on this issue.
Seattle FilmWorks, Inc. v. State of Washington Department of Revenue
Thurston County Cause No. 98-2-01473-1
4
In this action, the Company is seeking a refund of taxes (and interest)
assessed by the Department of Revenue for the period of January 1, 1990 through
March 31, 1994 in the amount of approximately $75,000. The taxes assessed were
use taxes alleged by the Department of Revenue to be owed as a result of
advertising materials (including order forms) mailed to out-of-state customers.
The Company is also seeking resolution of the issues involved for future
periods.
By virtue of a pre-trial stipulation between the Department of Revenue
and the Company, it was agreed that the Company was entitled to a refund of
$30,066 in taxes (with interest of $16,987 through October 31, 1999). The
remaining claim of $45,031 in taxes (plus interest) was tried to the Thurston
County Superior Court on October 7, 1999. The trial court issued a partially
adverse ruling denying the Company's claim. The Company has appealed to the
State Court of Appeals, but it is not possible at this point to evaluate the
likelihood of a favorable or unfavorable outcome of such an appeal with any
reasonable degree of accuracy.
The issue underlying the foregoing litigation in an ongoing issue for
the Company for tax reporting periods after March 31, 1994. That is, it is
reasonable that a future routine audit by the Department of Revenue will result
in a further use tax assessment unless the litigation has been resolved in a
manner favorable to the Company prior to such audit and assessment. The Company
has accrued approximately $675,000 and believes it is adequately accrued for
such possible assessments.
Section 5.10
The Company is aware of several web sites using the name "PhotoWorks" including
MyPhotoworks.com and Photoworks-digital.com.
The Company has objected to the use of the name "Pictures on Disk" and PhotoMail
by several entities, including Fuji, on the grounds that it infringes the
Company's common law trademarks in these names. The Company's applications for
trademarks on Pictures On Disk and PhotoMail were rejected by the U.S. Patent
and Trademark Office on the grounds that they were descriptive.
The Company has issued several cease and desist orders for use of the names
PhotoWorks, Pictures on Disk, PhotoMail and Pictures Plus.
An employee who worked for the Company part-time through March 2001, Sohrab
(Tony) Amirghodsi, also works for Adobe Systems on a full-time basis.
Section 5.11
5
A tax audit by the Washington Department of Revenue of the Company's Subsidiary,
OptiColor, Inc., which commenced in December 1999, has been postponed pending
the resolution of a dispute regarding order forms that is on appeal to the
Washington State Court of Appeals. In addition the Department of Revenue is
expanding the audit to include PhotoWorks, Inc. and Seattle FilmWorks
Manufacturing Company.
In December 2000, the City of Seattle completed a routine audit. No assessment
was made. The City of Seattle is requesting to expand the audit for tax years
subsequent to 1996 but at this time the audit has not been scheduled.
The Company recently concluded negotiations with the State of Washington
relating to leasehold excise taxes due for its Warehouse Lease with the federal
government. The assessment was paid in April 2001. The Company had adequately
reserved for this liability on its balance sheet as of September 30, 2000 and
December 30, 2000.
Section 5.12(a)
The Company has entered into the following agreements which are (i)
material contracts, (ii) involve the license or grant of Intellectual Property,
(iii) restrict the development, manufacture or distribution of the Company's
products or services or (iv) provide for indemnification by the Company with
respect to proprietary rights:
1. Partnering Agreement dated May 19, 2000 between the Company and
Yahoo! (as of the date hereof, the Company owes $500,000 of the $1,500,000
contract price); Term-Unless earlier terminated in accordance with the terms,
the agreement shall be for twelve (12) months from launch date of September 21,
2000. The Company is currently renegotiating with Yahoo! regarding the terms of
this agreement. The Company has not made the $250,000 payment due in March 2001;
2. Partnering Agreement between the Company and American Greetings
dated September 11, 2000 and amended April 2001. The Company has satisfied
payment terms to American Greetings based on the contract amendment; and
3. Amended and Restated Partnering Agreement between the Company and
The Message Group to provide free trial processing coupons/order forms, business
reply envelopes and stickers to be applied to the finished product (camera) from
The Message Group. The Company will also pay Message Group various bounties
based on customer response. ATTACHMENT 3.
In addition, the Company is a party to various Partnering Agreements or
arrangements entered into in the ordinary course of business in which the
Company partners with an Internet partner to mutually promote their products and
services. These agreements may involve the grant of certain licenses to
proprietary rights and related indemnification. The Company also licenses
6
off-the-shelf software pursuant to standard license agreements in the ordinary
course of business. None of these agreements would constitute material contracts
(as defined in Item 601(b)(10) of Regulation S-K of the Commission)
Other Indebtedness
(i) Agreement to Restructure Debt dated November 1, 2000, between the
Company and FCB Worldwide, Inc. d/b/a FCB Seattle. (Principal Payments of
$410,482 due on March 2001, June 2001, October 2001, December 2001, and a final
payment in the amount of $295,020 due in March 2002 for a total outstanding
principal amount of $1,936,948. Interest is 12% APR payable monthly.) The March
23, 2001 payment and April 1, 2001 interest payment has not been made pending
negotiations with FCB Worldwide to discount the amount of the principal balance
due.
(ii) IBM lease for computer equipment pursuant to a Master Term Lease
dated December 28, 1997 and Supplements dated December 29, 1999 (both operating
lease and a capital lease) in the amounts set forth on ATTACHMENT 2.
(iii) Xerox lease for color copier 36 month operating lease dated
October 13, 2000, in the amounts set forth on ATTACHMENT 2.
(iv) Supply Agreement dated November 1, 2000, between Eastman Kodak
Company and the Company (for supply of Kodak paper and chemicals);
(v) Agfa Finance Group lease for Advanced Photo System ("APS")
equipment - 60 month operating lease dated March 28, 2001 set forth on
ATTACHMENT 2. PhotoWorks Inc. is the guarantor for this lease. The lease is
under the name of Seattle FilmWorks Manufacturing Company (wholly owned
subsidiary of PhotoWorks).
(vi) leases for main offices, warehouse, customer service area, and
retail locations (see ATTACHMENT 2, ("Lease Payments");
(vii) Employment Contract dated August 16, 2000 between the Company and
Gary Christophersen (term of June 30, 2000 to June 30, 2001, with a base salary
of $250,000 and a bonus of $150,000 (BONUS HAS BEEN PAID PURSUANT TO AGREEMENT);
(viii) Employment Offer dated October 26, 2000 between the Company and
Howard Lee. (Base salary of $250,000 plus a target bonus of 50% of annual salary
based on the performance of the Company as determined by the Board of
Directors). In addition, a bonus of $125,000 upon successful completion of
fourteen months of service with PhotoWorks);
7
(ix) Employment Offer dated October 31, 2000 between the Company and
Ben Calica. (Base salary of $145,000 plus a target bonus of 30% of annual salary
based on the performance of the Company as determined by the Board of
Directors). While this offer does not imply a contract for employment for any
duration, should Mr. Calica be terminated for reasons other than cause, the
Company will continue salary for three months from the date of termination);
(x) Employment Offer dated April 1, 2001 between the Company and David
Barad. (Base salary of $150,000 plus a target bonus of 40% of annual salary
based on the performance of the Company as determined by the Board of
Directors). While this offer does not imply a contract for employment for any
duration, should Mr. Barad be terminated for reasons other than cause, the
Company will continue salary for three months from the date of termination);
(xi) Note payable to Avenue A, Inc. in the principal sum of $209,057,
interest 10% APR. Principal and interest payments due weekly from December 22,
2000 through June 11, 2001, (note: Payments have been made through March 2001).
Current principal balance due is $134,057.
Section 5.12(b):
On December 20, 2000 the Company closed a bridge line of credit with
Imperial Bank for $2.5 million, secured by all assets of the Company and
perfected by UCC filings and related Security Agreements. Any draws on this line
bear interest at the prime rate plus 2%. As of April 4, 2001, the Company has
drawn on this line in the amount of $2,350,000. Any borrowed amounts are due
upon the earlier of April 30, 2001, or upon closing of the next round of equity
financing. In connection with this note, warrants were issued to Imperial Bank
to purchase 72,727 shares of Common Stock with an exercise price of $1.00.
Imperial Bank has provided to the Company a preliminary term sheet
which would allow the company to convert the bridge line of credit to a 364 day
revolving line of credit based on closing $2.5 million in additional financing.
The Company is in negotiations with Rhino Advisors in New York. Rhino
Advisors has agreed to provide the Company with a $20,000,000 equity line of
credit designed to give the Company access to cash through the sale of it common
stock. Attached are the term sheets from Rhino Advisors and Pacific Crest.
ATTACHMENT 4 AND 5.
8
In the 2nd quarter of fiscal 2001, March 31, 2001, the Company
increased its inventory reserve by approximately $360,000 for camera inventory
and other marketing materials purchased for marketing programs that the company
is discontinuing.
The Company also wrote down approximately $230,000 of fixed assets
related to equipment primarily related to scanning equipment that has been
replaced or upgraded and other equipment that has been taken offline due to the
decline in roll volumes.
Section 5.14
Employees The Company has recently reduced its workforce through lay
offs. November 28, 2000 - The Company reduced its workforce by approximately 50
positions, or 7% of its workforce. March 8, 2001 - The Company reduced its
workforce by approximately 113 positions, or 18% of its workforce.
As part of its workforce reductions the Company eliminated two Vice
President positions as a reduction in force. January 26, 2001 - Stephen Brown,
VP-Product Development/Business Development. March 16, 2001 - William Ledbetter,
VP-Information Technology Services.
Section 5.18
Under a Debenture Subscription Agreement dated August 14, 1981, the
Company granted certain registration rights to Sam Rubinstein. These rights were
subsequently amended and clarified by Amendment No. 3 to that agreement in June,
1996. The Debenture Subscription Agreement was further clarified by Amendment
No. 4 to that agreement in February 2000.
9
ATTACHMENT 1
I. Notice of Class Action and Proposed Class Action Settlement
TO: All persons or entities in the United States who processed
film with SEATTLE FILMWORKS or PHOTOWORKS, or received film distributed
by SEATTLE FILMWORKS or PHOTOWORKS, at any time after March 29, 1996
("the Class"):
This is to notify you that a Class Action lawsuit ("Class
Suit") has been brought on your behalf in the Superior Court of King
County, Washington, No. 00-2-09552-0SEA, against PhotoWorks, Inc., of
Seattle Washington, formerly known as Seattle FilmWorks. In the Class
Suit the plaintiffs (who are 6 individuals) claim that Seattle
FilmWorks (now PhotoWorks) has made false or misleading representations
to customers, as well as to other photoprocessers, (1) that Seattle
FilmWorks brand film can be processed only by Seattle FilmWorks or by
only a few other labs, when in fact most of such film is of a C-41 type
that can be processed by most other photofinishers; and (2) that
replacement film distributed by Seattle FilmWorks to photo-processing
customers is "free," when in fact customers are charged for the
replacement film. On behalf of the Class, plaintiffs seek injunctive
and declaratory relief, as well as damages. PhotoWorks disputes and
denies these allegations and denies any wrongdoing or liability on the
claims asserted in the lawsuit. In the Class Suit there has been no
trial or other determination of the merits of the claims, and this
Notice is not an expression of any opinion by the Court as to the
merits of the claims.
PROPOSED SETTLEMENT: For the sole purpose of compromising
disputed claims and avoiding costs and risks of further litigation,
PhotoWorks and the plaintiffs who represent the Class have agreed to a
proposed settlement. Here is a summary of its terms.
Future conduct/disclosures. Although PhotoWorks reaffirms its
denials of any past wrongdoing, under the settlement PhotoWorks will
agree that in the future (a) it will not represent to customers that
its film can be processed only by PhotoWorks or by a few or small
number of labs if such is not the fact; (b) it will not represent that
replacement film is free unless it is provided at no charge over and
above the regular price PhotoWorks charges for processing without
replacement film; (c) so long as it generally offers customers the
option not to purchase replacement film when purchasing processing
services, it will conspicuously disclose that option and the method of
exercising it, on order forms and on signage in its retail stores; (d)
until March 31, 2006 it will maintain a "C-41" designation on the rolls
of all standard C-41 film it distributes that is of a type that is able
to be properly developed using the industry standard C-41 process.
Photoworks also affirms that most of the Seattle FilmWorks
film it has distributed since 1996 is standard C-41 film.
Other benefits. PhotoWorks will also provide these benefits to Class
Members:
(1) Within one year PhotoWorks will make the following distributions of
free rolls of 24-exposure standard C-41 film. (a) It will distribute an
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aggregate of 900,000 rolls to persons who are active PhotoWorks customers,
with the identity of recipients and number of rolls per recipient (not
exceeding 3) determined by PhotoWorks in a way that reasonably takes into
account past and/or anticipated quantity or frequency of their transactions.
(b) It will also distribute one roll to each of the first 300,000 Class
Members who do not receive any of the 900,000 rolls mentioned above and who,
within 6 months after publication of this Notice, request a free a roll in an
e-mail sent to PhotoWorks at www.____________________, a telephone call to
PhotoWorks at 1-800-____ or a letter mailed to PhotoWorks, P.O. Box ____,
Seattle WA _____. Each written request must contain the class member's
address, signed or subscribed name, and statement that he or she is a Member
of the Class. Materials accompanying these distributions will inform
recipients that the C-41 process identified on the film is an industry
standard chemical process that most photo-processing labs use to develop film.
(2 Each member of the Class who does not receive free film under (1)
above may submit to Photoworks the Coupon appended or attached to this Notice
(prior to the Coupon's expiration) to receive a $1 discount on a film
processing order.
Other provisions. (a) PhotoWorks will pay (subject to Court
approval) $2500 to each of the named plaintiffs/class representatives as
compensation for their time and involvement in the Class Suit, and $320,000 to
the attorneys for the Class for their services and costs in the Class Suit..
(b) The settlement will release and bar all claims of Class Members against
PhotoWorks which arise out of any of the allegations and in the Class suit,
except for certain claims by Class Members who exercise the option to request
exclusion, which is explained below.
COURT PROCEDURES. The proposed settlement is subject to approval of the
Court. The Court has made a preliminary determination that the Class Suit may
be maintained as a class action for purposes of settlement and that the
proposed settlement appears to be fair and reasonable. The Court will hold a
Fairness Hearing on ___________2001 at _____ in the Courtroom of Hon. Bruce
Hillyer, [room no.] King County Courthouse, 516 Third Ave., Seattle WA 98104,
to determine whether the proposed settlement should be finally approved.
Your Right to be Heard. You may object to, support or comment on the
settlement if you do so by brief letter mailed first class, postmarked no later
than ____________________, which indicates that it is in reference to Drinkard
et al. v. PhotoWorks, Inc, No. 00-2-09552-0SEA and is addressed to Superior
Court Clerk's Office, King County Courthouse, 516 Third Ave., Room E609, Seattle
WA, 98104, with copies addressed and mailed by the same postmark date to (1)
Adam Berger, Schroeter, Goldmark & Bender, 810 Third Ave. Ste. 500, Seattle, WA
98104 (Class Counsel) and (2) Peter A. Danelo, Heller, Ehrman, White & McAuliffe
LLP, 701 Fifth Ave. Ste. 6100, Seattle, WA 98104 (counsel for PhotoWorks). If
you do this, you may, but are not required to, also appear and be heard orally
at the Fairness Hearing, either personally or through your own lawyer retained
at your expense.
Exclusion. You may exclude yourself from the settlement and the
settlement Class by mailing first class a letter addressed to PhotoWorks
Settlement Adminstrator , _____________________ postmarked no later than
_____________, in which you state "I request exclusion from the PhotoWorks
settlement" followed by your name, signature and address. If you exercise this
option, you will not be eligible for the free film or coupon benefits
described above under "Other Benefits" and you will retain the right to bring
a separate individual lawsuit against PhotoWorks on claims for damages covered
11
by the Class Suit. If you do not request exclusion, the Settlement, if finally
approved by the Court, will release, and prohibit you from filing a separate
suit on, any claim you might have against PhotoWorks based on any of the
allegations in the Class Suit, as summarized in the first paragraph of this
Notice and stated more particularly in the papers filed by plaintiffs in the
Class Suit..
Further Information. This Notice contains only a summary of the
Settlement Agreement and the allegations in the Class Suit. You may inspect
complete copies of the Settlement Agreement and other documents in the Class
Suit at the Office of the Clerk of the Superior Court of King County, 516
Third Avenue, Room E609, Seattle, WA 98104. If you wish a copy of the
Settlement Agreement, or want further information, or otherwise wish to
communicate with Class Counsel, you may call toll-free telephone number
_________________- or write to Class Counsel, PhotoWorks Settlement,
______________________________________.
DATED: April ___, 2001. By Order of the Court
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ATTACHMENT 2
MINIMUM LEASE PAYMENTS
Location Name FY01 FY02 FY03 FY04 FY05 FY06 Total
- -------- ---- ---- ---- ---- ---- ---- ---- -----
1 Main Building 387,000 387,000 387,000 387,000 387,000 1,935,000
2 Fedworks 208,544 52,992 261,536
3 Buildings 2 & 3 420,000 420,000 420,000 470,400 470,400 2,200,800
4 Thorndyke 156,961 161,670 166,142 171,138 176,661 832,572
4317 Bellevue 8,942 9,210 9,541 4,040 31,733
4319 Mt. Vernon 4,800 2,000 6,800
4328 Stanwood 17,750 18,250 9,250 45,250
4803 Tacoma 8,400 2,100 10,500
4806 Lakewood 21,883 22,100 7,367 51,350
4814 Renton 20,181 20,400 20,400 20,400 6,800 88,181
4820 West Seattle 13,200 13,200 5,500 31,900
4826 U-District 11,520 11,520 7,680 30,720
4828 Northgate 26,760 27,924 27,924 82,608
4830 Federal Way 37,200 37,200 37,200 111,600
4832 Olympia 24,483 26,867 28,210 9,555 89,115
4834 Gig Harbor 8,050 8,050
4835 Mukilteo 22,824 24,228 12,566 59,618
4838 Sunset Square 18,675 18,675
4840 Bonney Lake 25,006 25,006
4841 Langston Landing 19,148 19,239 1,603 39,991
4842 FIC 26,180 26,180 13,090 65,450
4843 Tacoma Central 20,432 20,432
4844 Ballinger Village 24,552 14,322 38,874
4845 Marysville 16,723 16,723
4846 Woodinville 25,200 2,100 27,300
4850 Maple Valley 23,100 23,100 1,925 48,125
4855 Totem Lake 21,135 5,313 26,448
4904 Sunset Plaza 25,600 26,800 18,400 70,800
4906 Portland 19,800 19,800 14,850 54,450
4908 Cherry Park 9,450 9,450
4910 Lloyd Center 19,056 19,056
4912 Clackamas 22,272 1,856 24,128
OPERATING Xerox 17,832 17,832 17,832 53,496
OPERATING IBM 1,078,812 443,583 1,522,395
OPERATING Agfa 16,274 32,548 32,548 32,548 32,548 16,274 162,740
CAPITAL IBM 278,261 206,698 95,976 580,936
3,106,007 2,076,032 1,335,005 1,095,081 1,073,409 16,274 8,701,807
13
ATTACHMENT 3
MESSAGE GROUP AGREEMENT
AMENDED AND RESTATED PARTNERING AGREEMENT
THIS AMENDED AND RESTATED PARTNERING AGREEMENT (the "Agreement") is
entered into as of October 1, 2000 (the "Effective Date"), by and between THE
MESSAGE GROUP, a Florida corporation ("M Group"), located at 3451 Executive Way,
Miramar Florida 33025 and PHOTOWORKS, INC., a Washington corporation
("PhotoWorks"), located at 1260 - 16th Avenue West, Seattle, Washington 98119
(collectively referred to herein as the "Parties").
RECITALS
I. PhotoWorks provides film and digital processing, and archiving.
PhotoWorks uses the Internet to help people organize, view and share their
photos. PhotoWorks delivers value-added services--both traditional prints and
digital output--directly to the customer.
II. M Group is in the business of manufacturing and distributing
pre-loaded cameras and would like to add value for its customers by the
inclusion of a free processing trial offer.
III. On or about May 22, 2000, the Parties entered into a Partnering
Agreement and now wish to amend and restate that agreement in order to modify
and clarify such agreement to the mutual benefit of the Parties. This Agreement
supersedes the original Partnering Agreement between the Parties.
AGREEMENT
Therefore, the Parties agree as follows:
1. PHOTOWORKS OBLIGATIONS:
PhotoWorks will, at its own expense:
1.1 Provide up to 800,000 free trial processing coupon/order forms ("Inserts"),
business reply envelopes (BRE) and stickers to be applied to the finished
product referencing the offer enclosed therein to M Group for general
inclusion with their Message Camera products. PhotoWorks will be
responsible for transporting the order forms, BREs, and stickers to M
Group's manufacturing facility.
1.1.1 The Parties acknowledge that PhotoWorks has already issued
300,000 Inserts under terms of the original Partnering
Agreement (the "Original Inserts"). Customers who redeem
Original Inserts will not be required to pay shipping and
handling charges relating to such redeemed Original Inserts.
1.1.2 PhotoWorks will issue to M Group up to a maximum of 500,000
additional Inserts subject to the terms and conditions of this
Agreement (the "New Inserts") beginning on the Effective Date.
M Group may submit an order for New Inserts only after M Group
has distributed its previously ordered Inserts to retailers.
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1.1.3 Customers who redeem the New Inserts will be required to pay
$1.95 in shipping and handling charges for each coupon
redeemed.
1.1.4 The New Inserts will expire 12 months after their print dates.
Print dates will correspond with the date of M Group's print
request(s).
1.1.5 In order to address PhotoWorks' concerns regarding quality
control and to manage customer expectations, PhotoWorks may
include a statement on the New Inserts to the effect that
disposable cameras may not perform as effectively as
traditional cameras.
1.2 Participate in a specific camera promotion for McDonald's restaurants (the
"McDonald's Program") with M Group as follows:
1.2.1 In addition to the New Inserts to be issued under Section 1.1,
PhotoWorks will issue to M Group for use in the McDonald's
Program up to a maximum of one million (1,000,000) specially
coded Inserts ("McDonald's Inserts") for inclusion with M
Group Camera products as part of a McDonald's promotion.
1.2.1.1 PhotoWorks will issue to M Group an initial
set of 265,000 McDonald's Inserts ("Initial
McDonald's Inserts"). Customers who redeem
these Initial McDonald's Inserts will not be
required to pay $1.95 in shipping and
handling charges for each Insert redeemed.
1.2.1.2 PhotoWorks will issue to M Group up to an
additional 735,000 McDonald's Inserts
("Additional McDonald's Inserts") in order
to accommodate expansion of the McDonald's
Program. Customers who redeem these
Additional McDonald's Inserts will be
required to pay $1.95 in shipping and
handling charges for each Insert redeemed.
1.2.2 All McDonald's Inserts will expire 12 months after their print
dates. Print dates will correspond with the date of M Group's
print request(s). PhotoWorks may include in McDonald's Inserts
a statement similar to that provided for in Section 1.1.5
above. 1.2.3 The McDonald's Program may be extended upon the
written mutual agreement of the Parties. If PhotoWorks elects
not to provide additional McDonald's Inserts, M Group may use
an alternative film processor to continue with an extended
McDonald's Program.
1.3 PhotoWorks will include a link to M Group's Web site on PhotoWorks' Partners
page on the PhotoWorks Web site.
2 M GROUP OBLIGATIONS:
M Group will, at its own expense:
2.1 Promote PhotoWorks as the preferred provider of film and
digital processing and archiving services. No competitive
provider of photo processing and archiving will be promoted
more prominently than PhotoWorks. M Group will promote
PhotoWorks:
15
2.1.1 Using banners, buttons and/or text links
provided by PhotoWorks in any listing of
partners that appears on the M Group pages.
2.1.2 With the inclusion of a Original Inserts,
New Inserts and McDonald's Inserts within
the package of M Group Cameras as
contemplated by this Agreement. M Group
retains the right to decide which of its
customers' cameras shall include the free
processing offer.
2.1.3 Every camera containing an Insert shall bear
a sticker supplied by PhotoWorks per Section
1.1 in a previously agreed-upon location on
the front of the camera outer package
indicating a free processing offer is
included therein. Alternately, M Group may
redesign the outer packaging such that the
Insert contained therein is printed directly
and prominently displayed on the camera's
outer package. In either case, artwork
referencing the free processing offer or
which includes any logo or other PhotoWorks
mark or trademark is subject to the approval
of PhotoWorks prior to printing.
2.2 M Group shall be responsible for ensuring that all cameras,
which feature the free trial processing coupons/order forms,
are of a quality satisfactory for developing quality prints. M
Group's products will be replaced if defective in manufacture
or packaging. Any customer complaint to PhotoWorks related to
defects in manufacture or packaging must be communicated to M
Group, in writing, within seven (7) days from receipt to the M
Group Customer Service Department for customer complaint
resolution. All costs incurred by PhotoWorks, above usual and
customary costs for customer resolution and service time, as a
result of defective manufacture of packaging, shall be the
responsibility of M Group and may be deducted from sums due to
M Group under the terms of this agreement.
3 PAYMENTS:
3.1 Within fifteen (15) days following the end of each calendar
month, PhotoWorks shall make the following payments:
3.1.1 As to the Original Inserts only, PhotoWorks
will pay $17.50 for each New Customer that
redeemed an Original Insert during the
preceding calendar month.
3.1.2 As to the New Inserts, PhotoWorks will pay
$5.00 for each New Customer that redeemed a
New Insert during the preceding calendar
month. For each New Customer who redeems a
New Insert, PhotoWorks will pay an
additional $5.00 (for a total potential
adjustment of $10.00 per New Customer) if
and when such New Customer returns to
PhotoWorks, purchases and pays for
PhotoWorks' film processing services without
redeeming an Insert.
3.1.3 As to the Initial McDonald's Inserts,
PhotoWorks will pay $5.00 for each New
Customer that redeemed an Initial McDonald's
Insert during the preceding calendar month.
No additional payments shall be paid to M
Group relating to New Customers who redeem
the Initial McDonald's Inserts, whether or
not such New Customers subsequently purchase
PhotoWorks' film processing services without
redeeming an Insert.
16
3.1.4 As to the Additional McDonald's Inserts,
PhotoWorks will pay $5.00 for each New
Customer that redeemed an Additional
McDonald's Insert during the preceding
calendar month. For each New Customer who
redeems an Additional McDonald's Insert,
PhotoWorks will pay an additional $5.00 (for
a total potential payment of $10.00 per New
Customer) if and when such New Customer
returns to PhotoWorks, purchases and pays
for PhotoWorks' film processing services
without redeeming an Insert.
3.1.5 Notwithstanding the foregoing, the total
fees to be paid by PhotoWorks to M Group
attributable to the McDonald's Program shall
not exceed one million dollars ($1,000,000).
3.1.6 "New Customer" for PhotoWorks is defined as
a single U.S. postal address of a viable
mail order film processing customer from
which PhotoWorks has received no orders in
the past one (1) year, that sends in a roll
(or more) of film or pre-loaded camera for
processing to PhotoWorks, using an order
form included within a Camera distributed by
M Group. As soon as practicable after the
Reporting Date, M Group agrees to provide
PhotoWorks with its test list which
identifies any seed customers. M Group
acknowledges and agrees that no fees will be
paid to M Group based on Inserts redeemed or
purchases completed by such seed customers.
3.2 On the Effective Date or as soon thereafter as reasonably
practical PhotoWorks shall pay M Group the sum of thirty-five
thousand dollars ($35,000). Such funds shall be an advance
against all fees under this Agreement except funds related to
the MacDonald's promotion.. In the event fees due under this
Agreement exceed $35,000, in the aggregate, PhotoWorks shall
pay the fees as required in Section 3.1 and accompany such
payment with the accounting as required in Section 3.3.
3.3 Within fifteen (15) days following the end of each calendar
month during the term of this Agreement, PhotoWorks shall
provide M Group with a report and accounting of monies owed
based on activity during the preceding calendar month. The
reports shall be categorized by insert code in alpha order.
Such report shall also include the names and mailing addresses
of New Customers acquired during the preceding month;
provided, however, M Group may use such customer information
for no purpose other than for auditing PhotoWorks' compliance
under this Agreement and such disclosures shall be subject to
the restrictions contained in PhotoWorks' privacy policy to
the extent the gathering and disclosure of such customer
information is controlled by such privacy policy. In any
event, such customer information shall be deemed Confidential
Information and the exclusive property of PhotoWorks under
this Agreement.
4 TERM AND TERMINATION:
4.1 The term of this Agreement is to be one (1) year from the
Effective Date. The term may be extended for additional
one-year periods upon the mutual agreement of the Parties.
4.2 Either party may terminate this Agreement if the other party
materially breaches its obligations hereunder and such breach
remains uncured for thirty (30) days following the written
notice to the breaching party of such breach.
17
4.3 Upon the expiration or earlier termination of this Agreement,
PhotoWorks' obligation to issue Inserts shall cease; however,
PhotoWorks will continue to honor all unexpired Inserts and
will account for and pay the fees required under this
Agreement with respect to such Inserts as they become due.
Upon the expiration or earlier termination of this Agreement,
M Group will promptly return any unearned portion of the
$35,000 advance remaining on the date of termination.
5 TRADEMARK LICENSE:
5.1 Each party hereby grants to the other a non-exclusive, limited
license to use its trademarks, service marks or trade names
only to fulfill any promotional obligations specified herein.
The trademark owner may terminate the foregoing trademark
license if, in its reasonable discretion, the licensee's use
of the marks is reasonably likely to tarnish, dilute, blur or
otherwise degrade the reputation value of the mark and such
use is not corrected within five (5) days of notice thereof;
alternatively, in these circumstances the owner may specify
that specified uses may not contain the marks. Title to and
ownership of the owner's marks shall remain with the owner.
The licensee shall use the marks exactly in the form provided
and in conformance with any trademark usage policies. Any
benefits accruing from use of such trademarks shall
automatically vest in the owner.
6 CONFIDENTIALITY:
6.1 A party's "Confidential Information" is defined as any
confidential or proprietary information of a party which is
disclosed to the other party in writing, marked confidential
or if disclosed orally, is identified as confidential at the
time of disclosure. Each party shall hold the other party's
Confidential Information in confidence and shall not disclose
such to third parties nor use the other party's Confidential
Information for any purpose other than as required to perform
under this Agreement. Each party shall destroy all
Confidential Information of the other party upon expiration or
termination of this Agreement, unless the license thereto
survives termination of this Agreement. Such restrictions
shall not apply to Confidential Information which (a) is
already known by the recipient, (b) becomes, through no act or
fault of the recipient, publicly known, (c) is received by
recipient from a third party without a restriction on
disclosure or use, or (d) is independently developed by
recipient without reference to the Confidential Information.
The restriction on disclosure shall not apply to Confidential
Information that is required to be disclosed by a court or
government agency. The terms and conditions of this Agreement
will be deemed to be Confidential Information and will not be
disclosed without the prior written consent of the other
party.
7 INDEMNITY:
7.1 Each party (the "Indemnifying Party") shall indemnify the
other party (the "Indemnified Party") against any and all
claims, losses, costs and expenses, including reasonable
attorneys' fees, which the Indemnified Party may incur as a
result of claims in any form by third parties arising from any
breach of the Indemnifying Party's obligations under this
Agreement. In addition, M Group shall indemnify PhotoWorks
against any and all claims, losses, costs and expenses,
including reasonable attorneys' fees, which PhotoWorks may
incur as a result of claims in any form by third parties
arising from the M Group trademarks. The foregoing obligations
are conditioned on the Indemnified Party: (i) giving the
Indemnifying Party notice of the relevant claim, (ii)
cooperating with the Indemnifying Party, at the Indemnifying
Party's expense, in the defense of such claim, and (iii)
giving the Indemnifying Party the right to control the defense
and settlement of any such claim, except that the Indemnifying
Party shall not enter into any settlement that affects the
18
Indemnified Party's rights or interest without the Indemnified
Party's prior written approval. The Indemnified Party shall
have the right to participate in the defense at its expense.
8 LIMITATION OF LIABILITY:
8.1 NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES OR LOST PROFITS (HOWEVER
ARISING, INCLUDING NEGLIGENCE) ARISING OUT OF OR IN CONNECTION
WITH THIS AGREEMENT, EVEN IF THE PARTIES ARE AWARE OF THE
POSSIBILITY OF SUCH DAMAGES. EXCEPT IN THE EVENT OF A BREACH
OF A PARTY'S CONFIDENTIALITY OBLIGATIONS, IN NO EVENT SHALL
EITHER PARTY BE LIABLE TO THE OTHER PARTY IN AN AMOUNT GREATER
THAN THE AMOUNT OF FEES PAID TO M Group HEREUNDER.
9 DISCLAIMER OF WARRANTIES:
9.1 EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, EACH
PARTY PROVIDES ALL MATERIALS AND SERVICES TO THE OTHER PARTY
"AS IS." EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS
AGREEMENT, EACH PARTY DISCLAIMS ALL WARRANTIES AND CONDITIONS,
EXPRESS, IMPLIED OR STATUTORY, INCLUDING WITHOUT LIMITATION
THE IMPLIED WARRANTIES OF TITLE, NON-INFRINGEMENT,
MERCHANTABILITY, AND FITNESS FOR A PARTICULAR PURPOSE. Each
party acknowledges that it has not entered into this Agreement
in reliance upon any warranty or representation except those
specifically set forth herein.
10 DISPUTE RESOLUTION:
10.1 In the event of any disputes between the Parties arising from
or concerning in any manner the subject matter of this
Agreement which cannot be resolved through good faith
negotiation and mediation, the Parties will refer the
dispute(s) to the American Arbitration Association for
resolution through binding arbitration by a single arbitrator
pursuant to the American Arbitration Association's rules
applicable to commercial disputes.
11 GENERAL PROVISIONS:
11.1 This Agreement is the complete and exclusive agreement between
the Parties with respect to the subject matter hereof,
superseding any prior agreements and communications (both
written and oral) regarding such subject matter. This
Agreement may only be modified, or any rights under it waived,
by a written document executed by both Parties.
11.2 Neither party may assign or transfer any of the rights,
duties, or obligations herein to any party (except to an
affiliated company, or to a successor in interest in the event
of a merger, sale of assets of the business to which this
Agreement is related, or consolidation) without the prior
written consent of the other party, and any purported attempt
to do so will be null and void.
11.3 This Agreement shall be construed in accordance with and
governed by the laws of the State of Washington without regard
to the principles of conflicts of law.
19
11.4 The Parties are independent contractors, and no agency,
partnership, joint venture, employee-employer or
franchiser-franchisee relationship is intended or created by
this Agreement. Neither party shall make any warranties or
representations on behalf of the other party.
11.5 If any provision hereof shall be or become invalid, illegal,
or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein
shall not be affected thereby. The Parties agree to replace
any invalid provision with a valid provision, which most
closely approximates the intent and economic effect of the
invalid provision. Headings are for reference purposes only
and in no way define, limit, construe or describe the scope or
extent of such section.
11.6 If executed in counterparts, each will serve to evidence the
Parties' binding agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement effective
as of the day and year last written below.
M GROUP PHOTOWORKS, INC.
By: By:
------------------------------- -----------------------------
Name: Name:
------------------------------- -----------------------------
Title: Title:
------------------------------- -----------------------------
Date: Date:
------------------------------- -----------------------------
20
ATTACHMENT 4
PACIFIC CREST AGREEMENT
EQUITY LINE OF CREDIT
January 17, 2001
Mr. Gary Christophersen
Chairman
PhotoWorks, Inc.
1260 16th Avenue West
Seattle, Wash. 98119
Dear Gary:
In accordance with our recent discussions, this letter agreement
("Agreement") is provided to confirm our understanding that Pacific Crest
Securities Inc. ("PCS") will act as the exclusive investment banking
representative ("Representative") to PhotoWorks, Inc. ("PhotoWorks" or the
"Company"), its board of directors and its shareholders to initiate, develop and
negotiate proposals with Rhino Advisors, Inc. for the following financing:
Underwritten Equity Access Program of up to $20 Million U.S. Dollars
($20,000,000) in Common Stock, or an alternative structure acceptable to
PhotoWorks (collectively, the "Investment") subject to the satisfactory
completion of our continuing due diligence.
Pacific Crest Securities' Role
PCS will act as the Representative to advise PhotoWorks on the Investment. PCS
activities will include (i) introduction to Rhino Advisors (and additional
investors if agreed) (ii) development and evaluation of alternative Investment
structures, (iii) advice on tactics and strategy, (iv) advice on pricing, (v)
recommendations on potential alternatives and (vi) assistance in negotiating and
closing the Investment.
Access to Information and Confidentiality
In conjunction with the Investment, the Company may provide PCS with historical
and projected financial statements, budgets, marketing plans, and other
information relevant to the business, properties and prospects of the Company
(collectively "Information"). The Company will afford PCS, on an as needed
basis, access to its directors, officers, Company employees and facilities, as
well as the Company's outside counsel, independent accountants, and other third
parties having a relationship with the Company to the extent appropriate to
permit PCS to complete its tasks and to render services hereunder. The Company
21
acknowledges that PCS will be relying upon Information furnished by the Company
and that PCS will not assume any responsibility for the accuracy and
completeness of the Information provided by the Company and will not undertake
to independently verify such Information.
PCS shall not, without the written consent of the Company, except as
required by law, disclose to third parties or use any of the non-public
information about the Company that PCS obtains as a result of performing the
activities contemplated by this Agreement, except to employees and agents of PCS
directly involved in the engagement and potential third parties approved by the
Company that have entered into agreements with the Company and PCS to keep
confidential any non-public information about the Company. PCS agrees to comply
with all applicable securities laws in maintaining confidentiality of all
non-public information PCS obtains hereunder. The terms of this paragraph shall
survive the termination of this Agreement.
Engagement, Termination and Surviving Obligations
PCS will be engaged by PhotoWorks upon the signing of this engagement letter .
It is understood that this Agreement may be terminated with or without cause by
the Company or PCS at any time and without liability or continuing obligation
between the Company and PCS except for (1) any Financing Fee or Commitment Fee
(as defined below) earned, (2) reimbursement of PCS's out-of-pocket expenses,
and (3) any other obligation hereunder, which by its express terms, survives
termination of this Agreement. All such obligations will be continuing after the
termination of this Agreement and items (1) and (2) shall be deemed earned
and/or payable according to the terms and conditions set forth below.
Termination of this Agreement must be in writing. Any modifications to this
Agreement must be mutually agreed to in writing.
Fees
Upon the purchase of any PhotoWorks equity by an Investor (as defined below)
pursuant to the underwritten equity access program (each, a "Purchase"), the
Company agrees to pay PCS a contingent fee ("Financing Fee") equal to 4.0% of
the total Financing Value (as defined below) in cash and, upon execution of the
equity access program documents, warrants to purchase 120,000 shares of common
stock of PhotoWorks. The warrants will be in form and substance comparable with
the terms of the warrant granted to the Buyer, and including any registration
rights granted to the Buyer with respect to the warrants or any shares issuable
upon exercise of the warrants. The exercise price will be $1,00 per share for
20,000 warrants, $2,00 per share for 20,000 warrants, $3.00 per share for 20,000
warrants, $4,00 for 20,000 warrants, $5.00 for 20,000 warrants, and $6.00 for
20,000 warrants. Any Financing Fee will be determined as of each Purchase
closing date, or successive Purchase closing dates, and will become due and
payable upon each closing of a Purchase.
The term "Financing Value" means the total amount equal to the sum of the
aggregate face value of any securities provided to the Company, cash
contributed, advertising credits, other assets contributed and/or any similar
contributions, payments or provisions made to the Company by Rhino and its
affiliates.
22
In addition to any Financing Fee, Photo Works will pay an $80,000 commitment fee
to PCS as follows: $40,000 upon execution of the equity access program documents
("Closing") $20,000 six months from Closing, $20,000 nine months from Closing.
The second and third payments are contingent on a mutual agreement between PCS
and PhotoWorks (to be decided six months from Closing) regarding a continuing
relationship between Pacific-Crest and PhotoWorks.
As a condition of PCS acting as Representative pertaining to Rhino Advisors or
other companies as agreed upon in writing, the Company agrees that if within 9
months after the termination of this Agreement, the Company and any Investor
effect any investment transaction or reach an agreement to effect any investment
transaction which actually closes in the future, PCS will be entitled to the
Financing Fee that would have been paid had this letter agreement not been
terminated.
Expenses
The Company agrees to reimburse PCS for all of its out-of-pocket expenses
incurred in its role as Representative for the Company. PCS agrees that it must
receive the Company's prior approval to incur aggregate out-of-pocket expenses
in excess of $20,000. Such reimbursements will be due at the end of each month
that the expenses are incurred.
Indemnification
The Company agrees that since PCS will be acting on its behalf, PhotoWorks, as
well as any successors, will defend, indemnify and hold harmless PCS and each of
its officers, directors, employees, and each affiliated company of PCS (PCS and
each such other person or entity being herein referred to as an "Indemnified
Party") from and against any and all losses, claims, damages, and liabilities,
joint or several (including all fees and disbursements of counsel and all other
expenses, reasonably incurred by any Indemnified Party in connection with the
preparation for or defense of any claim, action or proceeding, whether or not
resulting in any liability, as incurred) to which such Indemnified Party may
become subject under any applicable federal or state law or otherwise, which are
related to or arise out of (i) actions taken or omitted to be taken by the
Company or (ii) actions taken or omitted to be taken by an Indemnified Party
with the Company's consent or in conformity with the instructions of, or in
conformity with actions taken or omitted to be taken by the Company or (iii) any
Investment accepted by the Company, provided, however, that the Company will not
be liable to PCS under clause (ii) or (iii) hereof to the extent that any loss,
claim, damage, or liability resulted from the intentional misconduct or gross
negligence of PCS or an Indemnified Party.
If a suit or action is instituted in connection with any controversy
arising out of this Agreement, the aforementioned confidentiality agreement, or
in the enforcement of any rights hereunder, the prevailing party shall be
entitled to recover, in addition to such costs, such sum as the court may
adjudge reasonable attorney fees, including fees on any appeal.
23
Assignment
Neither party may assign its rights hereunder to any other person without the
consent of the other.
If the foregoing terms correctly set forth our agreement, please confirm this by
signing and returning to us the duplicate copy of this letter. We look forward
to working with you towards the successful conclusion of this assignment.
Very truly yours,
PACIFIC CREST SECURITIES INC.
By:_____________________________
Jody Miller
Senior Vice President
Acknowledged and Agreed:
PhotoWorks, INC.
By:_____________________________
Its:_____________________________
Date:______________________________
24
ATTACHMENT 5
RHINO ADVISORS
EQUITY LINE OF CREDIT
RHINO ADVISORS, INC.
130 West 29th Street, 5th Floor
New York, NY 10001
Tel: (212) 594.6555
Fax: (212) 594.7181
January 18, 2001
PhotoWorks, Inc.
1260 16th Avenue West
Seattle, WA 98119
Re: Equity Line Commitment
Dear Mr. Howard Lee:
Reference is made to that certain attached yet to be signed Engagement
Agreement (the "Engagement Agreement"), by and between PhotoWorks, Inc. (the
"Company") and Pacific Crest Securities (the "Placement Agent) and the term
sheet attached thereto (the "Term Sheet"). In consideration for Rhino Advisors
(the "Investor's Advisor") agreeing to negotiate and prepare the documentation
necessary to close the proposed transaction (the "Transaction") pursuant to the
Term Sheet, the Company shall in the event that the parties do not consummate
the Transaction within sixty (60) calendar days from the date hereof, pay the
non-accountable fees, expenses and disbursements of Investors' counsel in the
amount of $20,000. Additionally, the Company makes the following representations
and warranties to the Investor:
1. The Company will execute and deliver to the Placement Agent
the Engagement Agreement immediately upon closing this
Transaction. This letter agreement and the Engagement
Agreement will constitute a valid and binding obligation of
the Company enforceable against the Company in accordance with
their respective terms;
2. The execution and delivery of this letter agreement by the
Company and acceptance of the attached Term Sheet have been
duly authorized by all necessary corporate action. Further
authorization of the Company's Board of Directors will be
required to close the Transaction; and
3. The execution, delivery and performance by the Company of this
letter agreement, the Engagement Letter and the consummation
by the Company of the transactions contemplated thereby do not
25
and will not, conflict with, or constitute a material default
(or an event that with notice or lapse of time or both would
become a default) under, or give to others any rights of first
refusal, termination, amendment, acceleration or cancellation
of, any material agreement, indenture, instrument or any
"lock-up" or similar provision of any underwriting or similar
agreement to which the Company is a party.
This letter agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to contracts made in New York
by persons domiciled in New York City and without regard to its principles of
conflicts of laws. Each of the Company and the Investor agree to submit itself
to the in personam jurisdiction of the state and federal courts situated within
the Southern District of the State of New York with regard to any controversy
arising out of or relating to this letter agreement.
This letter agreement may be executed in multiple counterparts, each of
which may be executed by less than all of the parties and shall be deemed to be
an original instrument which shall be enforceable against the parties actually
executing such counterparts and all of which together shall constitute one and
the same instrument. Except as otherwise stated herein, in lieu of the original
documents, a facsimile transmission or copy of the original documents shall be
as effective and enforceable as the original. This letter agreement may be
amended only by a writing executed by all parties.
This letter agreement set forth the entire agreement and understanding
of the parties relating to the subject matter hereof and supersedes all prior
and contemporaneous agreements, negotiations and understandings between the
parties, both oral and written relating to the subject matter hereof.
In the event that any provision of this letter agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this letter agreement shall continue in full force and effect without said
provision.
If the foregoing correctly sets forth our understanding and agreement,
please so indicate by signing where indicated below.
Very Truly Yours,
Rhino Advisors
By: ________________________________
Name:
Title:
ACCEPTED AND AGREED TO:
PhotoWorks, Inc.
By: _____________________________
Name: Title: President and Chief Executive Officer
26
ATTACHMENT #6
PHOTOWORKS, INC
CAPITALIZATION TABLE
(Fully Diluted)
As of April 5, 2001
Common stock issued and outstanding 16,505,659
Common stock issued to StoryCatcher.com 86,500
Employee stock purchase plan 3/30/01 purchase 19,946
Series A Preferred shares:15,000 @ $1,000/sh
Convertible to common stock - $4.75 3,157,895
Series A Warrants $6.00 789,474
Warrants - Imperial Bank $1.00 72,727
Stock Options issued and outstanding 2,913,793
--------------
Total common stock - Fully Diluted 23,543,994
==============
After Series B:
2,500,000 convertible at.75 3,333,333
--------------
Total 26,877,327
==============
27
Exhibit 4.5
Form of Opinion of Company Counsel
April 25, 2001
Main (206) 447-0900
Fax (206) 447-0849
To Each of the Purchasers Listed on
Schedule 1 to the Subordinated Convertible
Debenture Purchase Agreement
Re: PhotoWorks, Inc.
Ladies and Gentlemen:
We have acted as counsel to PhotoWorks, Inc., a Washington corporation
(the "Company"), in connection with the Subordinated Convertible Debenture
Purchase Agreement, dated as of April 25, 2001 between the Company and each of
the Purchasers listed on Schedule 1 to the Agreement (the "Agreement"). This
opinion is rendered to you pursuant to Section 4.5 of the Agreement. Capitalized
terms used without definition in this opinion have the meanings given to them in
the Agreement.
I.
We have assumed the authenticity of all records, documents and
instruments submitted to us as originals, the genuineness of all signatures, the
legal capacity of natural persons and the conformity to the originals of all
records, documents and instruments submitted to us as copies. We have also
assumed without making any inquiry into the reasonableness or validity thereof
that: (A) each of the parties to the Agreement other than the Company (the
"Other Parties") has all necessary power and authority to execute and deliver,
and perform its obligations under the Agreement, (B) the Agreement is a valid
and binding obligation of each of the Other Parties enforceable against such
Other Party in accordance with its terms and (C) there are no facts or
circumstances relating to any of the Other Parties (for example, lack of due
organization, regulatory prohibitions or the failure to qualify to do business)
that might prevent such Other Party from enforcing any of its rights to which
our opinion relates. We have based our opinion upon our review of the following
records, documents, instruments and certificates and such additional
certificates relating to factual matters as we have deemed necessary or
appropriate for our opinion:
(a) The Agreement;
(b) The Articles of Amendment, as filed with the Washington
Secretary of State on April 24, 2001 (the "Articles of
Amendment");
Heller Ehrman White & McAuliffe LLP 701 Fifth Avenue, Suite 6100 Seattle, WA 98104-7098 www.hewm.com
- --------------------------------------------------------------------------------------------------------------------------
Seattle Portland Anchorage San Francisco Silicon Valley Los Angeles San Diego New York Washington D.C. Hong Kong Singapore
Affiliated Carnelutti Offices: Milan Rome Paris Padua Naples
To Each of the Purchasers Listed on
Schedule 1 to the Subordinated Convertible
Debenture Purchase Agreement
April 25, 2001
Page 2
(c) The Subordinated Convertible Debentures (the "Debentures") to
be issued to the Purchasers under the Agreement;
(d) The Investor Rights Agreement;
(e) The Articles of Incorporation of the Company certified by the
Washington Secretary of State as of April 9, 2001, and
certified to us by an officer of the Company as being complete
and in full force and effect as of the date of this opinion
prior to the filing of the Articles of Amendment and the
Articles of Correction;
(f) The Bylaws of the Company, including all amendments thereto,
certified to us by an officer of the Company as being complete
and in full force and effect as of the date of this opinion;
(g) Records certified to us by an officer of the Company as
constituting all records of proceedings and actions of the
board of directors of the Company relating to (i) the issuance
of all outstanding shares of capital stock of the Company and
(ii) the transactions contemplated by the Agreement;
(h) Information provided by the Company's transfer agent as to the
number of shares of Common Stock outstanding as of April 20,
2001;
(i) Stock ledger provided by the Company and certified to us by an
official of the Company as being a complete record of the
issued and outstanding shares of Series A Preferred Stock as
of April 25, 2001;
(j) A Certificate of Existence/Authorization relating to the
Company issued by the Washington Secretary of State dated
April 6, 2001;
(k) Each of the agreements (i) filed as Exhibits to the Company's
Annual Report on Form 10-K for the year ended September 30,
2000, (ii) listed in Section 5.12 of the Schedule of
Exceptions to the Agreement and (iii) listed in a certificate
of the Chief Executive Officer and President of the Company as
to the material agreements and material instruments to which
the Company is a party or by which the Company's properties or
assets are bound (collectively, the "Material Contracts"); and
To Each of the Purchasers Listed on
Schedule 1 to the Subordinated Convertible
Debenture Purchase Agreement
April 25, 2001
Page 3
(l) Articles of Correction, as filed with the Washington Secretary
of State on April 25, 2001 (the "Articles of Correction").
The documents identified in paragraphs (a), (c) and (d) above are
referred to in this opinion as the "Transaction Documents." The Common Stock
issuable upon conversion of the Series B Preferred Stock is referred to in this
opinion as the "Conversion Shares."
Our opinion expressed in Paragraph 1 of Part III as to the valid
existence of the Company under the laws of the State of Washington is based
solely upon the Certificate of Existence/Authorization enumerated above. We have
made no additional investigation after the date of the Certificate of
Existence/Authorization in rendering our opinion expressed in Paragraph 1 of
Part III.
In connection with our opinion relating to Material Contracts, we have
not reviewed, and express no opinion on, (i) financial covenants or similar
provisions requiring financial calculations or determinations to ascertain
compliance, (ii) provisions relating to the occurrence of a "material adverse
event" or words of similar import or (iii) parol evidence bearing on
interpretation or construction. Moreover, to the extent that any of the Material
Contracts are governed by the laws of any jurisdiction other than the State of
Washington, our opinion relating to those agreements and instruments is based
solely upon the plain meaning of their language without regard to interpretation
or construction that might be indicated by the laws governing those agreements
and instruments.
Where our opinion relates to our "knowledge," that knowledge is based
upon our examination of the records, documents, instruments and certificates
enumerated or described above and the actual contemporaneous knowledge of
attorneys in this firm who are currently involved in legal representation of the
Company in connection with the Agreement. We have not examined any records of
any court, administrative tribunal or other similar entity in connection with
our opinion.
In rendering our opinions in Paragraphs 5, 6 and 9 of Part IV below, we
have assumed without investigation that (i) the offer and sale of the Debentures
were not effected by any general solicitation or general advertising, (ii) all
of the representations made by the Purchasers in Section 6 of the Agreement are
true and correct, (iii) no offer, sale or issuance of any securities during the
six-month period preceding the start of, or during the six-month period
following the completion of the offer, sale and issuance of Debentures was or
will be "integrated" within the meaning of Rule 502(a) of Regulation D under the
To Each of the Purchasers Listed on
Schedule 1 to the Subordinated Convertible
Debenture Purchase Agreement
April 25, 2001
Page 4
Securities Act of 1933, as amended (the "Securities Act") with the sale of the
Debentures so that, when taken together, the sale of the Debentures and such
other issuance will not meet all of the terms and conditions of Regulation D
under the Securities Act, and (iv) the filing of a notice of sale on Form D with
the Securities and Exchange Commission will be done within the respective time
periods prescribed by Regulation D of the Securities Act.
Our opinion expressed in Paragraph 7 of Part III below as to (a) the
number of outstanding shares of Common Stock is based solely on the information
referred to in item (h) above provided by the Company's transfer agent as to the
number of outstanding shares of Common Stock, (b) the number of outstanding
shares of Series A Preferred Stock is based solely on the information referred
to in item (i) above and (c) the number of outstanding shares of Series RP
Preferred Stock is based solely on the representations set forth in the
Officer's Certificate to the effect that no shares of Series RP Preferred Stock
are outstanding. Further, our opinion expressed in such paragraph as to the duly
authorized, fully paid and non-assessable status of the outstanding shares of
capital stock of the Company is based on (a) records of proceedings and actions
of the board of directors of the Company relating to the issuance of all
outstanding shares of capital stock of the Company issued prior to May 8, 1986,
the issuance of Series A Preferred Stock and the issuance of Common Stock
pursuant to the asset purchase of Storycatcher.com and (b) representations set
forth in the Officer's Certificate to the effect that (i) except for the sale
and issuance of Series A Preferred Stock, the issuance of warrants to the
holders of Series A Preferred Stock and to Imperial Bank and the issuance of
86,500 shares of Common Stock pursuant to the asset purchase of Storycatcher.com
on March 14, 2001, all shares of the Company's capital stock issued after May 8,
1986 were issued pursuant to and within the number of shares authorized for
issuance under the Company's Incentive Plans and that such issuances were
approved by the Company's Board of Directors (or in the case of issuances upon
the exercise of options, a committee or officer to whom it had properly
delegated authority) and (ii) the Company received full payment of consideration
which was determined adequate by the Board of Directors in good faith for all of
its outstanding shares of capital stock.
II.
We express no opinion as to:
A. If a court other than a court in the State of Washington were to
enforce the Agreement, the applicable choice of law rules that may affect the
interpretation or enforcement of the Agreement.
To Each of the Purchasers Listed on
Schedule 1 to the Subordinated Convertible
Debenture Purchase Agreement
April 25, 2001
Page 5
B. Any securities, tax, anti-trust, land use, export, safety,
environmental or hazardous materials laws, rules or regulations or laws, rules
or regulations applicable to Zesiger Capital Group LLC by virtue of its status
as a registered investment advisor engaged in business of the type exemplified
by the Agreement.
This opinion is limited to the federal laws of the United States of
America and the laws of the State of Washington, and we disclaim any opinion as
to the laws of any other jurisdiction.
III.
Based upon the foregoing and our examination of such questions of law
as we have deemed necessary or appropriate for the purpose of our opinion, and
subject to the limitations and qualifications expressed below, it is our opinion
that:
1. The Company has been duly incorporated and is validly existing
under the laws of the State of Washington.
2. The Company has all requisite corporate power and corporate
authority to execute and deliver the Transaction Documents, to
issue the Debentures, and to issue the Series B Preferred
Stock upon conversion of the Debentures and to issue the
Conversion Shares upon conversion of the Series B Preferred
Stock.
3. The execution and delivery of the Transaction Documents, the
issuance, sale and delivery of the Debentures in accordance
with the Agreement, the issuance of the Series B Preferred
Stock in accordance with the Debentures, and the issuance of
the Conversion Shares in accordance with the Articles of
Amendment, have been duly authorized by all necessary
corporate action on the part of the Company and each of the
Transaction Documents has been duly executed and delivered on
behalf of the Company.
4. Each of the Transaction Documents is a valid and binding
obligation of the Company, enforceable against the Company in
accordance with its terms, subject, as to enforcement, (i) to
bankruptcy, insolvency, reorganization, arrangement,
moratorium and other laws of general applicability relating to
or affecting creditors' rights and (ii) to general principles
of equity, whether such enforceability is considered in a
proceeding in equity or at law.
To Each of the Purchasers Listed on
Schedule 1 to the Subordinated Convertible
Debenture Purchase Agreement
April 25, 2001
Page 6
5. No governmental consents, approvals, authorizations,
registrations, declarations or filings are required for the
execution and delivery of the Transaction Documents on behalf
of the Company and consummation by the Company of the valid
and lawful authorization, issuance, sale and delivery of the
Debentures, Series B Preferred Stock, and Conversion Shares as
provided in the Transaction Documents other than (i) the
filing of the Articles of Amendment and the Articles of
Correction in the Office of the Secretary of State of the
State of Washington, which filings have been accomplished and
(ii) such exemptive filings as may be necessary to secure an
exemption from registration or qualification for the offer and
sale of the Debentures, Series B Preferred Stock, and
Conversion Shares under the federal securities laws.
6. Neither the execution and delivery of the Transaction
Documents on behalf of the Company nor the consummation by the
Company of the issuance, sale and delivery of the Debentures,
Series B Preferred Stock and Conversion Shares as provided in
the Transaction Documents (i) conflicts with any provision of
the Articles of Incorporation or Bylaws of the Company, (ii)
violates any law applicable to the Company, or (iii) results
in a breach or violation of, or constitutes a default under,
any term of any Material Contract.
7. The authorized capital stock of the Company consists of
101,250,000 shares of Common Stock, $.01 par value, of which
16,525,605 shares are outstanding, and 2,000,000 shares of
preferred stock, $.01 par value. Of the preferred stock,
105,000 shares are designated Series RP Preferred Stock (none
of which are outstanding), 15,000 shares are designated Series
A Preferred Stock, of which 15,000 shares are outstanding and
36,830 shares are designated Series B Preferred Stock. All
issued and outstanding shares of the Company's capital stock
have been duly authorized and validly issued and are fully
paid and nonassessable. To our knowledge, except for awards or
rights granted under the Incentive Plans or as disclosed in
the Schedule of Exceptions to the Agreement or the SEC
Reports, and except as set forth in the Articles of Amendment
or the Agreement, there are no options, warrants, conversion
privileges, preemptive rights, or other rights outstanding
granted by the Company to purchase or otherwise acquire any
authorized but unissued shares of capital stock or other
securities of the Company.
To Each of the Purchasers Listed on
Schedule 1 to the Subordinated Convertible
Debenture Purchase Agreement
April 25, 2001
Page 7
8. When issued, delivered and paid for as provided in the
Agreement, the Debentures will be validly issued and
outstanding and fully paid. The Series B Preferred Stock and
the Conversion Shares have been validly reserved for issuance
and when the Series B Preferred Stock is issued upon
conversion of the Debentures and the Conversion Shares are
issued in accordance with the terms of the Articles of
Amendment and the Articles of Correction, such Series B
Preferred Stock and Conversion Shares will be validly issued
and outstanding, fully paid and non-assessable.
9. The offer, sale and issuance of the Debentures, Series B
Preferred Stock and the Conversion Shares in accordance with
the terms of the Transaction Documents constitute transactions
which are exempt from the registration requirements of the
Securities Act.
10. Except as disclosed in the Schedule of Exceptions to the
Agreement or the SEC Reports, we do not have knowledge of any
action, suit or proceeding against the Company that is either
pending or has been threatened in writing.
11. The Articles of Amendment and the Articles of Correction have
been duly authorized by all necessary corporate action, have
been duly filed with the Secretary of State of the State of
Washington and are in full force and effect on the date
hereof.
IV.
We further advise you that:
A. As noted, the enforceability of the Transaction Documents is
subject to the effect of general principles of equity. These
principles include, without limitation, concepts of commercial
reasonableness, materiality and good faith and fair dealing.
As applied to the Transaction Documents, these principles will
require you to act reasonably, in good faith and in a manner
that is not arbitrary or capricious in the administration and
enforcement of the Transaction Documents and will preclude you
from invoking penalties for defaults that bear no reasonable
relation to the damage suffered or that would otherwise work a
forfeiture.
To Each of the Purchasers Listed on
Schedule 1 to the Subordinated Convertible
Debenture Purchase Agreement
April 25, 2001
Page 8
B. The enforceability of the Transaction Documents is subject to
the effects of (i) Revised Code of Washington ("RCW") Section
62A.1-102, which provides that obligations of good faith,
diligence, reasonableness and care prescribed by the
Washington Uniform Commercial Code (RCW Title 62A) may not be
disclaimed by agreement, although the parties may by agreement
determine the standards by which the performance of such
obligations is to be measured if those standards are not
manifestly unreasonable, (ii) RCW 62A.1-203, which imposes an
obligation of good faith in the performance or enforcement of
a contract and (iii) legal principles under which a court may
refuse to enforce, or may limit the enforcement of, a contract
or any clause of a contract that a court finds as a matter of
law to have been unconscionable at the time it was made.
C. The effectiveness of indemnities, rights of contribution,
exculpatory provisions and waivers of the benefits of
statutory provisions may be limited on public policy grounds.
D. Pursuant to RCW 4.84.330, any provision in an agreement
requiring a party to pay another party's attorneys' fees and
costs in actions to enforce the provisions of such agreement
will be construed to entitle the prevailing party in any
action, whether or not that party is the specified party, to
be awarded its reasonable attorneys' fees, costs and necessary
disbursements.
E. Provisions of the Agreement requiring that waivers must be in
writing may not be binding or enforceable if a non-executory
oral agreement has been created modifying any such provision
or an implied agreement by trade practice or course of conduct
has given rise to a waiver.
To Each of the Purchasers Listed on
Schedule 1 to the Subordinated Convertible
Debenture Purchase Agreement
April 25, 2001
Page 9
V.
This opinion is rendered to you in connection with the Transaction
Documents and is solely for your benefit. This opinion may not be relied upon by
you for any other purpose, or relied upon by any other person, firm, corporation
or other entity for any purpose, without our prior written consent. We disclaim
any obligation to advise you of any change of law that occurs, or any facts of
which we become aware, after the date of this opinion.
Very truly yours,
HELLER EHRMAN WHITE & MCAULIFFE LLP
Exhibit 5.2
Rights Agreement between the Company and ChaseMellon Shareholder Services LLC,
as Rights Agent, dated December 16, 1999
- --------------------------------------------------------------------------------
SEATTLE FILMWORKS, INC.
and
CHASEMELLON SHAREHOLDER SERVICES L.L.C., AS RIGHTS AGENT
RIGHTS AGREEMENT
DATED AS OF DECEMBER 16, 1999
- --------------------------------------------------------------------------------
RIGHTS AGREEMENT
This RIGHTS AGREEMENT (this "Agreement") is made as of this 16th day of
December, 1999 by and between Seattle FilmWorks, Inc., a Washington corporation
(the "Corporation"), and ChaseMellon Shareholder Services, L.L.C., a New Jersey
limited liability company (the "Rights Agent"), with respect to the following
facts and circumstances.
A. The Board of Directors of the Corporation has authorized and
declared a dividend of one preferred share purchase right (a "Right") for each
share of Common Stock (as hereinafter defined) of the Corporation outstanding at
the Close of Business (as hereinafter defined) on December 27, 1999 (the "Record
Date"), each Right representing the right to purchase one one-thousandth
(1/1000th) of a share of Preferred Stock (as hereinafter defined), upon the
terms and subject to the conditions herein set forth.
B. The Board of Directors of the Corporation has further authorized and
directed the issuance of one Right with respect to each share of Common Stock
that shall become outstanding between the Record Date and the earliest of the
Distribution Date, the Redemption Date or the Final Expiration Date (as such
terms are hereinafter defined); provided, however, that Rights may be issued
with respect to shares of Common Stock that shall become outstanding after the
Distribution Date and prior to the earlier of the Redemption Date and the Final
Expiration Date in accordance with the provisions of Section 22 of this
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements herein set forth, the parties hereby agree as follows:
1. Certain Definitions.
For purposes of this Agreement, the following terms have the meanings
indicated:
1.1. "Acquiring Person" means any Person who or which, together with
all Affiliates and Associates of such Person, without the prior approval of the
Corporation's Board of Directors, shall be the Beneficial Owner of shares
representing 15% or more of the Voting Power (other than as a result of a
Permitted Offer) or was such a Beneficial Owner at any time after the date
hereof, whether or not such person continues to be the Beneficial Owner of
shares representing 15% or more of the Voting Power. Notwithstanding the
foregoing: (A) the term "Acquiring Person" shall not include (i) the
Corporation, (ii) any Subsidiary of the Corporation, (iii) any employee benefit
plan of the Corporation or of any Subsidiary of the Corporation, (iv) any Person
or entity organized, appointed or established by the Corporation or any
Subsidiary of the Corporation for or pursuant to the terms of any such plan, or
(v) any Person who or which, together with all Affiliates and Associates of such
Person, becomes the Beneficial Owner of shares representing 15% or more of the
Voting Power as a result of the acquisition of shares of Common Stock directly
from the Corporation; and (B) no Person shall be deemed to be an "Acquiring
1
Person" either (i) as a result of the acquisition of Common Stock by the
Corporation which, by reducing the number of shares of Common Stock outstanding,
increases the proportional number of shares beneficially owned by such Person
together with all Affiliates and Associates of such Person; provided, however,
that if (X) a Person would become an Acquiring Person (but for the operation of
this subclause (B)(i)) as a result of the acquisition of shares of Common Stock
by the Corporation, and (Y) after such share acquisition by the Corporation,
such Person, or an Affiliate or Associate of such Person, becomes the Beneficial
Owner of any additional shares of Common Stock, then such Person shall be deemed
an Acquiring Person, or (ii) if (X) within eight (8) days after such Person
would otherwise have become an Acquiring Person (but for the operation of this
subclause (B)(ii)), such Person notifies the Board of Directors of the
Corporation that such Person did so inadvertently and (Y) within two (2)
Business Days (as defined in Section 1.8 hereof) after such notification, such
Person is the Beneficial Owner of shares representing less than 15% of the
Voting Power.
1.2. "Act" means the Securities Act of 1933, as amended.
1.3. "Adjusted Number of Shares" and "Adjusted Purchase Price" have the
respective meanings set forth in Section 11.1.3 hereof.
1.4. "Adjustment Shares" has the meaning set forth in Section 11.1.2
hereof.
1.5. "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act.
1.6. The term "current per share market price" shall have the meaning
set forth in Section 11.4.1 hereof when used with respect to a "Security" (as
defined in said Section 11.4.1) and shall have the meaning set forth in Section
11.4.2 when used with respect to the Preferred Stock.
1.7. A Person is the "Beneficial Owner" of and "beneficially owns" any
securities which:
1.7.1. such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
1.7.2. such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding, or upon the exercise of conversion rights,
exchange rights, rights (other than the Rights), warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the Beneficial
2
Owner of, or to beneficially own, securities tendered pursuant to a tender or
exchange offer made by or on behalf of such Person or any of such Person's
Affiliates or Associates until such tendered securities are accepted for
purchase or exchange; or (B) the right to vote pursuant to any agreement,
arrangement or understanding; provided, however, that a Person shall not be
deemed the Beneficial Owner of, or to beneficially own, any security if the
agreement, arrangement or understanding to vote such security (1) arises solely
from a revocable proxy or consent given to such Person in response to a public
proxy or consent solicitation made pursuant to, and in accordance with, the
applicable rules and regulations promulgated under the Exchange Act and (2) is
not also then reportable on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
1.7.3. are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with which such Person (or
any of such Person's Affiliates or Associates) has any agreement, arrangement or
understanding relating to the acquisition, holding, voting (except to the extent
contemplated by the proviso to subclause (B) of Section 1.7.2), or disposing of
any securities of the Corporation.
Notwithstanding anything in this Section 1.7 to the contrary,
the phrase "then outstanding," when used with reference to a Person's Beneficial
Ownership of securities of the Corporation, shall mean the number of such
securities then issued and outstanding together with the number of such
securities not then actually issued and outstanding which such Person would be
deemed to own beneficially hereunder.
Notwithstanding anything in this Section 1.7 to the contrary,
no Person shall be deemed to beneficially own any securities solely by reason of
such Person being a party to a customary agreement pursuant to which such Person
acts or agrees to act as an underwriter with respect to a bona fide public
offering of securities.
No decision reached, or action taken, by the Board of
Directors of the Corporation or any committee thereof shall cause any Person (or
any Affiliate or Associate of such Person) who is a member of the Board of
Directors of the Corporation or such committee to be deemed, for the purposes of
this Agreement, to be a Beneficial Owner of any securities beneficially owned by
any other Person (or any Affiliate or Associate of such Person) who is a member
of the Board of Directors of the Corporation or any committee thereof solely by
reason of such membership of the Board of Directors or any committee thereof or
participation in the decisions or actions thereof on the part of either or both
of such Persons.
1.8. "Business Day" means any day other than a Saturday, a Sunday, a
day on which banking institutions in the State of Washington or the city in
which the office of the Rights Agent is located are obligated by law or
executive order to close, or a United States federal holiday.
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1.9. "Capital Stock Equivalents" has the meaning set forth in Section
11.1.3 hereof.
1.10. "Close of Business" on any given date means 5:00 P.M., Washington
time, on such date; provided, however, that if such date is not a Business Day
it means 5:00 P.M., Washington time, on the next succeeding Business Day.
1.11. "Common Stock" when used with reference to the Corporation means
the Common Stock of the Corporation or, in the event of a subdivision,
combination or consolidation with respect to such shares of Common Stock, the
shares of Common Stock resulting from such subdivision, combination or
consolidation. "Common Stock" when used with reference to any Person other than
the Corporation means the capital stock (or equity interest) with the greatest
voting power of such other Person or, if such other Person is a Subsidiary of
another Person, the Person or Persons which ultimately control such
first-mentioned Person.
1.12. "Corporation" means Seattle FilmWorks, Inc., a Washington
corporation, and also means a Principal Party to the extent provided in Section
13.1 hereof.
1.13. "Distribution Date" has the meaning set forth in Section 3.1
hereof.
1.14. "Equivalent Preferred Stock" has the meaning set forth in Section
11.2 hereof.
1.15. "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
1.16. "Exchange Ratio" has the meaning set forth in Section 26.1
hereof.
1.17. "Final Expiration Date" has the meaning set forth in Section 7.1
hereof.
1.18. "Interested Shareholder" means any Acquiring Person or any
Affiliate or Associate of an Acquiring Person or any other Person in which any
such Acquiring Person, Affiliate or Associate has an interest, or any other
Person acting directly or indirectly on behalf of or in concert with any such
Acquiring Person, Affiliate or Associate.
1.19. "NASDAQ" has the meaning set forth in Section 11.4.1 hereof.
1.20. "Permitted Offer" means a tender or exchange offer which is for
all outstanding shares of Common Stock of the Corporation at a price and on
terms determined, prior to the purchase of shares under such tender or exchange
4
offer, by at least a majority of the members of the Board of Directors who are
not officers of the Corporation and who are not Acquiring Persons or Affiliates,
Associates, nominees or representatives of an Acquiring Person, to be adequate
(taking into account all factors that such directors deem pertinent including,
without limitation, prices that could reasonably be achieved if the Corporation
or its assets were sold on an orderly basis designed to realize maximum value)
and otherwise in the best interests of the Corporation, its shareholders (other
than the Person or any Affiliate or Associate thereof on whose basis the offer
is being made) and other relevant constituencies, taking into account all
factors that such directors may deem pertinent.
1.21. "Person" means any individual, firm, partnership, corporation,
limited liability company, limited liability partnership, trust, association,
joint venture or other entity, and includes any successor (by merger or
otherwise) of such entity.
1.22. "Preferred Stock" means shares of the Corporation's Series RP
Preferred Stock, par value $0.01 per share, having the relative rights,
preferences and limitations set forth in the Form of Certificate of Designation,
Preferences and Rights of Series RP Preferred Stock attached to this Agreement
as Exhibit A.
1.23. "Principal Party" has the meaning set forth in Section 13.2
hereof.
1.24. "Proration Factor" has the meaning set forth in Section 11.1.3
hereof.
1.25. "Purchase Price" has the meaning set forth in Section 4.1 hereof.
1.26. "Record Date" has the meaning set forth in Recital A hereof.
1.27. "Redemption Date" has the meaning set forth in Section 7.1
hereof.
1.28. "Redemption Price" has the meaning set forth in Section 23.1.1
hereof.
1.29. "Right Certificate" has the meaning set forth in Section 3.1
hereof.
1.30. "Rights" has the meaning set forth in Recital A hereof.
1.31. "Rights Agent" means ChaseMellon Shareholder Services, L.L.C., a
New Jersey limited liability company, as Rights Agent hereunder, and, from the
time of its succession, any successor Rights Agent under Section 19 or Section
21 hereof.
5
1.32. "Section 11.1.2 Event" has the meaning set forth in Section
11.1.2 hereof.
1.33. "Section 13 Event" means any event described in clause (x), (y)
or (z) of Section 13.1 hereof.
1.34. "Shares Acquisition Date" means the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to the Exchange Act) by the Corporation or
an Acquiring Person that an Acquiring Person has become such or that facts exist
as a result of which there exists an Acquiring Person; provided, that, if such
Person is determined by the Board of Directors of the Corporation not to have
become an Acquiring Person pursuant to subclause (B)(ii) of Section 1.1 hereof,
then no Shares Acquisition Date shall be deemed to have occurred.
1.35. "Subsidiary" of any Person means any corporation or other Person
of which a majority of the voting power of the voting equity securities or
equity interest is owned, directly or indirectly, by such Person.
1.36. "Summary of Rights" has the meaning set forth in Section 3.2
hereof.
1.37. "Trading Day" has the meaning set forth in Section 11.4.1 hereof.
1.38. "Triggering Event" means any Section 11.1.2 Event or any Section
13 Event.
1.39. "Voting Power" means the combined voting power of the voting
securities of the Corporation, outstanding on any relevant determination date,
to vote generally in the election of directors of the Corporation.
1.40. The term "voting securities" has the meaning set forth in Section
13.1 hereof.
2. Appointment of Rights Agent.
2.1. The Corporation hereby appoints the Rights Agent to act as agent
for the Corporation in accordance with the terms and conditions hereof, and the
Rights Agent hereby accepts such appointment. The Corporation may from time to
time appoint such co-Rights Agents as it may deem necessary or desirable. The
Rights Agent shall have no duty to supervise, and in no event shall be liable
for, the acts or omissions of any such co-Rights Agent.
6
3. Issuance of Right Certificates.
3.1. Until the earlier of (i) the Shares Acquisition Date or (ii) the
Close of Business on the tenth (10th) day (or such later date as may be
determined by action of the Corporation's Board of Directors) after the date of
the commencement by any Person (other than the Corporation, any Subsidiary of
the Corporation, any employee benefit plan of the Corporation or of any
Subsidiary of the Corporation or any Person or entity organized, appointed or
established by the Corporation or any Subsidiary of the Corporation for or
pursuant to the terms of any such plan) of, or after the date of the first
public announcement of the intention of any Person (other than the Corporation,
any Subsidiary of the Corporation, any employee benefit plan of the Corporation
or of any Subsidiary of the Corporation or any Person or entity organized,
appointed or established by the Corporation or any Subsidiary of the Corporation
for or pursuant to the terms of any such plan) to commence (which intention to
commence remains in effect for five (5) Business Days after such announcement),
a tender or exchange offer the consummation of which would result in any Person
becoming an Acquiring Person (including, in the case of both (i) and (ii), any
such date which is after the date of this Agreement and prior to the issuance of
the Rights) (the "Distribution Date"), (x) the Rights will be evidenced (subject
to the provisions of Section 3.2 hereof) by the certificates for shares of
Common Stock registered in the names of the holders thereof (which certificates
shall also be deemed to be Right Certificates) and not by separate Right
Certificates, and (y) the right to receive Right Certificates will be
transferable only in connection with the transfer of the underlying shares of
Common Stock (including a transfer to the Corporation); provided, however, that
if a tender or exchange offer is terminated prior to the occurrence of a
Distribution Date, then no Distribution Date shall occur as a result of such
tender or exchange offer. As soon as practicable after the Distribution Date,
the Corporation will prepare and execute, the Rights Agent will countersign, and
the Corporation will send or cause to be sent by first-class, postage-prepaid
mail, to each record holder of shares of Common Stock as of the Close of
Business on the Distribution Date, at the address of such holder shown on the
records of the Corporation, a Right Certificate, substantially in the form of
Exhibit B hereto (a "Right Certificate"), evidencing one Right for each share of
Common Stock so held. As of and after the Distribution Date, the Rights will be
evidenced solely by such Right Certificates.
3.2. As promptly as practicable following the Record Date, the
Corporation will send a copy of a Summary of Rights to Purchase Preferred Stock,
in substantially the form of Exhibit C hereto (the "Summary of Rights"), by
first-class, postage-prepaid mail, to each record holder of shares of Common
Stock as of the Close of Business on the Record Date, at the address of such
holder shown on the records of the Corporation. With respect to certificates for
shares of Common Stock outstanding as of the Record Date, until the Distribution
Date the Rights will be evidenced by such certificates registered in the names
of the holders thereof together with a copy of the Summary of Rights attached
thereto. Until the Distribution Date (or the earlier of the Redemption Date or
the Final Expiration Date), the surrender for transfer of any certificate for
shares of Common Stock outstanding on the Record Date, with or without a copy of
the Summary of Rights attached thereto, shall also constitute the transfer of
the Rights associated with such shares of Common Stock.
7
3.3. Certificates for shares of Common Stock that become outstanding (including,
without limitation, reacquired shares of Common Stock referred to in the last
sentence of this Section 3.3) after the Record Date but prior to the earliest of
the Distribution Date, the Redemption Date or the Final Expiration Date, shall
be deemed also to be certificates for Rights, and shall bear the following
legend:
This certificate also evidences and entitles the holder hereof
to certain rights as set forth in a Rights Agreement between
Seattle FilmWorks, Inc. and ChaseMellon Shareholder Services,
L.L.C., a New Jersey limited liability company, as Rights
Agent, dated as of December __, 1999 (the "Rights Agreement"),
the terms of which are hereby incorporated herein by reference
and a copy of which is on file at the principal executive
offices of Seattle FilmWorks, Inc. Under certain
circumstances, as set forth in the Rights Agreement, such
Rights will be evidenced by separate certificates and will no
longer be evidenced by this certificate. Seattle FilmWorks,
Inc. will mail to the holder of this certificate a copy of the
Rights Agreement without charge after receipt of a written
request therefor. Under certain circumstances set forth in the
Rights Agreement, Rights issued to, or held by, any Person who
is, was or becomes an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement) and
certain related persons, whether currently held by or on
behalf of such Person or by any subsequent holder, may become
null and void.
With respect to such certificates containing the foregoing legend, until the
Distribution Date the Rights associated with the shares of Common Stock
represented by such certificates shall be evidenced by such certificates alone,
and the surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the shares of Common Stock represented
thereby. In the event that the Corporation purchases or acquires any shares of
Common Stock after the Record Date but prior to the Distribution Date (or the
earlier of the Redemption Date or the Final Expiration Date), any Rights
associated with such shares of Common Stock shall be deemed canceled and retired
so that the Corporation shall not be entitled to exercise any Rights associated
with the Common Stock that are no longer outstanding.
4. Form of Right Certificate.
4.1. The Right Certificates (and the forms of election to purchase and
of assignment to be printed on the reverse thereof) shall be substantially in
the form set forth in Exhibit B hereto and may have such marks of identification
or designation and such legends, summaries or endorsements printed thereon as
the Corporation may deem appropriate (which may not affect the duties and
responsibilities of the Rights Agent) and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange on which the Rights may from time to
time be listed, or to conform to usage. Subject to the provisions of Section 11
8
and Section 22 hereof, the Right Certificates shall entitle the holders thereof
to purchase such number of one one-thousandths (1/1000ths) of a share of
Preferred Stock as shall be set forth therein at the price per one
one-thousandth (1/1000th) of a share of Preferred Stock set forth therein in
accordance with Section 7.2 hereof (the "Purchase Price"), but the amount and
type of securities purchasable upon the exercise of each Right and the Purchase
Price thereof shall be subject to adjustment as provided herein.
4.2. Any Right Certificate issued pursuant to Section 3.1 or Section 22
hereof that represents Rights that are null and void pursuant to Section 7.6 of
this Agreement and any Right Certificate issued pursuant to Section 6 or Section
11 hereof upon transfer, exchange, replacement or adjustment of any other Right
Certificate referred to in this sentence, shall contain (to the extent feasible
and upon notice by the Corporation to the Rights Agent that this Section 4.2 has
become applicable) the following legend:
The Rights represented by this Right Certificate are or were
beneficially owned by a Person who was or became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person (as
such terms are defined in the Rights Agreement). Accordingly,
this Right Certificate and the Rights represented hereby are
null and void.
The provisions of Section 7.6 of this Agreement shall be operative whether or
not the foregoing legend is contained on any such Right Certificate.
5. Countersignature and Registration.
5.1. The Right Certificates shall be executed on behalf of the
Corporation by its President or any Vice President and the Secretary or an
Assistant Secretary, either manually or by facsimile signature, shall have
affixed thereto the Corporation's seal or a facsimile thereof, and shall be
attested by the Secretary or an Assistant Secretary of the Corporation, either
manually or by facsimile signature. The Right Certificates shall be
countersigned, either manually or by facsimile signature, by the Rights Agent
and shall not be valid for any purpose unless so countersigned. In case any
officer of the Corporation who shall have signed any of the Right Certificates
shall cease to be such officer of the Corporation before countersignature by the
Rights Agent and issuance and delivery by the Corporation, such Right
Certificates may nevertheless be countersigned by the Rights Agent and issued
and delivered by the Corporation with the same force and effect as though the
person who signed such Right Certificates had not ceased to be such officer of
the Corporation; and any Right Certificate may be signed on behalf of the
Corporation by any Person who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Corporation to sign such Right
Certificate, although at the date of the execution of this Rights Agreement any
such Person was not such an officer.
9
5.2. Following the Distribution Date, and receipt by the Rights Agent
of a list of record holders of Rights, the Rights Agent will keep or cause to be
kept, at its office designated pursuant to Section 25 hereof as the appropriate
place for surrender or transfer of the Right Certificates, books for
registration and transfer of the Right Certificates issued hereunder. Such books
shall show the names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced on the face of each of the Right
Certificates and the certificate number and the date of each of the Right
Certificates.
6. Transfer, Split-Up, Combination and Exchange of Right Certificates;
Mutilated, Destroyed, Lost or Stolen Right Certificates.
6.1. Subject to the provisions of Section 4.2, Section 7.6 and Section
14 hereof, at any time after the Close of Business on the Distribution Date, and
at or prior to the Close of Business on the earlier of the Redemption Date or
the Final Expiration Date, any Right Certificate or Right Certificates may be
transferred, split up, combined or exchanged for another Right Certificate or
Right Certificates, entitling the registered holder to purchase a like number of
one one-thousandths (1/1000ths) of a share of Preferred Stock (or, following a
Triggering Event, other securities, as the case may be) as the Right Certificate
or Right Certificates surrendered then entitled such holder (or former holder in
the case of a transfer) to purchase. Any registered holder desiring to transfer,
split up, combine or exchange any Right Certificate or Right Certificates shall
make such request in writing delivered to the Rights Agent, and shall surrender
the Right Certificate or Right Certificates to be transferred, split up,
combined or exchanged at the office of the Rights Agent designated for such
purpose. Neither the Rights Agent nor the Corporation shall be obligated to take
any action whatsoever with respect to the transfer of any such surrendered Right
Certificate until the registered holder shall have completed and signed the
certificate contained in the form of assignment on the reverse side of such
Right Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Corporation or the Rights Agent shall reasonably
request. Thereupon the Rights Agent shall, subject to Section 4.2, Section 7.6
and Section 14 hereof, countersign and deliver to the Person entitled thereto a
Right Certificate or Right Certificates, as the case may be, as so requested.
The Corporation may require payment of a sum sufficient to cover any tax or
charge that may be imposed in connection with any transfer, split up,
combination or exchange of Right Certificates. The Rights Agent may in its sole
discretion require the Corporation or the Person entitled to such Right
Certificate to provide evidence that such tax or charge has been paid prior to
countersigning and delivering any Right Certificate pursuant to this Section
6.1.
6.2. Upon receipt by the Corporation and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Corporation's request,
reimbursement to the Corporation and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
10
the Right Certificate if mutilated, the Corporation will make and deliver a new
Right Certificate of like tenor to the Rights Agent for countersignature and
delivery to the registered holder in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated.
7. Exercise of Rights; Purchase Price; Expiration Date of Rights.
7.1. Subject to Section 7.6 hereof, the registered holder of any Right
Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein) in whole or in part at any time after the Distribution Date
upon surrender of the Right Certificate, with the form of election to purchase
and the certificate on the reverse side thereof duly and properly executed, to
the Rights Agent at the office of the Rights Agent designated for such purpose,
together with payment of the aggregate Purchase Price for the total number of
one one-thousandths (1/1000ths) of a share of Preferred Stock (or other
securities, as the case may be) as to which such surrendered Rights are
exercised, at or prior to the earlier of (i) the Close of Business on December
27, 2009 (the "Final Expiration Date"), or (ii) the time at which the Rights are
redeemed as provided in Section 23 hereof (the "Redemption Date").
7.2. The Purchase Price for each one one-thousandth (1/1000th) of a
share of Preferred Stock pursuant to the exercise of a Right shall initially be
$22.00, shall be subject to adjustment from time to time as provided in the next
sentence and in Sections 11 and 13.1 hereof and shall be payable in accordance
with paragraph 7.3 below. Anything in this Agreement to the contrary
notwithstanding, in the event that at any time after the date of this Agreement
and prior to the Distribution Date, the Corporation shall (i) declare or pay any
dividend on the Common Stock payable in Common Stock or (ii) effect a
subdivision, combination or consolidation of the Common Stock (by
reclassification or otherwise than by payment of dividends in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then, in any
such case, each share of Common Stock outstanding following such subdivision,
combination or consolidation shall continue to have a Right associated therewith
and the Purchase Price following any such event shall be proportionately
adjusted to equal the result obtained by multiplying the Purchase Price
immediately prior to such event by a fraction the numerator of which shall be
the total number of shares of Common Stock outstanding immediately prior to the
occurrence of the event and the denominator of which shall be the total number
of shares of Common Stock outstanding immediately following the occurrence of
such event. The adjustment provided for in the preceding sentence shall be made
successively whenever such a dividend is declared or paid or such a subdivision,
combination or consolidation is effected.
7.3. Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase and the certificate on the reverse
side thereof duly and properly executed, accompanied by payment of the Purchase
Price for the Preferred Stock (or other securities, as the case may be) to be
purchased and an amount equal to any applicable tax or charge required to be
paid by the holder of such Right Certificate in accordance with Section 6 hereof
by certified check, cashier's check or money order payable to the order of the
11
Corporation, the Rights Agent shall thereupon promptly (i) (A) requisition from
any transfer agent of the Preferred Stock certificates for the number of shares
of Preferred Stock to be purchased, and the Corporation hereby irrevocably
authorizes its transfer agent to comply with all such requests, or (B) if the
Corporation, in its sole discretion, shall have elected to deposit the Preferred
Stock issuable upon exercise of the Rights hereunder into a depositary,
requisition from the depositary agent depositary receipts representing such
number of one one-thousandths (1/1000ths) of a share of Preferred Stock as are
to be purchased (in which case certificates for the Preferred Stock represented
by such receipts shall be deposited by the transfer agent with the depositary
agent) and the Corporation will direct the depositary agent to comply with such
requests, (ii) when appropriate, requisition from the Corporation the amount of
cash to be paid in lieu of issuance of fractional shares in accordance with
Section 14 hereof, (iii) after receipt of such certificates or depositary
receipts, cause the same to be delivered to or upon the order of the registered
holder of such Right Certificate, registered in such name or names as may be
designated by such holder, and (iv) when appropriate, after receipt thereof,
deliver such cash to or upon the order of the registered holder of such Right
Certificate. In the event that the Corporation is obligated to issue other
securities (including shares of Common Stock) of the Corporation pursuant to
Section 11.1 hereof, the Corporation will make all arrangements necessary so
that such other securities are available for distribution by the Rights Agent,
if and when necessary to comply with this Agreement.
7.4. In addition, in the case of an exercise of the Rights by a holder
pursuant to Section 11.1.2, the Rights Agent shall return such Right Certificate
to the registered holder thereof after imprinting, stamping or otherwise
indicating thereon that the Rights represented by such Right Certificate no
longer include the rights provided by Section 11.1.2 of the Rights Agreement and
if less than all the Rights represented by such Right Certificate were so
exercised, the Rights Agent shall indicate on the Right Certificate the number
of Rights represented thereby that continue to include the rights provided by
Section 11.1.2.
7.5. In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent to the registered holder of such Right Certificate or to his
duly authorized assigns, subject to the provisions of Section 6 and Section 14
hereof, or the Rights Agent shall place an appropriate notation on the Right
Certificate with respect to those Rights exercised.
7.6. Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of a Section 11.1.2 Event, any Rights
beneficially owned by (i) an Acquiring Person or an Affiliate or Associate of an
Acquiring Person, (ii) a transferee of an Acquiring Person (or of any Affiliate
or Associate thereof) who becomes a transferee after the Acquiring Person
becomes such, or (iii) a transferee of an Acquiring Person (or of any Affiliate
or Associate thereof) who becomes a transferee prior to or concurrently with the
Acquiring Person becoming such and receives such Rights pursuant to either (A) a
transfer (whether or not for consideration) from the Acquiring Person (or from
any Affiliate or Associate thereof) to holders of equity interests in such
12
Acquiring Person or to any Person with whom the Acquiring Person has a
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer that the Board of Directors of the Corporation has
determined is part of a plan, arrangement or understanding that has as a primary
purpose or effect the avoidance of this Section 7.6, shall become null and void
without any further action and no holder of such Rights shall have any rights
whatsoever with respect to such Rights, whether under any provision of this
Agreement or otherwise. The Corporation shall notify the Rights Agent when this
Section 7.6 applies and shall use all reasonable efforts to insure that the
provisions of this Section 7.6 and Section 4.2 hereof are complied with, but
neither the Corporation nor the Rights Agent shall have any liability to any
holder of Right Certificates or other Person as a result of the Corporation's
failure to make any determinations with respect to an Acquiring Person or its
Affiliates, Associates or transferees hereunder.
7.7. Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Corporation shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall have
(i) properly completed and signed the certificate contained in the form of
election to purchase set forth on the reverse side of the Right Certificate
surrendered for such exercise, and (ii) provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Corporation or the Rights Agent shall reasonably
request.
8. Cancellation and Destruction of Right Certificates.
8.1. All Right Certificates surrendered for the purpose of exercise,
transfer, split up, combination or exchange shall, if surrendered to the
Corporation or to any of its agents, be delivered to the Rights Agent for
cancellation or in cancelled form, or, if surrendered to the Rights Agent, shall
be cancelled by it, and no Right Certificates shall be issued in lieu thereof
except as expressly permitted by the provisions of this Rights Agreement. The
Corporation shall deliver to the Rights Agent for cancellation and retirement,
and the Rights Agent shall so cancel and retire, any other Right Certificate
purchased or acquired by the Corporation otherwise than upon the exercise
thereof. The Rights Agent shall deliver all cancelled Right Certificates to the
Corporation, or shall, at the written request of the Corporation, destroy such
cancelled Right Certificates, and in such case shall deliver a certificate of
destruction thereof to the Corporation.
9. Reservation and Availability of Preferred Stock.
9.1. The Corporation covenants and agrees that, at all times prior to
the occurrence of a Section 11.1.2 Event, it will cause to be reserved and kept
available out of its authorized and unissued Preferred Stock, or any authorized
and issued Preferred Stock held in its treasury, the number of shares of
Preferred Stock that will be sufficient to permit the exercise in full of all
outstanding Rights and, after the occurrence of a Section 11.1.2 Event, shall,
13
to the extent reasonably practicable, so reserve and keep available a sufficient
number of shares of Common Stock (and/or other securities) that may be required
to permit the exercise in full of the Rights pursuant to this Agreement.
9.2. So long as the shares of Preferred Stock (and, after the
occurrence of a Section 11.1.2 Event, shares of Common Stock or any other
securities) issuable upon the exercise of the Rights may be listed on any stock
exchange, the Corporation shall use its best efforts to cause, from and after
such time as the Rights become exercisable, all shares or other securities
reserved for such issuance to be listed on such exchange upon official notice of
issuance upon such exercise.
9.3. The Corporation covenants and agrees that it will take all such
action as may be necessary to ensure that all shares of Preferred Stock (or
shares of Common Stock and/or other securities, as the case may be) delivered
upon exercise of Rights shall, at the time of delivery of the certificates for
such shares or other securities (subject to payment of the Purchase Price), be
duly and validly authorized and issued and fully paid and non-assessable shares
or securities.
9.4. The Corporation covenants and agrees that it will pay when due and
payable any and all taxes and charges that may be payable in respect of the
issuance or delivery of the Right Certificates or of any shares of Preferred
Stock (or shares of Common Stock and/or other securities, as the case may be)
upon the exercise of Rights. The Corporation shall not, however, be required to
pay any tax or charge that may be payable in respect of any transfer or delivery
of Right Certificates to a person other than, or the issuance or delivery of
certificates or depositary receipts for the shares of Preferred Stock (or shares
of Common Stock and/or other securities, as the case may be) in a name other
than that of, the registered holder of the Right Certificate evidencing Rights
surrendered for exercise, or to issue or to deliver any certificates or
depositary receipts for shares of Preferred Stock (or shares of Common Stock
and/or other securities, as the case may be) upon the exercise of any Rights,
until any such tax or charge shall have been paid (any such tax or charge being
payable by the holder of such Right Certificate at the time of surrender) or
until it has been established to the Corporation's reasonable satisfaction that
no such tax or charge is due.
9.5. The Corporation shall use its best efforts to (i) file, as soon as
practicable following the Shares Acquisition Date, a registration statement
under the Act, with respect to the securities purchasable upon exercise of the
Rights on an appropriate form, (ii) cause such registration statement to become
effective as soon as practicable after such filing, and (iii) cause such
registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Act and the rules and regulations thereunder)
until the date of the expiration of the period for exercise of the Rights
provided by Section 11.1.2. The Corporation will also take such action as may be
appropriate under the blue sky laws of the various states.
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10. Preferred Stock Record Date.
10.1. Each Person in whose name any certificate for shares of Preferred
Stock (or shares of Common Stock and/or other securities, as the case may be) is
issued upon the exercise of Rights shall for all purposes be deemed to have
become the holder of record of the shares of Preferred Stock (or shares of
Common Stock and/or other securities, as the case may be) represented thereby
on, and such certificate shall be dated, the date upon which the Right
Certificate evidencing such Rights was duly surrendered and payment of the
Purchase Price (and any applicable taxes and charges) was made; provided,
however, that, if the date of such surrender and payment is a date upon which
the shares of Preferred Stock (or shares of Common Stock and/or other
securities, as the case may be) transfer books of the Corporation are closed,
such person shall be deemed to have become the record holder of such shares on,
and such certificate shall be dated, the next succeeding Business Day on which
the shares of Preferred Stock (or shares of Common Stock and/or other
securities, as the case may be) transfer books of the Corporation are open.
11. Adjustment of Purchase Price, Number and Kind of Shares or Number of
Rights.
The Purchase Price, the number and kind of shares covered by each Right
and the number of Rights outstanding are subject to adjustment from time to time
as provided in this Section 11.
11.1. Adjustment Events.
11.1.1. In the event the Corporation shall at any time after the
date of this Agreement (A) declare a dividend on the Preferred Stock payable in
Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C) combine the
outstanding Preferred Stock into a smaller number of Preferred Stock or (D)
issue any shares of its capital stock in a reclassification of the Preferred
Stock (including any such reclassification in connection with a consolidation or
merger in which the Corporation is the continuing or surviving corporation),
except as otherwise provided in this Section 11.1 and Section 7.6 hereof, the
Purchase Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification, and the
number and kind of shares of capital stock issuable on such date, shall be
proportionately adjusted so that the holder of any Right exercised after such
time shall be entitled to receive the aggregate number and kind of shares of
capital stock that, if such Right had been exercised immediately prior to such
date and at a time when the Preferred Stock transfer books of the Corporation
were open, such holder would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification; provided, however, that in no event shall the consideration to
be paid upon the exercise of one Right be less than the aggregate par value, if
any, of the shares of capital stock of the Corporation issuable upon exercise of
one Right. If an event occurs that would require an adjustment under both
Section 11.1.1 and Section 11.1.2, the adjustment provided for in this Section
11.1.1 shall be in addition to, and shall be made prior to, any adjustment
required pursuant to Section 11.1.2.
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11.1.2. In the event (a "Section 11.1.2 Event") that any Person,
alone or together with its Affiliates and Associates, shall become an Acquiring
Person, then proper provision shall be made so that each holder of a Right
(except as provided below and in Section 7.6 hereof) shall, for a period of
sixty (60) days (or such longer period as the Corporation's Board of Directors
may determine at any time prior to or during such period of sixty (60) days)
after the later of the occurrence of any such event or the effective date of an
appropriate registration statement under the Act pursuant to Section 9.5 hereof,
have a right to receive, upon exercise thereof at a price equal to the then
current Purchase Price, in accordance with the terms of this Agreement, such
number of shares of Common Stock (or, in the discretion of the Corporation's
Board of Directors, one one-thousandths (1/1000ths) of a share of Preferred
Stock) as shall equal the result obtained by (x) multiplying the then current
Purchase Price by the then number of one one-thousandths (1/1000ths) of a share
of Preferred Stock for which a Right was exercisable immediately prior to the
first occurrence of a Section 11.1.2 Event, and (y) dividing that product by 50%
of the then current per share market price of the Common Stock (determined
pursuant to Section 11.4 hereof) on the date of such first occurrence (such
number of shares being referred to as the "Adjustment Shares"); provided,
however, that if the transaction that would otherwise give rise to the foregoing
adjustment is also subject to the provisions of Section 13 hereof, then only the
provisions of Section 13 hereof shall apply and no adjustment shall be made
pursuant to this Section 11.1.2.
11.1.3. In the event that there shall not be sufficient treasury or
authorized but unissued (and unreserved) Common Stock to permit the exercise in
full of the Rights in accordance with Section 11.1.2 and the Rights become so
exercisable (and the Board of Directors of the Corporation has not determined to
make the Rights exercisable solely into fractions of a share of Preferred
Stock), notwithstanding any other provision of this Agreement, to the extent
necessary and permitted by applicable law, each Right except as provided below
and in Section 7.6 hereof shall thereafter represent the right to receive, upon
exercise thereof at the then current Purchase Price in accordance with the terms
of this Agreement, (x) a number of (or fractions of) shares of Common Stock
calculated by dividing the maximum number of shares of Common Stock that may
permissibly be issued by the number of outstanding Rights and (y) a number of
one one-thousandths (1/1000ths) of shares of Preferred Stock or a number of, or
fractions of, other equity securities of the Corporation (or, in the discretion
of the Board of Directors of the Corporation, debt) that the Board of Directors
of the Corporation has determined to have an aggregate current market value
(determined pursuant to Section 11.1.1 and Section 11.1.2 hereof, to the extent
applicable) equal to the difference between (1) the aggregate current market
value of the Adjustment Shares (assuming such shares of Common Stock could be
issued pursuant to Section 11.1.2 hereof) and (2) the aggregate current market
value of the shares of Common Stock issued in respect of such Right pursuant to
the preceding clause (x) (such number of, or fractions of, shares of Preferred
Stock, debt or other equity securities or debt of the Corporation being referred
to as a "Capital Stock Equivalent"); provided, however, if sufficient shares of
Common Stock and/or Capital Stock Equivalents are unavailable, then the
Corporation shall, to the extent permitted by applicable law, take all such
action as may be necessary to authorize additional shares of Common Stock or
Capital Stock Equivalents for issuance upon exercise of the Rights, including
the calling of a meeting of shareholders; and provided, further, that if the
Corporation is unable to cause sufficient shares of Common Stock and/or Capital
Stock Equivalents to be available for issuance upon exercise in full of the
16
Rights, then each Right shall thereafter represent the right to receive the
Adjusted Number of Shares upon exercise at the Adjusted Purchase Price (as such
terms are hereinafter defined). As used herein, the term "Adjusted Number of
Shares" shall be equal to that number of (or fractions of) shares of Common
Stock (and/or Capital Stock Equivalents) equal to the product of (x) the number
of Adjustment Shares and (y) a fraction, the numerator of which is the number of
shares of Common Stock (and/or Capital Stock Equivalents) available for issuance
upon exercise of the Rights and the denominator of which is the aggregate number
of Adjustment Shares otherwise issuable upon exercise in full of all Rights
(assuming there were a sufficient number of shares of Common Stock available)
(such fraction being referred to as the "Proration Factor"). The "Adjusted
Purchase Price" shall mean the product of the Purchase Price and the Proration
Factor. The Board of Directors of the Corporation may, but shall not be required
to, establish procedures to allocate the right to receive shares of Common Stock
and Capital Stock Equivalents upon exercise of the Rights among holders of
Rights.
11.2. In case the Corporation shall fix a record date for the issuance
of rights (other than the Rights), options or warrants to all holders of
Preferred Stock entitling them (for a period expiring within 60 calendar days
after such record date) to subscribe for or purchase shares of Preferred Stock
(or shares having the same rights, privileges and preferences as the Preferred
Stock ("Equivalent Preferred Stock")) or securities convertible into Preferred
Stock or Equivalent Preferred Stock at a price per share of Preferred Stock or
Equivalent Preferred Stock (or having a conversion price per share, if a
security convertible into shares of Preferred Stock or Equivalent Preferred
Stock) less than the then current per share market price of the Preferred Stock
(as determined pursuant to Section 11.4 hereof) on such record date, the
Purchase Price to be in effect after such record date shall be determined by
multiplying the Purchase Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the number of shares of Preferred
Stock outstanding on such record date plus the number of shares of Preferred
Stock that the aggregate offering price of the total number of shares of
Preferred Stock and/or Equivalent Preferred Stock so to be offered (and/or the
aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such current per share market price, and the
denominator of which shall be the number of shares of Preferred Stock
outstanding on such record date plus the number of additional shares of
Preferred Stock and/or Equivalent Preferred Stock to be offered for subscription
or purchase (or into which the convertible securities so to be offered are
initially convertible); provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value, if any, of the shares of capital stock of the Corporation
issuable upon exercise of one Right. In case such subscription price may be paid
in a consideration part or all of which shall be in a form other than cash, the
value of such consideration shall be determined in good faith by the Board of
Directors of the Corporation, whose determination shall be described in a
statement filed with the Rights Agent and shall be binding on the Rights Agent
and the holders of the Rights. Preferred Stock owned by or held for the account
of the Corporation shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively whenever such a record
date is fixed; and in the event that such rights, options or warrants are not so
issued, the Purchase Price shall be adjusted to be the Purchase Price that would
then be in effect if such record date had not been fixed.
17
11.3. In case the Corporation shall fix a record date for the making of
a distribution to all holders of the Preferred Stock (including any such
distribution made in connection with a consolidation or merger in which the
Corporation is the continuing or surviving corporation) of evidences of
indebtedness or assets (other than a regular quarterly cash dividend or a
dividend payable in Preferred Stock) or subscription rights or warrants
(excluding those referred to in Section 11.2 hereof), the Purchase Price to be
in effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the then current per share market price (as
determined pursuant to Section 11.4 hereof) of the Preferred Stock on such
record date, less the fair market value (as determined in good faith by the
Board of Directors of the Corporation, whose determination shall be described in
a statement filed with the Rights Agent and shall be binding on the Rights Agent
and the holders of the Rights) of the portion of the assets or evidences of
indebtedness so to be distributed or of such subscription rights or warrants
applicable to one share of Preferred Stock, and the denominator of which shall
be such current per share market price of the Preferred Stock; provided,
however, that in no event shall the consideration to be paid upon the exercise
of one Right be less than the aggregate par value, if any, of the shares of
capital stock of the Corporation to be issued upon exercise of one Right. Such
adjustments shall be made successively whenever such a record date is fixed; and
in the event that such distribution is not so made, the Purchase Price shall
again be adjusted to be the Purchase Price that would then be in effect if such
record date had not been fixed.
11.4. Computation of "Current Per Share Market Price."
11.4.1. For the purpose of any computation hereunder, the
"current per share market price" of any security (a "Security" for the purpose
of this Section 11.4.1) on any date shall be deemed to be the average of the
daily closing prices per share of such Security for the thirty (30) consecutive
Trading Days immediately prior to and not including such date; provided,
however, that in the event that the current per share market price of the
Security is determined during a period following the announcement by the issuer
of such Security of (A) a dividend or distribution on such Security payable in
shares of such Security or securities convertible into such shares, or (B) any
subdivision, combination or reclassification of such Security and prior to the
expiration of thirty (30) Trading Days after (but not including) the ex-dividend
date for such dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the current per
share market price shall be appropriately adjusted to reflect the current market
price per share equivalent of such Security. The closing price for each day
shall be the last sale price, regular way, or, in case no such sale takes place
on such day, the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Security is not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Security is listed or admitted to trading or,
if the Security is not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotations System
18
("NASDAQ") or such other system then in use, or, if on any such date the
Security is not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market in
the Security selected by the Board of Directors of the Corporation. If on any
such date no such market maker is making a market in the Security, the fair
value of the Security on such date as determined in good faith by the Board of
Directors of the Corporation shall be used. The term "Trading Day" shall mean a
day on which the principal national securities exchange on which the Security is
listed or admitted to trading is open for the transaction of business or, if the
Security is not listed or admitted to trading on any national securities
exchange, a Business Day.
11.4.2. For the purpose of any computation hereunder, the
"current per share market price" of the Preferred Stock shall be determined in
accordance with the method set forth in Section 11.4.1. If the shares of
Preferred Stock are not publicly traded, the "current per share market price" of
the Preferred Stock shall be conclusively deemed to be the current per share
market price of the Common Stock as determined pursuant to Section 11.4.1
(appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof), multiplied by 1,000. If neither
the Common Stock nor the Preferred Stock are publicly held or so listed or
traded, "current per share market price" shall mean, with respect to the
Preferred Stock, the fair value per share as determined in good faith by the
Board of Directors of the Corporation, whose determination shall be described in
a statement filed with the Rights Agent and shall be binding on the Rights Agent
and the holders of the Rights.
11.5. Anything herein to the contrary notwithstanding, no adjustment in
the Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least 1% in the Purchase Price; provided, however,
that any adjustments that by reason of this Section 11.5 are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 11 shall be made to the nearest
cent or to the nearest one one-thousandth (1/1000th) of a share of Preferred
Stock or of any other share or security as the case may be. Notwithstanding the
first sentence of this Section 11.5, any adjustment required by this Section 11
shall be made no later than the earlier of (i) three (3) years from the date of
the transaction that mandates such adjustment or (ii) the Final Expiration Date.
11.6. If as a result of an adjustment made pursuant to Section 11.1.2
or Section 13.1 hereof, the holder of any Right thereafter exercised shall
become entitled to receive any shares of capital stock of the Corporation other
than Preferred Stock, thereafter the number of other shares so receivable upon
exercise of any Right shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Preferred Stock contained in Section 11.1 through 11.3,
inclusive, and the provisions of Sections 7, 9, 10, 13 and 14 with respect to
the Preferred Stock shall apply on like terms to any such other shares.
19
11.7. All Rights originally issued by the Corporation subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-thousandths
(1/1000ths) of a share of Preferred Stock purchasable from time to time
hereunder upon exercise of the Rights, all subject to further adjustment as
provided herein.
11.8. The Corporation may elect on or after the date of any adjustment
of the Purchase Price to adjust the number of Rights, in lieu of any adjustment
in the number of one one-thousandths (1/1000ths) of a share of Preferred Stock
purchasable upon the exercise of a Right. Each of the Rights outstanding after
such adjustment of the number of Rights shall be exercisable for the number of
one one-thousandths (1/1000ths) of a share of Preferred Stock for which a Right
was exercisable immediately prior to such adjustment. Each Right held of record
prior to such adjustment of the number of Rights shall become that number of
Rights (calculated to the nearest one ten-thousandth) obtained by dividing the
Purchase Price in effect immediately prior to adjustment of the Purchase Price
by the Purchase Price in effect immediately after adjustment of the Purchase
Price. The Corporation shall make a public announcement of its election to
adjust the number of Rights, indicating the record date for the adjustment, and,
if known at the time, the amount of the adjustment to be made, and shall deliver
a copy of such public announcement to the Rights Agent. This record date may be
the date on which the Purchase Price is adjusted or any day thereafter, but, if
the Right Certificates have been issued, shall be at least ten (10) days later
than the date of the public announcement. If Right Certificates have been
issued, upon each adjustment of the number of Rights pursuant to this Section
11.8, the Corporation shall, as promptly as practicable, cause to be distributed
to holders of record of Right Certificates on such record date Right
Certificates evidencing, subject to Section 14 hereof, the additional Rights to
which such holders shall be entitled as a result of such adjustment, or, at the
option of the Corporation, shall cause to be distributed to such holders of
record in substitution and replacement for the Right Certificates held by such
holders prior to the date of adjustment, and upon surrender thereof, if required
by the Corporation, new Right Certificates evidencing all the Rights to which
such holders shall be entitled after such adjustment. Right Certificates so to
be distributed shall be issued, executed and countersigned in the manner
provided for herein and shall be registered in the names of the holders of
record of Right Certificates on the record date specified in the public
announcement.
11.9. Irrespective of any adjustment or change in the Purchase Price or
the number of one one-thousandths (1/1000ths) of a share of Preferred Stock
issuable upon the exercise of the Rights, the Right Certificates theretofore and
thereafter issued may continue to express the Purchase Price and the number of
one one-thousandths (1/1000ths) of a share of Preferred Stock that were
expressed in the initial Right Certificates issued hereunder.
11.10. Before taking any action that would cause an adjustment reducing
the Purchase Price below the then par value, if any, of the number of one
one-thousandths (1/1000ths) of a share of Preferred Stock, share of Common Stock
or other securities issuable upon exercise of the Rights, the Corporation shall
take any corporate action that may, in the opinion of its counsel, be necessary
20
in order that the Corporation may validly and legally issue such number of fully
paid and non-assessable one one-thousandths (1/1000ths) of a share of Preferred
Stock, share of Common Stock or other securities at such adjusted Purchase
Price.
11.11. In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Corporation may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
of the Preferred Stock, shares of Common Stock or other securities of the
Corporation, if any, issuable upon such exercise over and above the Preferred
Stock, shares of Common Stock or other securities of the Corporation, if any,
issuable upon such exercise on the basis of the Purchase Price in effect prior
to such adjustment; provided, however, that the Corporation shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares upon the occurrence of the event
requiring such adjustment and shall deliver to the Rights Agent a notice
describing the terms of such due bill or other appropriate instrument.
11.12. Anything in this Section 11 to the contrary notwithstanding, the
Corporation shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that the Corporation in its sole discretion shall determine to be
advisable in order that any (i) consolidation or subdivision of the Preferred
Stock, (ii) issuance wholly for cash of Preferred Stock at less than the current
market price, (iii) issuance wholly for cash of Preferred Stock or securities
that by their terms are convertible into or exchangeable for Preferred Stock,
(iv) stock dividends or (v) issuance of rights, options or warrants referred to
in this Section 11, hereafter made by the Corporation to holders of its
Preferred Stock shall not be taxable to such holders.
11.13. The Corporation covenants and agrees that it shall not, at any
time after the Distribution Date, (i) consolidate with any other Person (other
than a Subsidiary of the Corporation in a transaction that does not violate
Section 11.14 hereof), (ii) merge with or into any other Person (other than a
Subsidiary of the Corporation in a transaction that does not violate Section
11.14 hereof), or (iii) sell or transfer (or permit any Subsidiary to sell or
transfer), in one transaction, or a series of related transactions, assets or
earning power aggregating more than 50% of the assets or earning power of the
Corporation and its Subsidiaries (taken as a whole) to any other Person or
Persons (other than the Corporation and/or any of its Subsidiaries in one or
more transactions each of which does not violate Section 11.14 hereof), if (x)
at the time of or immediately after such consolidation, merger, sale or
transfer, there are any charter or bylaw provisions or any rights, warrants or
other instruments or securities outstanding or agreements in effect or other
actions taken that would materially diminish or otherwise eliminate the benefits
intended to be afforded by the Rights or (y) prior to, simultaneously with or
immediately after such consolidation, merger, sale or transfer, the shareholders
of the Person who constitutes, or would constitute, the "Principal Party" for
purposes of Section 13.1 hereof shall have received a distribution of Rights
previously owned by such Person or any of its Affiliates and Associates. The
Corporation shall not consummate any such consolidation, merger, sale or
transfer unless prior thereto the Corporation and such other Person shall have
21
executed and delivered to the Rights Agent a supplemental agreement evidencing
compliance with this Section 11.13.
11.14. The Corporation covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Section 23 or Section
25.2 hereof, take (or permit any Subsidiary to take) any action the purpose of
which is to, or if at the time such action is taken it is reasonably foreseeable
that the effect of such action is to, materially diminish or otherwise eliminate
the benefits intended to be afforded by the Rights.
11.15. The exercise of Rights under Section 11.1.2 shall only result in
the loss of rights under Section 11.1.2 to the extent so exercised and shall not
otherwise affect the rights represented by the Rights under this Agreement,
including the rights represented by Section 13.
12. Certificate of Adjusted Purchase Price or Number of Shares.
12.1. Whenever an adjustment is made as provided in Section 11 or
Section 13 hereof, the Corporation shall promptly (a) prepare a certificate
setting forth such adjustment and a brief, reasonably detailed statement of the
facts, computations and methodology accounting for such adjustment, (b) file
with the Rights Agent and with each transfer agent for the Common Stock and the
Preferred Stock a copy of such certificate and (c) if such adjustment is made
after the Distribution Date, mail a brief summary thereof to each holder of a
Right Certificate in accordance with Section 25.1 hereof. The Rights Agent shall
be fully protected in relying on any such certificate and on any adjustment
therein contained and shall have no duty with respect to, and shall not be
deemed to have knowledge of, such adjustment unless and until it shall have
received such certificate.
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13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power.
13.1. In the event that, on or following the Shares Acquisition Date,
directly or indirectly, (x) the Corporation shall consolidate with, or merge
with and into, any Interested Shareholder or, if in such merger or consolidation
all holders of shares of Common Stock are not treated alike, any other Person,
(y) the Corporation shall consolidate with, or merge with, any Interested
Shareholder or, if in such merger or consolidation all holders of shares of
Common Stock are not treated alike, any other Person, and the Corporation shall
be the continuing or surviving corporation of such consolidation or merger
(other than, in a case of any transaction described in (x) or (y), a merger or
consolation that would result in all of the securities generally entitled to
vote in the election of directors of the Corporation ("voting securities")
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into securities of the surviving
entity) all of the voting securities of the Corporation or such voting surviving
entity outstanding immediately after such merger or consolidation and the
holders of such securities not having changed as a result of such merger or
consolidation), or (z) the Corporation shall sell or otherwise transfer (or one
or more of its Subsidiaries shall sell or otherwise transfer), in one
transaction or a series of related transactions, assets or earning power
aggregating more than 50% of the assets or earning power of the Corporation and
its Subsidiaries (taken as a whole) to any Interested Shareholder or
Shareholders or, if in such transaction all holders of Common Stock are not
treated alike, any other Person (other than the Corporation or any Subsidiary of
the Corporation in one or more transactions each of which does not violate
Section 11.14 hereof), then, and in each such case (except as provided in
Section 13.4 hereof), proper provision shall be made so that (i) each holder of
a Right, except as provided in Section 7.6 hereof, shall thereafter have the
right to receive, upon the exercise thereof at a price equal to the then current
Purchase Price, in accordance with the terms of this Agreement and in lieu of
Preferred Stock, such number of freely tradable shares of Common Stock of the
Principal Party, not subject to any liens, encumbrances, rights of first refusal
or other adverse claims, as shall equal the result obtained by (A) multiplying
the then current Purchase Price by the number of one one-thousandths (1/1000ths)
of a share of Preferred Stock for which a Right is then exercisable (without
taking into account any adjustment previously made pursuant to Section 11.1.2)
and dividing that product by (B) 50% of the then current per share market price
of the Common Stock of such Principal Party (determined pursuant to Section 11.4
hereof) on the date of consummation of such Section 13 Event; (ii) such
Principal Party shall thereafter be liable for, and shall assume, by virtue of
such Section 13 Event, all the obligations and duties of the Corporation
pursuant to this Agreement; (iii) the term "Corporation" shall thereafter be
deemed to refer to such Principal Party, it being specifically intended that the
provisions of Section 11 hereof shall apply only to such Principal Party
following the first occurrence of a Section 13 Event; and (iv) such Principal
Party shall take such steps (including, but not limited to, the reservation of a
sufficient number of its shares of Common Stock) in connection with the
consummation of any such transaction as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to the shares of Common Stock thereafter deliverable upon the
exercise of the Rights.
23
13.2. "Principal Party" shall mean:
13.2.1. in the case of any transaction described in clause (x) or
(y) of the first sentence of Section 13.1, the Person that is the issuer of any
securities into which shares of Common Stock of the Corporation are converted in
such merger or consolidation, and if no securities are so issued, the Person
that is the other party to such merger or consolidation (including, if
applicable, the Corporation if it is the surviving corporation); and
13.2.2. in the case of any transaction described in clause (z) of
the first sentence of Section 13.1, the Person that is the party receiving the
greatest portion of the assets or earning power transferred pursuant to such
transaction or transactions;
provided, however, that in any of the foregoing cases, (1) if the Common Stock
of such Person is not at such time and has not been continuously over the
preceding twelve (12) month period registered under Section 12 of the Exchange
Act, and such Person is a direct or indirect Subsidiary of another Person the
shares of Common Stock of which are and have been so registered, "Principal
Party" shall refer to such other Person; (2) in case such Person is a
Subsidiary, directly or indirectly, of more than one Person, the shares of
Common Stock of two or more of which are and have been so registered, "Principal
Party" shall refer to whichever of such Persons is the issuer of the Common
Stock having the greatest aggregate market value; and (3) in case such Person is
owned, directly or indirectly, by a joint venture formed by two or more Persons
that are not owned, directly or indirectly, by the same Person, the rules set
forth in (1) and (2) above shall apply to each of the chains of ownership having
an interest in such joint venture as if such party were a "Subsidiary" of both
or all of such joint venturers and the Principal Parties in each such chain
shall bear the obligations set forth in this Section 13 in the same ratio as
their direct or indirect interests in such Person bear to the total of such
interests.
13.3. The Corporation shall not consummate any such consolidation,
merger, sale or transfer unless the Principal Party shall have a sufficient
number of its authorized shares of Common Stock that have not been issued or
reserved for issuance to permit the exercise in full of the Rights in accordance
with this Section 13 and unless prior thereto the Corporation and such Principal
Party shall have executed and delivered to the Rights Agent a supplemental
agreement providing for the terms set forth in Sections 13.1 and 13.2 and
further providing that, as soon as practicable after the date of any
consolidation, merger, sale or transfer mentioned in Section 13.1, the Principal
Party at its own expense shall:
13.3.1. prepare and file a registration statement under the Act
with respect to the Rights and the securities purchasable upon exercise of the
Rights on an appropriate form, and will use its best efforts to cause such
registration statement to (A) become effective as soon as practicable after such
filing and (B) remain effective (with a prospectus at all times meeting the
requirements of the Act) until the Final Expiration Date;
24
13.3.2. use its best efforts to qualify or register the Rights
and the securities purchasable upon exercise of the Rights under the blue sky
laws of such jurisdictions as may be necessary or appropriate; and
13.3.3. deliver to holders of the Rights historical financial
statements for the Principal Party that comply in all respects with the
requirements for registration on Form 10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to
successive mergers or consolidations or sales or other transfers. The rights
under this Section 13 shall be in addition to the rights to exercise Rights and
adjustments under Section 11.1.2 and shall survive any exercise thereof. 13.4.
Notwithstanding anything in this Agreement to the contrary, the foregoing
provisions of this Section 13 shall not be applicable to a transaction described
in clauses (x) and (y) of Section 13.1 if: (i) such transaction is consummated
with a Person or Persons who acquired shares of Common Stock pursuant to a
Permitted Offer (or a wholly owned Subsidiary of any such Person or Persons);
(ii) the price per share of Common Stock offered in such transaction is not less
than the price per share of Common Stock paid to all holders of shares of Common
Stock whose shares were purchased pursuant to such Permitted Offer; and (iii)
the form of consideration offered in such transaction is the same as the form of
consideration paid pursuant to such Permitted Offer. Upon consummation of any
such transaction contemplated by this Section 13.4, all Rights hereunder shall
expire.
14. Fractional Rights and Fractional Shares.
14.1. The Corporation shall not be required to issue fractions of
Rights or to distribute Right Certificates that evidence fractional Rights. In
lieu of such fractional Rights, there shall be paid to the registered holders of
the Right Certificates with regard to which such fractional Rights would
otherwise be issuable an amount in cash equal to the same fraction of the
current market value of a whole Right. For the purposes of this Section 14.1,
the current market value of a whole Right shall be the closing price of the
Rights for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable. The closing price for any
day shall be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
in either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Rights are not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Rights are listed or admitted to trading or, if
the Rights are not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by NASDAQ
or such other system then in use or, if on any such date the Rights are not
25
quoted by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the Rights
selected by the Board of Directors of the Corporation. If on any such date no
such market maker is making a market in the Rights, the fair value of the Rights
on such date as determined in good faith by the Board of Directors of the
Corporation shall be used.
14.2. The Corporation shall not be required to issue fractions of
shares of Preferred Stock (other than fractions that are one one-thousandth
(1/1000th) or integral multiples of one one-thousandth (1/1000th) of a share of
Preferred Stock, or such other fraction determined pursuant to adjustment
provisions of Section 11 hereof) upon exercise of the Rights or to distribute
certificates that evidence fractional shares of Preferred Stock (other than
fractions that are one one-thousandth (1/1000th), or integral multiples of one
one-thousandth (1/1000th) of a share of Preferred Stock or such other fraction
determined pursuant to adjustment provisions of Section 11 hereof). Fractions of
shares of Preferred Stock in integral multiples of one one-thousandth (1/1000th)
of a share of Preferred Stock may, at the election of the Corporation, be
evidenced by depositary receipts, pursuant to an appropriate agreement between
the Corporation and a depositary selected by it; provided that such agreement
shall provide that the holders of such depositary receipts shall have the
rights, privileges and preferences to which they are entitled as beneficial
owners of the Preferred Stock represented by such depositary receipts. In lieu
of fractional shares of Preferred Stock that are not one one-thousandth
(1/1000th) or integral multiples of one one-thousandth (1/1000th) of a share of
Preferred Stock, the Corporation shall pay to the registered holders of Right
Certificates at the time such Rights are exercised as herein provided an amount
in cash equal to the same fraction of the current market value of one share of
Preferred Stock. For the purposes of this Section 14.2, the current market value
of a share of Preferred Stock shall be the closing price of a share of Preferred
Stock (as determined pursuant to Section 11.4.2 hereof) for the Trading Day
immediately prior to the date of such exercise.
14.3. Following the occurrence of one of the transactions or events
specified in Section 11 giving rise to the right to receive shares of Common
Stock, Capital Stock Equivalents (other than Preferred Stock) or other
securities upon the exercise of a Right, the Corporation shall not be required
to issue fractions of shares or units of such shares of Common Stock, Capital
Stock Equivalents or other securities upon exercise of the Rights or to
distribute certificates that evidence fractions of such shares of Common Stock,
Capital Stock Equivalents or other securities. In lieu of fractional shares or
units of such shares of Common Stock, Capital Stock Equivalents or other
securities, the Corporation may pay to the registered holders of Right
Certificates at the time such Rights are exercised as herein provided an amount
in cash equal to the same fraction of the current market value of a share or
unit of such shares of Common Stock, Capital Stock Equivalents or other
securities. For purposes of this Section 14.3, the current market value shall be
determined in the manner set forth in Section 11.4 hereof for the Trading Day
immediately prior to the date of such exercise and, if such Capital Stock
Equivalent is not traded, each such Capital Stock Equivalent shall have the
value of one one-thousandth (1/1000th) of a share of Preferred Stock.
26
14.4. The holder of a Right by the acceptance of the Right expressly
waives such holder's right to receive any fractional Rights or any fractional
share upon exercise of a Right (except as provided above). The Rights Agent
shall not be deemed to have knowledge of, and shall have no duty in respect of,
the issuance of fractional Rights or fractional shares unless and until it shall
have received instructions from the Corporation concerning the issuance of such
fractional Rights or fractional shares.
15. Rights of Action.
15.1. All rights of action in respect of this Agreement, excepting the
rights of action given to the Rights Agent under this Agreement are vested in
the respective registered holders of the Right Certificates (and, prior to the
Distribution Date, the registered holders of shares of the Common Stock); and
any registered holder of any Right Certificate (or, prior to the Distribution
Date, of shares of the Common Stock), without the consent of the Rights Agent or
of the holder of any other Right Certificate (or, prior to the Distribution
Date, of shares of the Common Stock), may, in such registered holder's own
behalf and for such registered holder's own benefit, enforce, and may institute
and maintain any suit, action or proceeding against the Corporation to enforce,
or otherwise act in respect of, such registered holder's right to exercise the
Rights evidenced by such Right Certificate in the manner provided in such Right
Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened violations
of the obligations of any Person subject to, this Agreement. Nothing in this
Section 15 is intended to modify or limit the authority of the Board of
Directors under Section 25.3.
16. Agreement of Right Holders.
Every holder of a Right, by accepting the same, consents and agrees with
the Corporation and the Rights Agent and with every other holder of a Right
that:
16.1. prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the associated shares of Common Stock;
16.2. after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the office of the Rights Agent designated for such purpose, duly endorsed or
accompanied by a proper instrument of transfer and with the appropriate form
fully executed;
16.3. the Corporation and the Rights Agent may deem and treat the
Person in whose name the Right Certificate (or, prior to the Distribution Date,
the associated Common Stock certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
27
ownership or writing on the Right Certificate or the associated Common Stock
certificate made by anyone other than the Corporation or the Rights Agent) for
all purposes whatsoever, and neither the Corporation nor the Rights Agent, shall
be required to be affected by any notice to the contrary; and
16.4. Notwithstanding anything in this Agreement to the contrary,
neither the Corporation nor the Rights Agent shall have any liability to any
holder of a Right or a beneficial interest in a Right or other Person as a
result of its inability to perform any of its obligations under this Agreement
by reason of any preliminary or permanent injunction or other order, decree,
judgment or ruling (whether interlocutory or final) issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative agency
or commission, or any statute, rule, regulation or executive order promulgated
or enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, that the Corporation must use
its best efforts to have any such order, decree, judgment or ruling lifted or
otherwise overturned as soon as practicable.
17. Right Certificate Holder Not Deemed a Shareholder.
No holder, as such, of any Right Certificate shall be entitled to vote,
receive dividends or be deemed for any purpose the holder of shares of the
Preferred Stock or any other securities of the Corporation that may at any time
be issuable on the exercise of the Rights represented thereby, nor shall
anything contained herein or in any Right Certificate be construed to confer
upon the holder of any Right Certificate, as such, any of the rights of a
shareholder of the Corporation or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting thereof,
or to give or withhold consent to any corporate action, or to receive notice of
meetings or other actions affecting shareholders (except as provided in Section
24 hereof), or to receive dividends or other distributions or to exercise any
preemptive or subscription rights, or otherwise, until the Right or Rights
evidenced by such Right Certificate shall have been exercised in accordance with
the provisions hereof.
18. Concerning the Rights Agent.
18.1. The Corporation agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
other disbursements incurred in the administration, preparation, delivery,
amendment and execution of this Agreement and the exercise and performance of
its duties hereunder. The Corporation also agrees to indemnify the Rights Agent
for, and to hold it harmless against, any loss, liability, damage, judgment,
fine, penalty, claim, demand, settlement, cost or expense incurred without gross
negligence, bad faith or willful misconduct on the part of the Rights Agent
(which gross negligence, bad faith or willful misconduct must be determined by a
final, non-appealable order, judgment, decree or ruling of a court of competent
jurisdiction), for any action taken, suffered or omitted by the Rights Agent in
connection with the acceptance and administration of this Agreement, including
28
without limitation the costs and expenses of defending against any claim of
liability in respect of any such action. The costs and expenses of enforcing
this right of indemnification shall also be paid by the Corporation. The
indemnity provided for herein shall survive the expiration of the Rights and the
termination of this Agreement.
18.2. The Rights Agent may conclusively rely upon and shall be
authorized and protected and shall incur no liability for, or in respect of, any
action taken, suffered or omitted by it in connection with the acceptance and
administration of this Agreement in reliance upon any Right Certificate or
certificate for shares of Common Stock or for other securities of the
Corporation, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
Person or Persons or otherwise upon the advice of counsel as set forth in
Section 20 hereof. The Rights Agent shall not be deemed to have knowledge of,
and shall have no duty in respect of, any fact contained in such Right
Certificate or certificate for shares of Common Stock or for other securities of
the Corporation, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement or other paper or document unless and until it shall have received the
same.
18.3. Anything in this Agreement to the contrary notwithstanding, in no
event shall the Rights Agent be liable for special, indirect, punitive
incidental or consequential loss or damage of any kind whatsoever (including but
not limited to lost profits), even if the Rights Agent has been advised of the
likelihood of such loss or damage and regardless of the form of the action. Any
liability of the Rights Agent under this Rights Agreement will be limited to the
amount of fees paid by the Corporation to the Rights Agent.
19. Merger or Consolidation or Change of Name of Rights Agent.
19.1. Any Person into which the Rights Agent or any successor Rights
Agent may be merged or with which it may be consolidated, or any Person
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any Person succeeding to the
shareholder services business of the Rights Agent or any successor Rights Agent,
shall be the successor to the Rights Agent under this Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, provided that such Person would be eligible for appointment as a
successor Rights Agent under the provisions of Section 21 hereof.
19.2. In case at any time the name of the Rights Agent shall be changed
and at such time any of the Right Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Right Certificates so countersigned; and in case at that time
any of the Right Certificates shall not have been countersigned, the Rights
Agent may countersign such Right Certificates either in its prior name or in its
29
changed name; and in all such cases such Right Certificates shall have the full
force provided in the Right Certificates and in this Agreement.
20. Duties of Rights Agent.
20.1. The Rights Agent undertakes those duties and obligations, and
only the duties and obligations, expressly imposed by this Agreement (and no
implied duties or obligations) upon the following terms and conditions, and no
implied duties or obligations shall be read into this Agreement against the
Rights Agent, by all of which the Corporation and the holders of Right
Certificates, by their acceptance thereof, shall be bound.
20.2. Before the Rights Agent acts or refrains from acting, the Rights
Agent may consult with legal counsel (who may be legal counsel for the
Corporation), and the advice or opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent, and the Rights Agent
shall incur no liability for or in respect of any action taken, suffered or
omitted by it in good faith and in accordance with such advice or opinion.
20.3. Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of an Acquiring Person and the
determination of the current market price of any security) be proved or
established by the Corporation prior to taking, suffering or omitting any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman or Vice Chairman
of the Board, the Chief Executive Officer, the President, any Vice President,
the Treasurer or the Secretary of the Corporation and delivered to the Rights
Agent; and such certificate shall be full authorization and protection to the
Rights Agent and the Rights Agent shall incur no liability for or in respect of
any action taken, suffered or omitted in good faith by it under the provisions
of this Agreement in reliance upon such certificate.
20.4. The Rights Agent shall be liable hereunder only for its own gross
negligence, bad faith or willful misconduct (which gross negligence, bad faith
or willful misconduct must be determined by a final, non-appealable order,
judgment, decree or ruling of a court of competent jurisdiction).
20.5. The Rights Agent shall not be liable for, or by reason of, any of
the statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature on such Right Certificates) or be
required to verify the same, but all such statements and recitals are and shall
be deemed to have been made by the Corporation only.
30
20.6. The Rights Agent shall not be under any liability or
responsibility in respect of the validity of this Agreement or the execution and
delivery hereof (except the due execution hereof by the Rights Agent) or in
respect of the validity or execution of any Right Certificate (except its
countersignature thereof); nor shall it be liable or responsible for any breach
by the Corporation of any covenant or condition contained in this Agreement or
in any Rights Certificate; nor shall it be liable or responsible for any change
in the exercisability of the Rights (including the Rights becoming null and void
pursuant to Section 7.6 hereof) or any adjustment required under the provisions
of Section 11, Section 13 or Section 26 hereof or responsible for the manner,
method or amount of any such adjustment or the ascertaining of the existence of
facts that would require any such adjustment (except with respect to the
exercise of Rights evidenced by Right Certificates after receipt of the
certificate described in Section 12 hereof); nor shall it by any act hereunder
be deemed to make any representation or warranty as to the authorization or
reservation of any shares of Preferred Stock or shares of Common Stock to be
issued pursuant to this Agreement or any Right Certificate or as to whether any
Preferred Stock or shares of Common Stock will, when issued, be validly
authorized and issued, fully paid and non-assessable.
20.7. The Corporation agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement.
20.8. The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President,
any Vice President, the Treasurer or the Secretary of the Corporation, and to
apply to such officers for advice or instructions in connection with its duties,
and such instructions shall be full authorization and protection of the Rights
Agent and the Rights Agent shall incur no liability for or in respect of any
action taken, suffered or omitted by it in good faith or lack of action in
accordance with instructions of any such officer or for any delay in acting
while waiting for those instructions. The Rights Agent shall incur no liability
for or in respect of its reliance upon the most recent instructions received by
any such officer. Any application by the Rights Agent for written instructions
from the Corporation may, at the option of the Rights Agent, set forth in
writing any action proposed to be taken or omitted by the Rights Agent under
this Agreement and the date on or after which such action shall be taken or
suffered such omission shall be effective. The Rights Agent shall not be liable
for any action taken or suffered by, or omission of, the Rights Agent in
accordance with a proposal included in any such application on or after the date
specified in such application (which date shall not be less than five (5)
Business Days after the date any officer of the Corporation actually receives
such application, unless any such officer shall have consented in writing to an
earlier date) unless, prior to taking any such action (or the effective date in
the case of an omission), the Rights Agent shall have received written
instruction in response to such application specifying the action to be taken,
suffered or omitted.
31
20.9. The Rights Agent and any shareholder, Affiliate, director,
officer or employee of the Rights Agent may buy, sell or deal in any of the
Rights or other securities of the Corporation or become pecuniarily interested
in any transaction in which the Corporation may be interested, or contract with
or lend money to the Corporation or otherwise act as fully and freely as though
it were not Rights Agent under this Agreement. Nothing herein shall preclude the
Rights Agent from acting in any other capacity for the Corporation or for any
other Person or legal entity.
20.10. The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, negligence or misconduct of any such attorneys
or agents or for any loss to the Corporation or any other Person resulting from
any such act, default, negligence or misconduct, absent gross negligence, bad
faith or willful misconduct as determined by a court of competent jurisdiction,
in the selection and continued employment thereof.
20.11. No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
it believes that repayment of such funds or adequate indemnification against
such risk or liability is not reasonably assured to it.
20.12. If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has not been
completed, the Rights Agent shall not take any further action with respect to
such requested exercise or transfer without first consulting with the
Corporation.
21. Change of Rights Agent.
The Rights Agent or any successor Rights Agent may resign and be discharged
from its duties under this Agreement upon thirty (30) days' notice in writing
mailed to the Corporation and to each transfer agent of the Common Stock or
Preferred Stock by registered or certified mail, and to the holders of the Right
Certificates by first-class mail. The Corporation may remove the Rights Agent or
any successor Rights Agent upon thirty (30) days' notice in writing, mailed to
the Rights Agent or successor Rights Agent, as the case may be, and to each
transfer agent of the Common Stock or Preferred Stock by registered or certified
mail, and to holders of the Right Certificates by first-class mail. If the
Rights Agent shall resign or be removed or shall otherwise become incapable of
acting, the Corporation shall appoint a successor to the Rights Agent. If the
Corporation shall fail to make such appointment within a period of thirty (30)
days after giving notice of such removal or after it has been notified in
writing of such resignation or incapacity by the resigning or incapacitated
Rights Agent or by the holder of a Right Certificate (who shall, with such
notice, submit his Right Certificate for inspection by the Corporation), then
the registered holder of any Right Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any successor
34
Rights Agent, whether appointed by the Corporation or by such a court, shall be
(i) a Person organized and doing business under the laws of the United States or
of any of the States of New York, New Jersey or California (or of any other
state of the United States so long as such Person is authorized to do business),
in good standing, having an office in any of such States, which is subject to
supervision or examination by federal or state authority and which (or the
parent corporation of which) has at the time of its appointment as Rights Agent
a combined capital and surplus of at least $50,000,000 or (ii) an Affiliate of a
Person described in clause (i) above. After appointment, the successor Rights
Agent shall be vested with the same powers, rights, duties and responsibilities
as if it had been originally named as Rights Agent without further act or deed;
but the predecessor Rights Agent shall deliver and transfer to the successor
Rights Agent any property at the time held by it hereunder, and execute and
deliver any further assurance, conveyance, act or deed necessary for the
purpose. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Right Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of a predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor or in
the name of the successor Rights Agent; and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement. Not later than the effective date of any such appointment, the
Corporation shall file notice thereof in writing with the predecessor Rights
Agent and each transfer agent of the Common Stock or Preferred Stock, and mail a
notice thereof in writing to the registered holders of the Right Certificates.
Failure to give any notice provided for in this Section 21, however, or any
defect therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent, as
the case may be.
22. Issuance of New Right Certificates.
22.1. Notwithstanding any of the provisions of this Agreement or of the
Rights to the contrary, the Corporation may, at its option, issue new Right
Certificates evidencing Rights in such form as may be approved by its Board of
Directors to reflect any adjustment or change in the Purchase Price and the
number or kind or class of shares or other securities or property purchasable
under the Right Certificates made in accordance with the provisions of this
Agreement.
22.2. In connection with the issuance or sale of Common Stock following
the Distribution Date and prior to the earlier of the Redemption Date and the
Final Expiration Date, the Corporation (a) shall with respect to shares of
Common Stock so issued or sold pursuant to the exercise of stock options or
under any employee plan or arrangement, or upon the exercise, conversion or
exchange of securities, notes or debentures issued by the Corporation, and (b)
may in any other case, if deemed necessary or appropriate by the Board of
Directors of the Corporation, issue Right Certificates representing the
appropriate number of Rights in connection with such issuance or sale; provided,
however, that no Right Certificate shall be issued if, and to the extent that,
33
the Corporation shall be advised by counsel that appropriate adjustment shall
otherwise have been made in lieu of the issuance thereof.
23. Redemption and Termination.
23.1. Redemption
23.1.1. The Board of Directors of the Corporation may, at its
option, redeem all but not less than all of the then outstanding Rights at a
redemption price of $.001 per Right, as such amount may be appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such redemption price being hereinafter
referred to as the "Redemption Price"), at any time prior to the earlier of the
occurrence of a Section 11.1.2 Event or the Final Expiration Date. The
Corporation may, at its option, pay the Redemption Price either in shares of
Common Stock (based on the current per share market price of the Common Stock at
the time of redemption) or cash; provided that if the Corporation elects to pay
the Redemption Price in shares of Common Stock, the Corporation shall not be
required to issue any fractional shares of Common Stock and the number of shares
of Common Stock issuable to each holder of Rights shall be rounded down to the
next whole share.
23.1.2. In addition, the Board of Directors of the Corporation
may, at its option, at any time following the occurrence of a Section 11.1.2
Event and the expiration of any period during which the holder of Rights may
exercise the Rights under Section 11.1.2 but prior to any Section 13 Event
redeem all but not less than all of the then outstanding Rights at the
Redemption Price (x) in connection with any merger, consolidation or sale or
other transfer (in one transaction or in a series of related transactions) of
assets or earning power aggregating 50% or more of the earning power of the
Corporation and its Subsidiaries (taken as a whole) in which all holders of
shares of Common Stock are treated alike and not involving (other than as a
holder of shares of Common Stock being treated like all other such holders) an
Interested Shareholder or (y) (i) if and for so long as the Acquiring Person is
not thereafter the Beneficial Owner of securities representing 15% or more of
the Voting Power, and (ii) at the time of redemption no other Persons are
Acquiring Persons.
23.2. In the case of a redemption permitted under Section 23.1.1,
immediately upon the date for redemption set forth in (or determined in the
manner specified in) a resolution of the Board of Directors of the Corporation
ordering the redemption of the Rights, and without any further action and
without any notice, the right to exercise the Rights will terminate and the only
right thereafter of the holders of Rights shall be to receive the Redemption
Price for each Right so held. In the case of a redemption permitted only under
Section 23.1.2, the right to exercise the Rights will terminate and represent
only the right to receive the Redemption Price upon the later of ten (10)
Business Days following the giving of such notice or the expiration of any
period during which the Rights may be exercised under Section 11.1.2. The
34
Corporation shall promptly give public notice of any such redemption; with
prompt notice thereof to the Rights Agent provided, however, that the failure to
give, or any defect in, any such notice shall not affect the validity of such
redemption. Within ten (10) days after such date for redemption set forth in a
resolution of the Board of Directors of the Corporation ordering the redemption
of the Rights, the Corporation shall mail a notice of redemption to the Rights
Agent and all the holders of the then outstanding Rights at (in the case of
notice to holders) their addresses as they appear upon the registry books of the
Rights Agent or, prior to the Distribution Date, on the registry books of the
transfer agent for the Common Stock. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of redemption will state the method by which the
payment of the Redemption Price will be made. Neither the Corporation nor any of
its Affiliates or Associates may redeem, acquire or purchase for value any
Rights at any time in any manner other than as specifically set forth in this
Section 23 and other than in connection with the purchase of shares of Common
Stock prior to the Distribution Date.
23.3. The Corporation may, at its option, discharge all of its
obligations with respect to the Rights by (i) issuing a press release announcing
the manner of redemption of the Rights in accordance with this Agreement and
(ii) mailing payment of the Redemption Price to the registered holders of the
Rights at their addresses as they appear on the registry books of the Rights
Agent or, prior to the Distribution Date, on the registry books of the Transfer
Agent of the Common Stock, and upon such action, all outstanding Rights and
Right Certificates shall be null and void without any further action by the
Corporation.
24. Notice of Certain Events.
24.1. In case the Corporation shall propose after the Distribution Date
(i) to pay any dividend payable in stock of any class to the holders of its
Preferred Stock or to make any other distribution to the holders of its
Preferred Stock (other than a regular quarterly cash dividend), (ii) to offer to
the holders of its Preferred Stock rights or warrants to subscribe for or to
purchase any additional Preferred Stock or shares of stock of any class or any
other securities, rights or options, (iii) to effect any reclassification of its
Preferred Stock (other than a reclassification involving only the subdivision of
outstanding Preferred Stock), (iv) to effect any consolidation or merger into or
with any other Person (other than a Subsidiary of the Corporation in a
transaction which does not violate Section 11.14 hereof), or to effect any sale
or other transfer (or to permit one or more of its Subsidiaries to effect any
sale or other transfer) in one or more transactions, of 50% or more of the
assets or earning power of the Corporation and its Subsidiaries (taken as a
whole) to any other Person or Persons (other than the Corporation and/or any of
its Subsidiaries in one or more transactions each of which does not violate
Section 11.14 hereof), or (v) to effect the liquidation, dissolution or winding
up of the Corporation, then, in each such case, the Corporation shall give the
Rights Agent and to each holder of a Right Certificate, in accordance with
Section 25 hereof, a notice of such proposed action which shall specify the
record date for the purposes of such stock dividend or distribution of rights or
warrants, or the date on which such reclassification, consolidation, merger,
sale, transfer, liquidation, dissolution or winding up is to take place and the
date of participation therein by the holders of the Preferred Stock, if any such
35
date is to be fixed, and such notice shall be so given in the case of any action
covered by clause (i) or (ii) above at least twenty (20) days prior to the
record date for determining holders of the Preferred Stock for purposes of such
action, and in the case of any such other action, at least twenty (20) days
prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the Preferred Stock, whichever shall be
the earlier.
24.2. In case of a Section 11.1.2 Event, then (i) the Corporation shall
as soon as practicable thereafter give to each holder of a Right Certificate, in
accordance with Section 25.1.3 hereof, a notice of the occurrence of such event,
which notice shall describe such event and the consequences of such event to
holders of Rights under Section 11.1.2 hereof, and (ii) all references in the
preceding Section 24.1 to Preferred Stock shall be deemed thereafter to refer
also to shares of Common Stock and/or, if appropriate, other securities of the
Corporation.
25. Miscellaneous.
25.1. Notices.
25.1.1. Notices or demands authorized by this Agreement to be
given or made by the Rights Agent or by the holder of any Right Certificate to
or on the Corporation shall be sufficiently given or made if sent by registered
or certified mail and shall be deemed given upon receipt, addressed (until
another address is filed in writing with the Rights Agent) as follows:
Seattle FilmWorks, Inc.
1260 16th Avenue West
Seattle, Washington 98119
Attention: Corporate Secretary
25.1.2. Subject to the provisions of Section 21 hereof, any
notice or demand authorized by this Agreement to be given or made by the
Corporation or by the holder of any Right Certificate to or on the Rights Agent
shall be sufficiently given or made if sent by registered or certified mail and
shall be deemed given upon receipt, postage prepaid, addressed (until another
address is filed in writing with the Corporation) as follows:
ChaseMellon Shareholder Services, L.L.C.
520 Pike Street, Suite 1220
Seattle, WA 98101
Attention: Joseph Campbell
36
25.1.3. Notices or demands authorized by this Agreement to be
given or made by the Corporation or the Rights Agent to the holder of any Right
Certificate or, if prior to the Distribution Date, to the holder of certificates
representing shares of Common Stock shall be sufficiently given or made if sent
by first-class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Corporation.
25.2. Supplements and Amendments. The Corporation may from time to time
supplement or amend any provision of this Agreement without the approval of any
holders of Rights in order to cure any ambiguity, to correct, supplement or
amend any provision herein, or to make any other provision with respect to the
Rights which the Corporation may deem necessary or desirable, any such
supplement or amendment to be evidenced by a writing signed by the Corporation
and the Rights Agent; provided, however, that from and after any Shares
Acquisition Date this Agreement shall not be amended in any manner which will
adversely affect the interests of the holders of Rights. Upon the delivery of a
certificate from an appropriate officer of the Corporation which states that the
proposed supplement or amendment is in compliance with the terms of this Section
25.2, and, if requested by the Rights Agent, an opinion of counsel, the Rights
Agent shall execute such supplement or amendment. Prior to the Distribution
Date, the interests of the holders of Rights shall be deemed coincident with the
interests of the holders of shares of Common Stock. This Agreement shall not be
amended, without the prior written consent of the Rights Agent, in any manner
that changes or increases the duties, liabilities or obligations of the Rights
Agent.
25.3. Determination and Actions by the Board of Directors, etc. The
Board of Directors of the Corporation shall have the exclusive power and
authority to administer this Agreement and to exercise all rights and powers
specifically granted to the Board, or the Corporation, or as may be necessary or
advisable in the administration of this Agreement, including without limitation,
the right and power to (i) interpret the provisions of this Agreement, and (ii)
make all determinations deemed necessary or advisable for the administration of
this Agreement (including, without limitation, a determination to redeem or not
redeem the Rights or to amend the Agreement and whether any proposed amendment
adversely affects the interests of the holders of Right Certificates). For all
purposes of this Agreement, any calculation of the number of shares of Common
Stock or other securities outstanding at any particular time, including for
purposes of determining the particular percentage of such outstanding shares of
Common Stock or any other securities of which any Person is the Beneficial
Owner, shall be made in accordance with the last sentence of Rule 13d-3(d)(1)(i)
of the General Rules and Regulations under the Exchange Act as in effect on the
date of this Agreement. All such actions, calculations, interpretations and
determinations (including, for purposes of clause (y) below, all omissions with
respect to the foregoing) which are done or made by the Board in good faith,
shall (x) be final, conclusive and binding on the Corporation, the Rights Agent,
the holders of the Right Certificates and all other Persons, and (y) not subject
the Board to any liability to the holders of the Right Certificates. The Rights
Agent shall be fully protected and shall incur no liability for or in respect of
its reliance on the good faith of the Corporation's Board of Directors with
respect to actions done or made in connection with such calculation. Nothing in
Section 15 hereof is intended to modify or limit this Section 25.3.
37
25.4. Successors. All the covenants and provisions of this Agreement by
or for the benefit of the Corporation or the Rights Agent shall bind and inure
to the benefit of their respective successors and assigns hereunder.
25.5. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any Person or corporation other than the Corporation, the
Rights Agent and the registered holders of the Right Certificates (and, prior to
the Distribution Date, the shares of Common Stock) any legal or equitable right,
remedy or claim under this Agreement. This Agreement shall be for the sole and
exclusive benefit of the Corporation, the Rights Agent and the registered
holders of the Right Certificates (and, prior to the Distribution Date, the
shares of Common Stock).
25.6. Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction or other authority
to be invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
25.7. Governing Law. This Agreement, each Right and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Washington and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State; except that all provisions
regarding the rights, duties and obligations of the Rights Agent shall be
governed and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed entirely within such State.
25.8. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
25.9. Descriptive Headings. Descriptive headings of the several
sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
26. Exchange.
26.1. Notwithstanding any other provision hereof, the Board of
Directors of the Corporation may, at its option, at any time after any Person
becomes an Acquiring Person, exchange all or part of the then outstanding and
exercisable Rights (which shall not include Rights that have become null and
void pursuant to the provisions of Section 7.6 hereof) for shares of Common
38
Stock of the Corporation at an exchange ratio determined by dividing the
then-applicable exercise price of the Rights determined under Section 7.2 by the
"current per share market price" as defined in Section 11.4.1 (such exchange
ratio being hereinafter referred to as the "Exchange Ratio"). Notwithstanding
the foregoing, the Corporation's Board of Directors shall not be empowered to
effect such exchange at any time after any Person (other than the Corporation,
any Subsidiary of the Corporation, any employee benefit plan of the Corporation
or any such Subsidiary, or any Person organized, appointed or established by the
Corporation for or pursuant to the terms of any such plan or any trustee,
administrator or fiduciary of such a plan), together with all Affiliates and
Associates of such Person, becomes the Beneficial Owner of shares representing
50% or more of the Voting Power.
26.2. Immediately upon the action of the Board of Directors of the
Corporation ordering the exchange of any Rights pursuant to Section 26.1 and
without any further action and without any notice, the right to exercise such
rights shall terminate and the only right thereafter of the holder of such
Rights (other than a holder of Rights that have become null and void pursuant to
the provisions of Section 7.6 hereof) shall be to receive that number of shares
of Common Stock equal to the number of such Rights held by such holder
multiplied by the Exchange Ratio. The Corporation shall promptly give public
notice, and shall promptly give notice to the Rights Agent, of any such
exchange; provided, however, that the failure to give, or any defect in, such
notice shall not affect the validity of such exchange. The Corporation promptly
shall mail a notice of any such exchange to all of the holders of such Rights at
their last addresses as they appear upon the registry books of the Rights Agent.
Any notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange
shall state the method by which the exchange of the Common Stock for Rights will
be effected and, in the event of any partial exchange, the number of Rights
which will be exchanged. Any partial exchange shall be effected pro rata based
on the number of Rights (other than Rights which have become void pursuant to
the provisions of Section 7.6) held by each holder of Rights.
26.3. In the event that there shall not be sufficient shares of Common
Stock issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with this Section 26, the
Corporation shall take all such action as may be necessary to issue additional
shares of Common Stock, Preferred Stock and/or Capital Stock Equivalents with an
aggregate current market value (as determined by the Board of Directors of the
Corporation) equal to the aggregate current market value of a number of shares
of Common Stock equal to the Exchange Ratio.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
39
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and attested, all as of the date and year first
above written.
SEATTLE FILMWORKS, INC.
Attest:
By:/s/ Gary R. Christophersen
--------------------------
Gary R. Christophersen, President and
Chief Executive Officer
CHASEMELLON SHAREHOLDER SERVICES,
L.L.C., as Rights Agent
By:/s/ Joseph Campbell
-------------------
Joseph Campbell
Assistant Vice President
Exhibit A
Form of
Certificate of Designation, Preferences and
Rights of Series RP Preferred Stock
of
Seattle FilmWorks, Inc.
(Pursuant toss.23B.06.020 of the Washington Business Corporation Act)
I, Mich Kele Earl, Secretary of Seattle FilmWorks, Inc. (the
"Corporation"), a corporation organized and existing under the Washington
Business Corporation Act, in accordance with the provisions of Section
23B.01.200 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors of
the Corporation by the Amended and Restated Articles of Incorporation of the
Corporation, the said Board of Directors has adopted the following resolutions
creating a series of 105,000 shares of Preferred Stock designated as Series RP
Preferred Stock.
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of the Corporation in accordance with the provisions of the
Articles of Incorporation of the Corporation, the Board of Directors hereby
creates a series of Series RP Preferred Stock, with a par value of $.01 per
share, of the Corporation and hereby states the designation and number of
shares, and fixes the relative rights, preferences and limitations thereof as
follows (the following provisions being intended to operate in addition to any
other provisions of said Articles of Incorporation applicable to any series of
Preferred Stock):
Series RP Preferred Stock
Section 1. Designation, Par Value and Amount. The shares of such series
shall be designated as "Series RP Preferred Stock" (hereinafter referred to as
"Series RP Preferred Stock"), the shares of such series shall be with par value
of $.01 per share, and the number of shares constituting such series shall be
105,000; provided, however, that, if more than a total of 105,000 shares of
Series RP Preferred Stock shall be issuable upon the exercise of Rights (the
"Rights") issued pursuant to the Rights Agreement, dated as of December 16,
1999, between the Corporation and ChaseMellon Shareholder Services L.L.C., as
Rights Agent (as amended from time to time, the "Rights Agreement"), the Board
of Directors of the Corporation shall direct by resolution or resolutions that a
certificate be properly executed, acknowledged and filed providing for the total
number of shares of Series RP Preferred Stock authorized to be issued to be
increased (to the extent that the Articles of Incorporation then permits) to the
largest number of whole shares (rounded up to the nearest whole number) issuable
upon exercise of the Rights.
Section 2. Dividends and Distributions.
2.1 Subject to the prior and superior rights of the holders of
any shares of any series of Preferred Stock ranking prior and superior to the
shares of Series RP Preferred Stock with respect to dividends, the holders of
shares of Series RP Preferred Stock shall be entitled to receive, when, as and
if declared by the Board of Directors out of assets legally available for the
purpose, quarterly dividends payable in cash on the first business day of March,
June, September and December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or fraction
of a share of Series RP Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provision
for adjustment set forth in Section 6.1, 1,000 times the aggregate per share
amount of all cash dividends, and 1,000 times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other than a
dividend payable in shares of Common Stock, par value $.01 per share, of the
Corporation (the "Common Stock") or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common Stock
since the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series RP Preferred Stock.
2.2 The Corporation shall declare a dividend or distribution
on the Series RP Preferred Stock as provided in Section 2.1 above immediately
after it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series RP
Preferred Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
2.3 Dividends shall begin to accrue and be cumulative on
outstanding shares of Series RP Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of Series RP
Preferred Stock, unless the date of issue of such shares is prior to the record
date for the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or is a date after
the record date for the determination of holders of shares of Series RP
Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on the
shares of Series RP Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be allocated
pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series RP Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be not more
than 30 days prior to the date fixed for the payment thereof.
2
Section 3. Voting Rights. The holders of shares of Series RP Preferred
Stock shall have the following voting rights:
3.1 Except as provided in Section 3.3 and subject to the
provision for adjustment hereinafter set forth, each share of Series RP
Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters
submitted to a vote of the shareholders of the Corporation.
3.2 Except as otherwise provided herein or by law, the holders
of shares of Series RP Preferred Stock and the holders of shares of Common Stock
shall vote together as one class on all matters submitted to a vote of
shareholders of the Corporation.
3.3 The following additional provisions shall apply with
respect to the voting of shares of Series RP Preferred Stock:
3.3.1 If, on the date used to determine shareholders
of record for any meeting of shareholders for the election of directors, a
default in preference dividends (as defined in Section 3.3.5 below) on the
Series RP Preferred Stock shall exist, the holders of the Series RP Preferred
Stock shall have the right, voting as a class as described in Section 3.3.2
below, to elect two directors (in addition to the directors elected by holders
of Common Stock of the Corporation). Such right may be exercised (a) at any
meeting of shareholders for the election of directors or (b) at a meeting of the
holders of shares of Voting Preferred Stock (as hereinafter defined), called for
the purpose in accordance with the Bylaws of the Corporation, until all such
cumulative dividends (referred to above) shall have been paid in full or until
non-cumulative dividends have been paid regularly for at least one year.
3.3.2 The right of the holders of Series RP Preferred
Stock to elect two directors, as described above, shall be exercised as a class
concurrently with the rights of holders of any other series of Preferred Stock
upon which voting rights to elect such directors have been conferred and are
then exercisable. The Series RP Preferred Stock and any additional series of
Preferred Stock that the Corporation may issue and that may provide for the
right to vote with the foregoing series of Preferred Stock are collectively
referred to herein as "Voting Preferred Stock."
3.3.3 Each director elected by the holders of shares
of Voting Preferred Stock shall be referred to herein as a "Preferred Director."
A Preferred Director shall continue to serve as such for a term of one year,
except that upon any termination of the right of all holders of Voting Preferred
Stock to vote as a class for Preferred Directors, the term of office of
Preferred Directors then serving shall terminate. Any Preferred Director may be
removed by, and shall not be removed except by, the vote of the holders of
record of a majority of the outstanding shares of Voting Preferred Stock then
entitled to vote for the election of directors, present (in person or by proxy)
and voting together as a single class (a) at a meeting of the shareholders, or
(b) at a meeting of the holders of shares of such Voting Preferred Stock, called
for the purpose in accordance with the Bylaws of the Corporation.
3.3.4 So long as a default in any preference
dividends of the Series RP Preferred Stock shall exist or the holders of any
other series of Voting Preferred Stock shall be entitled to elect Preferred
3
Directors, (a) any vacancy in the office of a Preferred Director may be filled
(except as provided in the following clause (b)) by an instrument in writing
signed by the remaining Preferred Director and filed with the Corporation and
(b) in the case of the removal of any Preferred Director, the vacancy may be
filled by the vote or written consent of the holders of a majority of the
outstanding shares of Voting Preferred Stock then entitled to vote for the
election of directors, present (in person or by proxy) and voting together as a
single class, at such time as the removal shall be effected. Each director
appointed as aforesaid by the remaining Preferred Director shall be deemed, for
all purposes hereof, to be a Preferred Director. Whenever (x) no default in
preference dividends on the Series RP Preferred Stock shall exist and (y) the
holders of other series of Voting Preferred Stock shall no longer be entitled to
elect such Preferred Directors, then the number of directors constituting the
Board of Directors of the Corporation shall be reduced by two.
3.3.5 For purposes hereof, a "default in preference
dividends" on the Series RP Preferred Stock shall be deemed to have occurred
whenever the amount of cumulative and unpaid dividends on the Series RP
Preferred Stock shall be equivalent to six full quarterly dividends or more
(whether or not consecutive), and, having so occurred, such default shall be
deemed to exist thereafter until, but only until, all cumulative dividends on
all shares of the Series RP Preferred Stock then outstanding shall have been
paid through the last Quarterly Dividend Payment Date or until, but only until,
non-cumulative dividends have been paid regularly for at least one year.
3.4 Except as set forth herein (or as otherwise required by
applicable law), holders of Series RP Preferred Stock shall have no general or
special voting rights and their consent shall not be required for taking any
corporate action.
Section 4. Certain Restrictions.
4.1 Whenever quarterly dividends or other dividends or
distributions payable on the Series RP Preferred Stock as provided in Section 2
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series RP Preferred Stock
outstanding shall have been paid in full, the Corporation shall not:
4.1.1 declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series RP Preferred Stock;
4.1.2 declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series RP
Preferred Stock, except dividends paid ratably on the Series RP Preferred Stock
and all such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares are then
entitled;
4.1.3 redeem or purchase or otherwise acquire for
consideration (except as provided in Section 4.1.4 below) shares of any stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series RP Preferred Stock, provided that the Corporation may
4
at any time redeem, purchase or otherwise acquire shares of any such junior
stock in exchange for shares of any stock of the Corporation ranking junior
(either as to dividends or upon dissolution, liquidation or winding up) to the
Series RP Preferred Stock;
4.1.4 redeem or purchase or otherwise acquire for
consideration any shares of Series RP Preferred Stock, or any shares of stock
ranking on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series RP Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among the
respective series or classes.
4.2 The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under Section 4.1,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series RP Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Certificate of Incorporation, in any other Certificate of Amendment creating a
series of Preferred Stock or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up.
6.1 Subject to the prior and superior rights of holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series RP Preferred Stock with respect to rights upon liquidation,
dissolution or winding up (voluntary or otherwise), no distribution shall be
made to the holders of shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series RP Preferred Stock
unless, prior thereto, the holders of shares of Series RP Preferred Stock shall
have received per share an amount equal to the greater of 1,000 times $22.00 or
1,000 times the payment made per share of Common Stock, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment (the "Series RP Liquidation Preference"). Following
the payment of the full amount of the Series RP Liquidation Preference, no
additional distributions shall be made to the holders of shares of Series RP
Preferred Stock unless, prior thereto, the holders of shares of Common Stock
shall have received an amount per share (the "Capital Adjustment") equal to the
quotient obtained by dividing (i) the Series RP Liquidation Preference by (ii)
1,000 (as appropriately adjusted as set forth in Section 6.3 to reflect such
events as stock splits, stock dividends and recapitalizations with respect to
the Common Stock) (such number in clause (ii) being hereafter referred to as the
"Adjustment Number"). Following the payment of the full amount of the Series RP
Liquidation Preference and the Capital Adjustment in respect of all outstanding
shares of Series RP Preferred Stock and Common Stock, respectively, holders of
5
Series RP Preferred Stock and holders of Common Stock shall receive their
ratable and proportionate share of the remaining assets to be distributed in the
ratio of the Adjustment Number to 1 with respect to such Preferred Stock and
Common Stock, on a per share basis, respectively.
6.2 In the event, however, that there are not sufficient
assets available to permit payment in full of the Series RP Liquidation
Preference and the liquidation preferences of all other series of preferred
stock, if any, which rank on a parity with the Series RP Preferred Stock, then
such remaining assets shall be distributed ratably to the holders of Series RP
Preferred Stock and the holders of such parity shares in proportion to their
respective liquidation preferences. In the event, however, that there are not
sufficient assets available to permit payment in full of the Capital Adjustment,
then such remaining assets shall be distributed ratably to the holders of Common
Stock.
6.3 In the event the Corporation shall (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the Adjustment Number in effect
immediately prior to such event shall be adjusted by multiplying such Adjustment
Number by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series RP Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share equal to the Adjustment Number (as appropriately
adjusted as set forth in Section 6.3 to reflect such events as stock splits,
stock dividends and recapitalizations with respect to the Common Stock) times
the aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share of
Common Stock is changed or exchanged.
Section 8. No Redemption. The shares of Series RP Preferred Stock shall
not be redeemable.
Section 9. Ranking. The Series RP Preferred Stock shall rank junior to
all other series of the Corporation's Preferred Stock as to the payment of
dividends and the distribution of assets, unless the terms of any such other
series shall provide otherwise.
Section 10. Amendment. The Amended and Restated Articles of
Incorporation of the Corporation shall not be further amended in any manner that
would materially alter or change the powers, preferences or special rights of
the Series RP Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority or more of the outstanding shares
of Series RP Preferred Stock, voting separately as a class.
6
Section 11. Fractional Shares. Series RP Preferred Stock may be issued
in fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and have the benefit of all other rights of holders
of Series RP Preferred Stock.
RESOLVED, that the proper officers of the Corporation be, and each of
them hereby is, authorized to execute a Certificate of Designation with respect
to the Series RP Preferred Stock pursuant to Section 23B.06.020 of the
Washington Business Corporation Act and to take all appropriate action to cause
such Certificate to become effective, including, but not limited to, the filing
and recording of such Certificate with and/or by the Secretary of State of the
State of Washington.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
7
IN WITNESS WHEREOF, I have executed and subscribed to this Certificate
and do affirm the foregoing as true under penalty of perjury this 16th day of
December, 1999.
---------------------------------
Secretary
8
Exhibit B
Form of Right Certificate
Certificate No. RP- _____ Rights
NOT EXERCISABLE AFTER DECEMBER 27, 2009 OR EARLIER IF REDEEMED
BY THE CORPORATION. THE RIGHTS ARE SUBJECT TO REDEMPTION AT
$.001 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS
AGREEMENT.
Right Certificate
SEATTLE FILMWORKS, INC.
This certifies that __________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of December 16, 1999 (the "Rights Agreement"), between
Seattle FilmWorks, Inc., a Washington corporation (the "Corporation"), and
ChaseMellon Shareholder Services L.L.C. (the "Rights Agent") to purchase from
the Corporation at any time after the Distribution Date (as such term is defined
in the Rights Agreement) and prior to 5:00 P.M., Washington time, on December
27, 2009, unless the Rights evidenced hereby shall have been previously redeemed
by the Corporation, at the office of the Rights Agent designated for such
purpose, or at the office of its successor as Rights Agent, one one-thousandth
(1/1000th) of a fully paid non-assessable share of Series RP Preferred Stock
(the "Preferred Stock") of the Corporation, at a purchase price of $22.00 per
one one-thousandth (1/1000th) of a share of Preferred Stock (the "Purchase
Price"), upon presentation and surrender of this Right Certificate with the Form
of Election to Purchase duly executed. The number of Rights evidenced by this
Right Certificate (and the number of one one-thousandths (1/1000ths) of a share
of Preferred Stock that may be purchased upon exercise hereof) set forth above,
and the Purchase Price set forth above, are the number and Purchase Price as of
December 27, 1999, based on the Preferred Stock as constituted at such date.
Upon the occurrence of a Section 11.1.2 Event (as such term is defined
in the Rights Agreement), if the Rights evidenced by this Right Certificate are
beneficially owned by (i) an Acquiring Person or an Affiliate or Associate of an
Acquiring Person, (ii) a transferee of an Acquiring Person (or of any Affiliate
or Associate thereof) who becomes a transferee after the Acquiring Person
becomes such, or (iii) a transferee of an Acquiring Person (or of an Affiliate
or Associate thereof) who becomes a transferee prior to or concurrently with the
Acquiring Person becoming such and receives such Rights pursuant to either (A) a
transfer (whether or not for consideration) from the Acquiring Person (or from
any Affiliate or Associate thereof) to holders of equity interests in such
Acquiring Person or to any Person with whom the Acquiring Person has a
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer that the Board of Directors of the Corporation has
determined is part of a plan, arrangement or understanding that has as a primary
purpose or effect the avoidance of Section 7.6 of the Rights Agreement, shall
become null and void without any further action and no holder hereof shall have
any rights whatsoever with respect to such Rights, whether under any provision
of the Rights Agreement or otherwise.
As provided in the Rights Agreement, the Purchase Price and the number
of one one-thousandths (1/1000ths) of a share of Preferred Stock or other
securities that may be purchased upon the exercise of the Rights evidenced by
this Right Certificate are subject to modification and adjustment upon the
happening of certain events, including Triggering Events (as such term is
defined in the Rights Agreement).
This Right Certificate is subject to all of the terms, covenants and
restrictions of the Rights Agreement, which terms, covenants and restrictions
are hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Corporation and the holders of the Right Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the principal executive offices of
the Corporation and the office of the Rights Agent.
This Right Certificate, with or without other Right Certificates, upon
surrender at the designated office of the Rights Agent, may be exchanged for
another Right Certificate or Right Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
shares of Preferred Stock or other securities as the Rights evidenced by the
Right Certificate or Right Certificates surrendered shall have entitled such
holder to purchase. If this Right Certificate shall be exercised in part, the
holder shall be entitled to receive upon surrender hereof another Right
Certificate or Right Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate may be redeemed by the Corporation at a redemption price of
$.001 per Right (subject to adjustment as provided in the Rights Agreement)
payable in cash.
No fractional shares of Preferred Stock will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions that are
one one-thousandth (1/1000th) or integral multiples of one one-thousandth
(1/1000th) of a share of Preferred Stock, or such other fraction as provided for
by adjustment provisions in the Rights Agreement, which may, at the election of
the Corporation, be evidenced by depository receipts), but in lieu thereof a
cash payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of shares of the
Preferred Stock or of any other securities of the Corporation that may at any
time be issuable on the exercise hereof, nor shall anything contained in the
Rights Agreement or herein be construed to confer upon the holder hereof, as
such, any of the rights of a shareholder of the Corporation or any right to vote
2
for the election of directors or upon any matter submitted to shareholders at
any meeting thereof, or to give or withhold consent to any corporate action, or
to receive notice of meetings or other actions affecting shareholders (except as
provided in the Rights Agreement), or to receive dividends or other
distributions or to exercise any preemptive or subscription rights, or
otherwise, until the Right or Rights evidenced by this Right Certificate shall
have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the
Corporation and its corporate seal. Dated as of __________, _____.
[SEAL]
ATTEST:
SEATTLE FILMWORKS, INC.
By By
------------------------- -------------------------
Name Name
----------------------- -----------------------
Title Title
---------------------- -----------------------
Countersigned:
CHASEMELLON SHAREHOLDER SERVICES L.L.C.
By
-------------------------
Name
-----------------------
Title
----------------------
3
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Right Certificate.)
FOR VALUE RECEIVED
----------------------------------------------------
hereby sells, assigns and transfers unto
---------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address of transferee)
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint _______________ Attorney-in-Fact,
to transfer the within Right Certificate on the books of the within-named
Corporation, with full power of substitution.
Dated:__________, _____
--------------------------------------------
Signature
Signature Guaranteed:
- ------------------------------
Signatures must be guaranteed by an "Eligible Guarantor Institution" as
defined in Rule 17Ad-15 (or any successor rule or regulation) promulgated
pursuant to the Securities Exchange Act of 1934, as amended (this term means, in
general, banks, stock brokers, savings and loan associations, and credit unions,
in each case with membership in an approved signature guarantee medallion
program).
The undersigned hereby certifies that (1) the Rights evidenced by this
Right Certificate are not being sold, assigned or transferred by or on behalf of
a Person who is or was an Acquiring Person or an Affiliate or Associate thereof
(as such terms are defined in the Rights Agreement), (2) this Right Certificate
is not being sold, assigned or transferred to or on behalf of any such Acquiring
Person, Affiliate or Associate, and (3) after due inquiry and to the best
knowledge of the undersigned, the undersigned did not acquire the Rights
evidenced by this Right Certificate from any Person who is or was an Acquiring
Person or an Affiliate or Associate thereof (as such terms are defined in the
Rights Agreement).
-----------------------------------------
Signature
Form of Reverse Side of Right Certificate -- continued
FORM OF ELECTION TO PURCHASE
(To be executed by the registered holder if such holder desires to
exercise Rights represented by the Right Certificate)
To the Rights Agent:
The undersigned hereby irrevocably elects to exercise ______________
Rights represented by this Right Certificate to purchase the shares of Preferred
Stock, shares of Common Stock or other securities issuable upon the exercise of
such Rights and requests that certificates for such shares of Preferred Stock,
shares of Common Stock or other securities be issued in the name of:
Please insert social security number
or other identifying number
-----------------------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address)
If such number of Rights shall not be all the Rights evidenced by this
Right Certificate, a new Right Certificate for the balance remaining of such
Rights shall be registered in the name of and delivered to:
Please insert social security number
or other identifying number
-----------------------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address)
Dated: __________, _____
Signature
Signature Guaranteed:
- ------------------------------
Signatures must be guaranteed by an "Eligible Guarantor Institution" as
defined in Rule 17Ad-15 (or any successor rule or regulation) promulgated
pursuant to the Securities Exchange Act of 1934, as amended (this term means, in
general, banks, stock brokers, savings and loan associations, and credit unions,
in each case with membership in an approved signature guarantee medallion
program).
Form of Reverse Side of Right Certificate -- continued
The undersigned hereby certifies that (1) the Rights evidenced by this
Right Certificate are not being exercised by or on behalf of a Person who is or
was an Acquiring Person or an Affiliate or Associate thereof (as such terms are
defined in the Rights Agreement), (2) this Right Certificate is not being sold,
assigned or transferred by or on behalf of any such Acquiring Person, Affiliate
or Associate, and (3) after due inquiry and to the best knowledge of the
undersigned, the undersigned did not acquire the Rights evidenced by this Right
Certificate from any Person who is or was an Acquiring Person or an Affiliate or
Associate thereof (as such terms are defined in the Rights Agreement).
-----------------------------------
Signature
Notice
The signature on the foregoing Forms of Assignment and Election and
certificates must conform to the name as written upon the face of this Right
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Corporation and the Rights Agent will deem the Beneficial Owner
of the Rights evidenced by this Right Certificate to be an Acquiring Person or
an Affiliate or Associate thereof (as such terms are defined in the Right
Agreement) and such Assignment or Election to Purchase will not be honored.
Exhibit C
SEATTLE FILMWORKS, INC.
1260 16th Avenue West
Seattle, WA 98134
FORM OF
SUMMARY OF RIGHTS TO PURCHASE
SERIES RP PREFERRED SHARES
The Board of Directors (the "Board") of Seattle FilmWorks, Inc. (the
"Corporation") has declared a dividend distribution of one preferred share
purchase right (a "Right") for each outstanding share of Common Stock (the
"Common Stock") of the Corporation. The dividend is payable to the shareholders
of record on December 27, 1999 (the "Record Date"), and with respect to shares
of Common Stock issued thereafter until the Distribution Date (as defined below)
and, in certain circumstances, with respect to shares of Common Stock issued
after the Distribution Date. Except as set forth below, each Right, when it
becomes exercisable, entitles the registered holder to purchase from the
Corporation one one-thousandth (1/1000th) of a share of Series RP Preferred
Stock, $.01 par value per share (the "Preferred Stock"), of the Corporation at a
price of $22.00 per one one-thousandth (1/1000th) of a share of Preferred Stock
(the "Purchase Price"), subject to adjustment. The description and terms of the
Rights are set forth in a Rights Agreement (the "Rights Agreement") between the
Corporation and ChaseMellon Shareholder Services L.L.C., as Rights Agent (the
"Rights Agent"), dated as of December 16, 1999.
Initially, the Rights will be attached to all certificates representing
shares of Common Stock then outstanding, and no separate certificates
representing the Rights ("Right Certificates") will be distributed. The Rights
will separate from the Common Stock upon the earliest to occur of (i) a person
or group of affiliated or associated persons having acquired, without the prior
approval of the Corporation's Board of Directors, beneficial ownership of
securities which represent 15% or more of the voting power (the "Voting Power")
of the then outstanding voting securities of the Corporation (except pursuant to
a Permitted Offer, as hereinafter defined) or (ii) 10 days (or such later date
as the Board may determine) following the commencement of, or announcement of an
intention to make, a tender offer or exchange offer the consummation of which
would result in a person or group of affiliated or associated persons becoming
an Acquiring Person (as hereinafter defined) (the "Distribution Date"). A person
or group whose acquisitions of shares of Common Stock cause a Distribution Date
pursuant to clause (i) above is an "Acquiring Person," with certain exceptions
as set forth in the Rights Agreement. The date that a person or group is first
publicly announced to have become such by the Corporation or such Acquiring
Person is the "Shares Acquisition Date." If any security holder provides
evidence satisfactory to the Board of beneficial ownership of shares of Common
Stock representing 15% or more of the Voting Power as of immediately prior to
the first public announcement of the execution of the Rights Agreement, then
such security holder will not be deemed an Acquiring Person with respect to such
securities.
The Rights Agreement provides that, until the Distribution Date, the
Rights will be transferred with and only with the associated shares of Common
Stock. Until the Distribution Date (or earlier redemption or expiration of the
Rights), new Common Stock certificates issued after the Record Date upon
transfer or new issuance of shares of Common Stock will contain a notation
incorporating the Rights Agreement by reference. Until the Distribution Date (or
earlier redemption or expiration of the Rights), the surrender for transfer of
any certificates for shares of Common Stock outstanding as of the Record Date,
even without such notation or a copy of this Summary of Rights being attached
thereto, will also constitute the transfer of the Rights associated with the
shares of Common Stock represented by such certificate. As soon as practicable
following the Distribution Date, Right Certificates will be mailed to the
holders of record of the shares of Common Stock as of the Close of Business (as
defined in the Rights Agreement) on the Distribution Date (and to each initial
record holder of certain shares of Common Stock issued after the Distribution
Date), and such separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date and will
expire at the close of business on December 27, 2009, unless earlier redeemed by
the Corporation as described below.
In the event that any person becomes an Acquiring Person (except
pursuant to a tender or exchange offer which is for all outstanding shares of
Common Stock at a price and on terms which a majority of certain members of the
Board determines to be adequate and in the best interests of the Corporation,
its shareholders and other relevant constituencies, other than such Acquiring
Person, its affiliates and associates (a "Permitted Offer")), each holder of a
Right will thereafter have the right (the "Flip-In Right") to receive, upon
exercise, the number of shares of Common Stock (or, in certain circumstances, of
one one-thousandths (1/1000ths) of a share of Preferred Stock or other
securities of the Corporation) having a value (immediately prior to such
triggering event) equal to two times the exercise price of the Right.
Notwithstanding the foregoing, following the occurrence of the event described
above, all Rights that are, or (under certain circumstances specified in the
Rights Agreement) were, beneficially owned by any Acquiring Person or any
affiliate or associate thereof will be null and void. The Board has the option,
at any time after any person becomes an Acquiring Person, to exchange all or
part of the then-exercisable Rights (excluding those that have become void, as
described in the immediately preceding sentence) for shares of Common Stock, at
an exchange ratio determined by dividing the then-applicable Purchase Price by
the then-current market price per share of Common Stock as determined in
accordance with the Rights Agreement. However, this option generally terminates
if any person becomes the beneficial owner of shares representing 50% or more of
the Voting Power.
In the event that, at any time following the Shares Acquisition Date,
(i) the Corporation is acquired in a merger or other business combination
transaction in which the holders of all of the outstanding shares of Common
Stock immediately prior to the consummation of the transaction are not the
holders of all of the surviving corporation's voting power, or (ii) more than
50% of the Corporation's assets or earning power is sold or transferred, in
either case with or to (x) an Acquiring Person or any affiliate or associate
thereof or (y) any other person in which such Acquiring Person, affiliate or
associate has an interest or any person acting on behalf of or in concert with
2
such Acquiring Person, affiliate or associate, or (z) if, in such transaction,
all holders of shares of Common Stock are not treated alike, any other person,
then each holder of a Right (except Rights which previously have been voided as
set forth above) shall thereafter have the right (the "Flip-Over Right") to
receive, upon exercise, common shares of the acquiring company (or, in certain
circumstances, its parent), having a value equal to two times the exercise price
of the Right. The holder of a Right will continue to have the Flip-Over Right
whether or not such holder exercises or surrenders the Flip-In Right.
The Purchase Price payable, and the number of shares of Preferred
Stock, shares of Common Stock or other securities issuable, upon exercise of the
Rights are subject to adjustment from time to time to prevent dilution (i) in
the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Preferred Stock, (ii) upon the grant to holders of
shares of the Preferred Stock of certain rights or warrants to subscribe for or
purchase Preferred Stock at a price, or securities convertible into Preferred
Stock with a conversion price, less than the then current market price of the
Preferred Stock or (iii) upon the distribution to holders of shares of the
Preferred Stock of evidences of indebtedness or assets (excluding regular
quarterly cash dividends) or of subscription rights or warrants (other than
those referred to above).
The number of outstanding Rights and the number of one one-thousandths
(1/1000ths) of a share of Preferred Stock issuable upon exercise of each Right
are also subject to adjustment in the event of a stock split of the Common Stock
or a stock dividend on the Common Stock payable in Common Stock or subdivisions,
consolidations or combinations of the Common Stock occurring, in any such case,
prior to the Distribution Date.
Preferred Stock purchasable upon exercise of the Rights will not be
redeemable. Each share of Preferred Stock will be entitled to a minimum
preferential quarterly dividend payment of $1.00 per share but, if greater, will
be entitled to an aggregate dividend per share of 1,000 times the dividend
declared per share of Common Stock. In the event of liquidation, the holders of
shares of the Preferred Stock will be entitled to a minimum preferential
liquidation payment per share in an amount equal to the greater of $22.00 or
1,000 times the payment made per share of Common Stock plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment (the "Series RP Liquidation Preference");
thereafter, and after the holders of shares of the Common Stock receive a
liquidation payment of an amount equal to the quotient obtained by dividing the
Series RP Liquidation Preference by 1,000 (subject to certain adjustments for
stock splits, stock dividends and recapitalizations with respect to the Common
Stock), the holders of shares of the Preferred Stock and the holders of the
Common Stock will share the remaining assets in the ratio of 1,000 to 1 (as
adjusted) for each share of Preferred Stock and Common Stock so held,
respectively. Finally, in the event of any merger, consolidation or other
transaction in which shares of Common Stock are exchanged, each share of
Preferred Stock will be entitled to receive 1,000 times the amount received per
share of Common Stock. These rights are protected by customary antidilution
provisions. In the event that the amount of accrued and unpaid dividends on the
Preferred Stock is equivalent to six full quarterly dividends or more, the
holders of shares of the Preferred Stock shall have the right, voting as a
class, to elect two directors in addition to the directors elected by the
holders of shares of the Common Stock until all cumulative dividends on the
Preferred Stock have been paid or set apart for payment through the last
3
quarterly dividend payment date. No fractional shares of Preferred Stock will be
issued (other than fractions which are one one-thousandth (1/1000th), or
integral multiples of one one-thousandth (1/1000th) of a share of Preferred
Stock, which may, at the election of the Corporation, be evidenced by depositary
receipts) and in lieu thereof, an adjustment in cash will be made based on the
market price of the Preferred Stock on the last trading day prior to the date of
exercise.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price.
At any time prior to the earlier to occur of (i) a person becoming an
Acquiring Person or (ii) the expiration of the Rights, and under certain other
circumstances, the Corporation may redeem the Rights in whole, but not in part,
at a price (payable in cash or, at the Corporation's election, in Common Stock)
of $.001 per Right (the "Redemption Price"), which redemption shall be effective
upon the action of the Board. Additionally, following the Shares Acquisition
Date, the Corporation may redeem the then outstanding Rights in whole, but not
in part, at the Redemption Price, provided that such redemption is in connection
with a merger or other business combination transaction or series of
transactions involving the Corporation in which all holders of shares of Common
Stock are treated alike but not involving an Acquiring Person or its affiliates
or associates.
Other than those provisions relating to the rights, duties and
obligations of the Rights Agent, all of the provisions of the Rights Agreement
may be amended by the Board of Directors of the Corporation prior to the
Distribution Date, except that the affirmative vote of the holders of a majority
of the then outstanding Rights (excluding Rights which have become void in
accordance with the Rights Agreement) will be required (i) to increase the
Purchase Price, to reduce the price at which the Rights may be redeemed and/or
to amend, in a manner adverse to the interests of the holders of Rights, the
exchange ratio of rights for shares of Common Stock and (ii) following a
Distribution Date, to supplement or amend any provision of the Rights Agreement
or the Rights in any other respect.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Corporation, including, without limitation, the
right to vote or to receive dividends. While the distribution of the Rights will
not be taxable to shareholders of the Corporation, shareholders may, depending
upon the circumstances, recognize taxable income should the Rights become
exercisable or upon the occurrence of certain events thereafter.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A. A
copy of the Rights Agreement is available free of charge from the Corporation.
This summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement, which is hereby
incorporated herein by reference.
4
TABLE OF CONTENTS
PAGE
1. Certain Definitions...........................................................................................1
2. Appointment Of Rights Agent...................................................................................6
3. Issuance Of Right Certificates................................................................................7
4. Form Of Right Certificate.....................................................................................8
5. Countersignature And Registration.............................................................................9
6. Transfer, Split-Up, Combination And Exchange Of Right Certificates; Mutilated, Destroyed, Lost Or Stolen Right
Certificates................................................................................................10
7. Exercise Of Rights; Purchase Price; Expiration Date Of Rights................................................11
8. Cancellation And Destruction Of Right Certificates...........................................................13
9. Reservation And Availability Of Preferred Stock..............................................................13
10. Preferred Stock Record Date.................................................................................15
11. Adjustment Of Purchase Price, Number And Kind Of Shares Or Number Of Rights.................................15
12. Certificate Of Adjusted Purchase Price Or Number Of Shares..................................................22
13. Consolidation, Merger Or Sale Or Transfer Of Assets Or Earning Power........................................23
14. Fractional Rights And Fractional Shares.....................................................................25
15. Rights Of Action............................................................................................27
16. Agreement Of Right Holders..................................................................................27
17. Right Certificate Holder Not Deemed A Shareholder...........................................................28
18. Concerning The Rights Agent.................................................................................28
19. Merger Or Consolidation Or Change Of Name Of Rights Agent...................................................29
20. Duties Of Rights Agent......................................................................................30
21. Change Of Rights Agent......................................................................................32
22. Issuance Of New Right Certificates..........................................................................33
23. Redemption And Termination..................................................................................34
24. Notice Of Certain Events....................................................................................35
25. Miscellaneous...............................................................................................36
26. Exchange....................................................................................................38
Exhibit A - Form of Certificate of Designation, Preferences and Rights..........................................A-1
Exhibit B - Form of Right Certificate...........................................................................B-1
Exhibit C - Form of Summary of Rights...........................................................................C-1
Exhibit 5.10
Form of Employee Confidentiality, Inventions, and Noncompetition Agreement
EMPLOYEE CONFIDENTIALITY, INVENTIONS,
AND NONCOMPETITION AGREEMENT
Agreement made between PhotoWorks, Inc., a corporation in the State of
Washington and its wholly-owned subsidiaries, including without limitation,
OptiColor, Inc. and Seattle FilmWorks Manufacturing Company (collectively, the
"Company"), and ________________________________________ Employee.
Whereas, the Company, is engaged in the development and marketing of
online digital imaging services, including but not limited to sharing, viewing,
printing, storing and preserving digital images and sale of photo/imaging
related products or software and scanning or digital image related services,
spooling and processing of both specialty (motion picture films converted to
still camera use) and standard films, design, development and marketing of
preloaded reusable cameras, and further that the Company has developed special
ways of designing, making, selling and shipping these products, and because such
special techniques make the Company's products more attractive and valuable to
customers, they help to maintain and protect existing jobs and create new jobs.
Therefore the business requires that its methods, data and systems be kept
secret; and
Whereas, for the proper protection of the business of the Company, it
is essential that all matters connected with and arising out of or pertaining to
the Company business, methods, data, processes and the names of the Company's
customers and suppliers be kept secret; and
Whereas, the Company has and will continue to acquire a list of a
substantial number of customers, partners, suppliers and vendors who have been
and will be solicited by the Company through the Internet and other advertising
media and a large, valuable and nationwide trade has been and will continue to
be established and maintained at great expense to the Company; and
Whereas, the Company will suffer loss and damage if the employee
violates any term of this agreement;
Now, therefore, the parties agree as follows:
1. The Company agrees to offer Employee company stock options per the
attached Stock Option Agreement.
2. Employee acknowledges that during the term of his/her employment or
engagement with the Company, Employee will have access to and become familiar
with various trade secrets, consisting of formulas, patterns, devices, secret
inventions, processes and compilations of information, records and
specifications which are owned by the Company and which are regularly used in
the operation of the business of the Company. Employee agrees that, either
during his/her employment or engagement with the Company, or at any time within
a period of five (5) years from the date Employee voluntarily or involuntarily
terminates employment or engagement by the Company, except as required by
Employee's duties as an employee of the Company, Employee shall not directly or
indirectly disclose to any person or entity any "trade secrets" of the Company,
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nor use such "trade secrets" in any way. As used herein, the term "trade
secrets" shall include, but not be limited to tangible or intangible information
or knowledge relating to the Company's business, business partners, products,
services or sales including without limitation, the Company's: client lists;
supplier lists; vendor lists; marketing programs, techniques used for products
and services; research and development relating to digital media and
photofinishing services and products and other online digital imaging services
and products; Web site statistics and processes, management information systems
and technology systems; customer order processing; software developed by the
Company; products and services relating to archiving, sharing, viewing, printing
and managing personal digital images; processing of film-based images and
slides; all PhotoWorks(R) software; and processes for production of Pictures On
Disk(TM) or preloaded cameras.
3. Employee agrees to safeguard and keep confidential the proprietary
information of customers, partners, vendors, consultants, and other parties with
which the Company does business to the same extent as if it were the Company's
"trade secrets". Employee will not, during his/her employment with the Company
or otherwise, use or disclose to the Company any confidential, trade secret, or
other proprietary information or material of any previous employer or other
person, and Employee will not bring onto the Company's premises any unpublished
document or any other property belonging to any former employer without the
written consent of that former employer.
4. Employee agrees that, either during his/her employment or engagement
with the Company or at any time within a period of two (2) years from the date
Employee voluntarily or involuntarily terminates employment or engagement by the
Company, Employee shall not directly or indirectly contact, solicit, divert, or
take away any customer, partner, supplier, vendor or account of any kind with
which the Company had any contact regarding any actual or possible sale,
license, or transfer of any kind, of any products or services, whether prior to
or during the employment of Employee. The terms of this paragraph shall be
applicable to any geographic area where the Company has done business prior to
or during Employee's period of employment or engagement. This geographic area
shall include locations within and outside borders of the United States, in view
of the international market for the Company's products and services.
5. Employee agrees that, either during his/her employment or engagement
with the Company or at any time within a period of two (2) years from the date
Employee voluntarily or involuntarily terminates employment or engagement with
the Company, Employee will not engage in competitive activity. As used herein,
the term "competitive activity" shall include acting directly or indirectly as
an agent, employees, officer, director, partner, or as a representative of any
other person, firm or legal entity, or any other capacity whatsoever, in any
business in competition, directly or indirectly, with the Company, or which
transacts any business in similar products or services as those of the Company.
The terms of this paragraph shall be applicable to any geographic area where the
Company has done business prior to or during Employee's period of employment or
engagement. This geographic area shall include locations within and outside the
borders of the United States, in view of the international market for the
Company's products and services.
6. All inventions, ideas, designs, circuits, schematics, formulas,
algorithms, trade secrets, works of authorship, mask works, developments,
processes, techniques, improvements, and related know-how which result from work
performed by Employee, alone or with others, on behalf of the Company or from
access to the Company's trade secrets, information or property whether or not
patentable, copyrightable, or qualified for mask work protection (collectively
"Inventions") shall be the property of the Company, and, to the extent permitted
by law, shall be "works made for hire." Employee hereby assigns and agrees to
assign to the Company or its designee, without further consideration, Employee's
entire right, title, and interest in and to all Inventions, other than those
described in Paragraph 7 of this Agreement, including all rights to obtain,
register, perfect, and enforce patents, copyrights, mask work rights, and other
intellectual property protection for Inventions. Employee will disclose promptly
and in writing to the individual designated by the Company or to Employee's
immediate supervisor, all Inventions which Employee has made or reduced to
practice. During Employee's employment and for two years after, Employee will
assist the Company (at its expense) to obtain and enforce patents, copyrights,
mask work rights, and other forms of intellectual property protection on
Inventions.
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7. In accordance with the Company's policy and Washington law, the
Company hereby notifies Employees that this Agreement (other than section 7)
does not apply to, and Employee has no obligation to assign to the Company, any
invention for which no Company trade secrets and no equipment, supplies or
facilities of the Company were used and which was developed entirely on
Employee's own time unless: (i) the invention related directly to the business
of Employer, (ii) the invention relates to actual or demonstrably anticipated
research or development work of the Company, or (iii) the invention results from
any work performed by Employee for the Company.
8. To determine whether Employee has an obligation to assign particular
intellectual properties to the Company, Employee shall promptly make full
written disclosure to the President of the Company of all Intellectual
Properties which he/she makes or on which he/she is working during the term of
his/her employment or during the six-month period thereafter that arises out of
employment or engagement with the Company or which is competitive with the
Company's products or services.
9. Employee agrees that, either during his/her employment or engagement
with the Company or at anytime within a period of two (2) years from the date
Employees voluntarily or involuntarily terminates employment or engagement by
the Company, Employee will not solicit, entice, induce or attempt to influence,
directly or indirectly, any other employee of the Company to cease his/her
relationship with the Company, nor shall Employee recruit, hire or assist others
in hiring any other employee of the Company.
10. Employee agrees to return to the Company at the termination of
his/her work for the Company all papers, notes, books, drawings or other
documents, software in any form, models, equipment, parts or tools thereof
belonging to the Company and relating to its business, present or future, and
also to return to the Company any keys, pass cards, credit cards, identification
cards, and all other property belonging to the Company.
11. Employee represents that there are no other contracts to assign
inventions that are now in existence between any other person or entity and
Employee. Employee further represents that he/she has no other employments,
consultancies, or undertakings which would restrict and impair my performance of
this Agreement.
12. Employee acknowledges that the Company from time to time may have
agreements with other persons or with the United States Government or agencies
thereof which impose obligations or restrictions on the Company regarding
Inventions made during the course of work under such agreements or regarding the
confidential nature of such work. Employee agrees to be bound by all such
obligations or restrictions and to take all action necessary to discharge the
obligations of the Company thereunder.
13. Employee agrees that any violation of this agreement by Employee
will cause irreparable injury to the Company and the Company shall be entitled
to extraordinary relief in court, including, but not limited to temporary
restraining orders, preliminary injunctions and permanent injunction without
necessity of posting bond or security which is expressly waived by Employee.
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If for any reason Employee violates this agreement, Employee agrees
that in addition to injunctive relief:
(a) If Employee acquires or otherwise obtains, by any means
whatsoever, any customer of the Company, or provides products
or services to any customer of the Company, Employee shall pay
to the Company fifty (50) percent of the gross revenues
obtained from the sale of products or services to each such
customer for a period of two (2) years commencing with the
date Employee first renders services to such customers; or
(b) If Employee otherwise violates this agreement, Employee shall
pay to the Company twenty-five (25) percent of Employee's
monthly salary or compensation for each month that Employee
violates this agreement for a period of two (2) years
commencing with the dates Employee first violates this
agreement.
(c) If paragraph (a) and (b) above are each applicable to
Employee, then, at the sole election of the Company, Employee
shall pay to the Company the amount calculated according to
paragraph (a) and (b), whichever is the greater amount.
14. Employee expressly agrees that, in addition to extraordinary relief
for any violation of this agreement by Employee, the Company shall be entitled
to such other remedies as provided by law, e.g., compensatory damages,
reasonable attorney's fees and court costs.
15. The Company shall have the sole discretion to assign any rights
acquired under the terms of this agreement.
16. This agreement supercedes all previous oral and written agreements
between the Company and Employee.
17. This agreement does not constitute nor imply an employment contract
or promise future employment between the Company and Employee. The Company is an
at-will employer.
18. Governing Law; Venue. This Agreement shall be governed by the local
laws of the State of Washington. The parties hereby consent to the jurisdiction
of the state and federal courts sitting in King County, Washington for all
matters and actions arising under this Agreement. The prevailing party shall be
entitled to reasonable attorneys' fees and costs incurred in connection with
such litigation.
19. Arbitration. Employee further agrees that the Company, at its
option, may elect to submit any dispute or controversy arising out of or related
to this Agreement for final settlement by arbitration conducted in Seattle,
Washington in accordance with the then existing rules of the American
Arbitration Association, and judgment upon the award rendered by the arbitrators
shall be specifically enforceable and may be entered in any court having
jurisdiction thereof.
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In the event that any provision of this Agreement shall be determined
by any court or arbitrator of competent jurisdiction to be unenforceable or
otherwise invalid for any reason, including but not limited to the duration of
such provision, its geographic scope or the extent of the activities prohibited
or required by it, such provision shall be enforced and validated to the extent
permitted by law, and the court or arbitrator shall have the power to be
enforceable under applicable law. The invalidity of any portion of this
Agreement will not and shall not be deemed to affect the validity of any other
provision. In the event that any provision is held to be invalid, the parties
agree that the remaining portion shall be deemed to be in full force and effect
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as if they had been executed by the parties subsequent to the expungement of the
invalid provision.
In witness whereof, the parties have hereunto set their hands and seals
on the date of ,2001.
----------------------------------
PhotoWorks, Inc.
The Company:
By ___________________________ _________________________
Employee
Its __________________________
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