UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 22, 2004
PhotoWorks, Inc.
(Exact name of registrant as specified in its charter)
0-15338
(Commission File Number)
Washington 91-0964899
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation)
1260 16th Avenue West, Seattle, WA 98119
(Address of principal executive offices, with zip code)
206-281-1390
(Registrant's telephone number, including area code)
[Former Name or Former Address, if applicable] (Former name or
former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 8.01. Other Events.
On December 22, 2004, PhotoWorks issued a press release announcing the
signing of non-binding term sheets for equity financing and a proposed
recapitalization. The December 22, 2004, press release is attached to this
report as Exhibit 99.1.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PhotoWorks, Inc.
Date: December 22, 2004 By: /s/ Philippe Sanchez
Philippe Sanchez
President and CEO
Exhibit 99.1
Press Release issued by the Company on December 22, 2004
PhotoWorks, Inc. Announces $6.5 Million Recapitalization Plan
Receives Commitment for $4 Million Capital Infusion and
Renegotiates Current Debt and Equity Structure
SEATTLE, December 22, 2004 - In a deal valued at approximately $6.5 million,
PhotoWorks, Inc. (OTCBB: FOTO) announced today that it has successfully
negotiated a recapitalization plan that, if approved by shareholders, will
result in a simplified capital structure for the Company and a cash infusion
to strengthen the Company's balance sheet and expand PhotoWorks' digital
marketing activities.
"We have received a commitment from a group of investors for a $4
million capital investment," said Philippe Sanchez, PhotoWorks' President and
CEO. "In addition, holders of $2.5 million outstanding subordinated
debentures have agreed to convert their securities to common stock as have
holders of Series A Preferred stock. These conversions to common stock are
contingent upon approval by the Company's shareholders of a recapitalization
plan to be submitted at the upcoming annual meeting scheduled to be held in
March 2005."
"This recapitalization proposal is a major achievement for PhotoWorks
and its shareholders," continued Sanchez. "Upon shareholder approval, the
Company will be free of long-term debt, will have a simple common stock
capital structure devoid of any liquidation preferences, and will have growth
capital needed to position the Company for rapid growth in the booming
digital market."
Terms of the Cash Infusion
Subject to negotiation of definitive agreements and customary closing
conditions, Sunra Capital Holdings, Orca Bay Partners and Madrona Venture
Group will purchase $2 million in subordinated notes, convertible into common
stock at a conversion price of $.1078 per share and warrants to purchase an
additional approximately 1.9 million shares of common stock at a price of
$.21 per share. These subordinated notes will automatically convert into
common stock at the conversion price upon approval by the Company's
shareholders of the recapitalization proposal outlined below. In addition,
upon approval of the recapitalization proposal, the investor group will
purchase an additional $2 million of common stock at $.1078 per share and
warrants to purchase an additional 1.9 million shares at $.21 per share.
Recapitalization Proposal
Subject to shareholders approval, the holders of the Series A Preferred
Stock and the holders of the Company's outstanding subordinated debentures
have agreed with the Company on a recapitalization proposal. Under this
proposal, Series A Preferred Stock will convert to 20,746,888 shares of
common stock at a conversion
price of $.723 per share. The holders of the subordinated debentures will
convert the $2.5 million principal balance of the debentures due April 2006
into common stock at a conversion price of $.11 per share. The current
conversion price of the Series A Preferred Stock is approximately $4.62 per
share and the conversion price of the subordinated debentures is
approximately $.736 per share. The proposed plan also includes an increase of
approximately 17.5 million shares eligible for grant under the Company's
stock option plans for management incentives. If shareholders approve the
above plans, the total outstanding share count, including outstanding
warrants and options and options available for grant, will be approximately
128 million shares.
New Board Composition and Recapitalization Plan to be Submitted for
Approval by the Shareholders At the annual meeting, a representative
from Sunra Capital Holdings and a representative from the
subordinated debt holders will be nominated as directors of the Company's
board. In addition, the Company will seek to amend its articles of
incorporation to eliminate its staggered board and provide for cumulative
voting in the election of its directors.
The Company will submit its recapitalization proposal for shareholder
approval at the upcoming annual meeting. If the recapitalization plan is not
approved by the shareholders, the investor group will not be required to fund
the additional $2 million of their commitment and the new $2 million
subordinated notes will not automatically convert into common stock and will
remain outstanding with an interest rate of 6% per annum and a maturity date
of April 30, 2008. In addition, the holders of the Series A Preferred Stock
will not convert their shares into common stock. Likewise, the holders of the
current subordinated debentures will not convert into common stock and the
$2.5 million principal balance will remain due in April 2006.
About Orca Bay Partners
Orca Bay Partners is a private equity investment firm providing equity
capital for transactions ranging from recapitalizations of mature businesses
to growth capital for emerging companies. Founded in 1998, and based in
Seattle, Washington, Orca Bay Partners makes investments in companies that
are uniquely positioned to benefit from growing or changing markets.
About Madrona Venture Group
Headquartered in Seattle, Washington, the Madrona Venture Group
(www.Madrona.com) manages a $250 million fund that targets early state, regional
investments in Enterprise Software and Services, Consumer Software and Services,
and Wireless, Networking and Infrastructure.
About Sunra Capital Holdings, Ltd.
Sunra Capital Holdings Limited is a Bermuda based company founded in
2002 that invests in early stage companies that have strong growth potential,
competent management teams and are strategically well positioned in a growing
environment.
About PhotoWorks(R)
PhotoWorks, Inc. (OTCBB: FOTO) is an online photography services
company. With a 25-year national heritage (formerly known as Seattle
FilmWorks), PhotoWorks helps photographers - both film and digital - share
and preserve their memories with innovative and inspiring products and
services. Every day, photographers send film, memory cards and CDs, or go to
www.photoworks.com to upload, organize and email their pictures, order
prints, and create Signature Photo Cards and Custom Photo Books. Offering a
100% satisfaction guarantee, PhotoWorks has been awarded an "Outstanding"
rating by The Enderle Group technology analysis firm. More information on the
Company is available at www.photoworks.com or by emailing
customercare@photoworks.com.
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995: Statements in this release concerning expected closing of definitive
agreements; shareholder approvals; leadership in technology and digital photo
services; and any other statement which may be construed as a prediction of
future capabilities, performance or events are forward-looking statements,
the occurrence of which are subject to a number of known and unknown risks
and uncertainties which might cause actual performance to differ materially
from those expressed or implied by such statements. These risks and
uncertainties include the inability to negotiate the definitive agreements or
get approval from shareholders, system performance problems due to technical
difficulties or other risks including those described in the Company's Annual
Report on Form 10-K and those described from time to time in the Company's
other filings with the Securities and Exchange Commission, press releases and
other communications.
For more information, contact:
IR: Loran Cashmore Bond, telephone: 206.281.1546 or ir@photoworks.com
Press: Lisa Amore for PhotoWorks, telephone: 206.954.8006 or lisa@amorepr.com
PhotoWorks is a registered trademark of PhotoWorks, Inc. All other names are
trademarks and/or registered trademarks of their respective owners.
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