-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WeOsHRP1pRYLLRefmxQ5ms0IrgUhsWo/yzAMQypxVtljp6uUPYIAHUWwac87d9a4 hSKY7FZ4sO1XP7yM2wVRjQ== 0000950123-99-010085.txt : 19991115 0000950123-99-010085.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950123-99-010085 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GETTY IMAGES INC CENTRAL INDEX KEY: 0001047202 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 980177556 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23747 FILM NUMBER: 99747690 BUSINESS ADDRESS: STREET 1: 701 34TH AVENUE N SUITE 400 CITY: SEATTLE STATE: WA ZIP: 98103 BUSINESS PHONE: 2066953400 MAIL ADDRESS: STREET 1: 701 34TH AVENUE N SUITE 400 CITY: SEATTLE STATE: WA ZIP: 98103 10-Q 1 GETTY IMAGES, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------------------------- FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 000-23747 GETTY IMAGES, INC. (Exact name of Registrant as specified in its charter) DELAWARE 98-0177556 (State of Incorporation) (I.R.S. Employer Identification No.) --------------------------------------- 701 N. 34th STREET SUITE 400 SEATTLE, WASHINGTON 98103 (206) 268 2000 (Address, including zip code, and telephone number, including area code, of principal executive offices) --------------------------------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. Yes X No As of November 1, 1999, there were 36,227,598 shares of the Registrant's common stock, par value $0.01 per share, outstanding. 2 GETTY IMAGES, INC. INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 PAGE PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3. Quantitative and Qualitative Disclosures about Market Risk 20 PART II - OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds 22 Item 5. Other Information 22 Item 6. Exhibits and Reports on Form 8-K 22 2 3 GETTY IMAGES, INC. PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS GETTY IMAGES, INC. UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED ---------------------------------------- SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 ------------------ ------------------ (IN THOUSANDS EXCEPT PER SHARE DATA) Sales ........................................... $ 60,823 $ 48,975 Cost of sales ................................... 16,446 13,564 -------- -------- GROSS PROFIT .................................... 44,377 35,411 -------- -------- Selling, general and administrative expenses .... 36,520 25,646 Amortization of intangibles ..................... 19,792 10,007 Depreciation .................................... 6,205 3,795 Non-recurring integration and restructuring costs 7,438 4,618 -------- -------- 69,955 44,066 -------- -------- OPERATING LOSS .................................. (25,578) (8,655) Net interest expense ............................ (1,095) (800) Net exchange gains/(losses) ..................... 615 (57) -------- -------- LOSS BEFORE INCOME TAXES ........................ (26,058) (9,512) Income taxes .................................... 1,691 (188) -------- -------- NET LOSS ........................................ $(24,367) $ (9,700) ======== ======== Basic loss per share ............................ $ (0.69) $ (0.32) ======== ======== Diluted earnings per share ...................... N/A N/A ======== ========
The accompanying notes on pages 7 to 10 are an integral part of these consolidated financial statements. 3 4 GETTY IMAGES, INC. UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED ------------------------------------------ SEPTEMBER 30, 1999 SEPTEMBER 30, 1998(1) ------------------ --------------------- (IN THOUSANDS EXCEPT PER SHARE DATA) Sales ........................................... $ 167,930 $ 135,032 Cost of sales ................................... 45,051 39,080 --------- --------- GROSS PROFIT .................................... 122,879 95,952 --------- --------- Selling, general and administrative expenses .... 97,316 71,231 Amortization of intangibles ..................... 46,813 26,911 Depreciation .................................... 16,266 10,240 Non-recurring integration and restructuring costs 7,438 13,755 --------- --------- 167,833 122,137 --------- --------- OPERATING LOSS .................................. (44,954) (26,185) Net interest expense ............................ (2,868) (2,119) Net exchange gains/(losses) ..................... 244 (116) --------- --------- LOSS BEFORE INCOME TAXES ........................ (47,578) (28,420) Income taxes .................................... (477) (557) --------- --------- Net loss before extraordinary items ............. (48,055) (28,977) Extraordinary items ............................. -- (830) --------- --------- NET LOSS ........................................ $ (48,055) $ (29,807) ========= ========= Basic loss per share ............................ $ (1.44) $ (1.04) ========= ========= Diluted earnings per share ...................... N/A N/A ========= =========
(1) Reflects the combination of the unaudited consolidated statement of operations of Getty Communications plc (the predecessor company) for the period January 1, 1998 through February 9, 1998 and the unaudited consolidated statement of operations of Getty Images, Inc. for the period February 10, 1998 through September 30, 1998. The accompanying notes on pages 7 to 10 are an integral part of these consolidated financial statements. 4 5 GETTY IMAGES, INC. UNAUDITED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999 DECEMBER 31, 1998 ------------------ ----------------- (IN THOUSANDS) ASSETS CURRENT ASSETS Cash and cash equivalents ................... $ 9,877 $ 16,150 Accounts receivable, net .................... 43,695 32,967 Prepaid expenses and other assets ........... 34,063 17,258 Inventories, net ............................ 5,422 2,834 --------- --------- TOTAL CURRENT ASSETS ........................ 93,057 69,209 Fixed assets, net ........................... 79,436 62,757 Intangible assets, net ...................... 440,596 325,861 Deferred tax assets ......................... 7,071 5,036 --------- --------- TOTAL ASSETS ................................ $ 620,160 $ 462,863 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable ............................ 36,748 26,232 Accrued expenses ............................ 31,380 20,148 Income taxes payable ........................ -- -- Short-term debt ............................. 20,583 202 --------- --------- TOTAL CURRENT LIABILITIES ................... 88,711 46,582 Long-term debt .............................. 76,260 72,354 --------- --------- TOTAL LIABILITIES ........................... 164,971 118,936 --------- --------- STOCKHOLDERS' EQUITY Common stock ................................ 355 306 Exchangeable preferred stock ................ 16 -- Additional paid-in capital .................. 527,377 368,267 Retained deficit ............................ (76,314) (28,259) Cumulative translation adjustments .......... 3,755 3,613 --------- --------- TOTAL STOCKHOLDERS' EQUITY .................. 455,189 343,927 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .. $ 620,160 $ 462,863 ========= =========
The accompanying notes on pages 7 to 10 are an integral part of these consolidated financial statements. 5 6 GETTY IMAGES, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED ----------------------------------------- SEPTEMBER 30, 1999 SEPTEMBER 30, 1998(1) ------------------ --------------------- (IN THOUSANDS) NET CASH FLOWS FROM OPERATING ACTIVITIES .................... $ 430 $ 9,764 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Business acquisitions, net of cash acquired ........... (435) (78,667) Purchase of fixed assets .............................. (30,198) (16,631) --------- -------- NET CASH USED IN INVESTING ACTIVITIES ....................... (30,633) (95,298) --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds of debt ...................................... 20,000 119,569 Principal payments on capital lease obligations ....... (374) -- Payments on principal balance of debt ................. -- (67,098) Proceeds from issuance of ordinary shares ............. 2,007 32,477 --------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES ................... 21,633 84,948 --------- -------- Net decrease in cash and cash equivalents ................... (8,570) (586) Exchange rate differences arising from translation of foreign currency balances ......................................... 2,297 892 Cash and cash equivalents -- beginning of period 16,150 29,234 --------- -------- -- end of period $ 9,877 $ 29,540 ========= ========
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
NINE MONTHS ENDED ------------------------------------------ SEPTEMBER 30, 1999 SEPTEMBER 30, 1998(1) ------------------ --------------------- (IN THOUSANDS) Net loss ............................... $(48,055) $(29,807) Other comprehensive income, net of tax: Foreign currency translation adjustments 142 1,216 -------- -------- COMPREHENSIVE LOSS ..................... $(47,913) $(28,591) ======== ========
(1) Reflects the combination of the unaudited condensed consolidated statement of cash flows and the unaudited consolidated statement of comprehensive income of Getty Communications plc (the predecessor company) for the period January 1, 1998 through February 9, 1998 and the unaudited condensed consolidated statement of cash flows and the unaudited consolidated statement of comprehensive income of Getty Images, Inc. for the period February 10, 1998 through September 30, 1998. The accompanying notes on pages 7 to 10 are an integral part of these consolidated financial statements. 6 7 GETTY IMAGES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PREPARATION The unaudited consolidated financial statements presented herein have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and note disclosures required by generally accepted accounting principles. The statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998 (the "Annual Report"), Commission file No. 000-23747, that was filed with the Commission on March 31, 1999. In the opinion of management, the accompanying consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company's financial position and results of operations. The results of the operations for the three and nine month periods ended September 30, 1999 may not be indicative of the results that may be expected for the full fiscal year. The year end balance sheet data was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." The standard requires that an entity recognize all derivatives as either assets or liabilities and measure those instruments at fair value. The new rules will be effective for fiscal years beginning after June 15, 2000. The Company does not believe that the new standard will have a material impact on its financial results. 2. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include Getty Images, Inc. and its subsidiaries, all of which are 100% owned, from the date of acquisition. All material intercompany amounts and transactions have been eliminated in the consolidated financial statements. The Company accounts for acquisitions using the purchase method of accounting. 3. NON-RECURRING INTEGRATION AND RESTRUCTURING CHARGES During the three month period ended September 30, 1999, the Company approved and commenced a program to integrate all the Company's businesses, including the new acquisitions Art.com and EyeWire, into four divisions to serve its four major types of customers. This has resulted in integration and restructuring charges, which are incremental and non-recurring, being incurred. Integration costs in the three month period ended September 30, 1999 amounted to $2.6 million and were associated with the activities of teams responsible for integrating the various businesses of the Company for the benefit of future operations and included items such as consulting and professional fees, systems and process integration costs and content review costs. Content review costs arose from an assessment of the compatibility of our images across our brands following the decision to integrate all our businesses into four divisions. These costs were expensed as incurred. Restructuring costs, which amounted to $4.8 million in the three month period ended September 30, 1999, were for estimated costs associated with the closure of 14 facilities, employee termination and contract termination costs. 7 8 Non-recurring integration and restructuring costs have been incurred in the three month period ended September 30, 1999, as follows:
SEPTEMBER 30, 1999 ------------------------------------ CHARGE UTILIZED PROVISION ------ -------- --------- (IN THOUSANDS) INTEGRATION COSTS Consulting and professional fees .... $ 671 $ 671 $ -- Systems and process integration costs 1,423 1,423 -- Content review costs ................ 562 562 -- ------ ------ ------ 2,656 2,656 -- ------ ------ ------ RESTRUCTURING COSTS Property exit costs ................. 1,483 989 494 Asset writedowns .................... 905 905 -- Employee termination costs .......... 2,394 1,512 882 ------ ------ ------ 4,782 3,406 1,376 ------ ------ ------ $7,438 $6,062 $1,376 ====== ====== ======
The charge for employee termination costs in the three month period ended September 30, 1999, can be analysed as follows:
OPERATIONAL MANAGEMENT STAFF TOTAL ---------- ------------ ----- (IN THOUSANDS) Employee termination costs $1,690 $704 $2,394 ====== ==== ====== Number of employees 13 54 67 ====== ==== ======
The unutilized provision of $1,376,000 at September 30, 1999 relates to property exit costs and employee termination costs that will be substantially paid in the remainder of 1999. During the nine month period ended September 30, 1998, the Company approved and commenced a program to integrate the businesses of the Company following the acquisitions of PhotoDisc and Allsport in February 1998. This resulted in integration and restructuring charges, which were incremental and non-recurring being incurred. Integration costs in the nine month and three month periods ended September 30, 1998 amounted to $3.7 million and $2.4 million respectively, and were associated with the activities of teams responsible for integrating the various businesses of the Company for the benefit of future operations and included items such as consulting and professional fees, systems and process integration costs and contract renegotiation costs. These costs were expensed as incurred. The provision for restructuring costs, which amounted to $10.1 million and $2.2 million in the nine and three month periods ended September 30, 1998, respectively, were for estimated exit costs associated with the closure of certain operating facilities, including asset writedowns and termination costs. 4. PROVISION FOR INCOME TAXES The Company provides for income taxes on an interim basis using its estimated annual income tax rate. Excluding non-recurring integration and restructuring costs, and the tax credits thereon, and the amortization of intangibles, which is largely non tax deductible, the Company is providing for income taxes in 1999 at an effective annual tax rate of 39.4%. 5. EARNINGS PER SHARE Diluted earnings per share are not given for the three or nine month periods ended September 30, 1999 or September 30, 1998 due to the loss incurred in those periods. Basic loss per share for the three and nine month periods ended September 30, 1999 are computed on the basis of 35,513,000 and 33,273,000 weighted average number of shares in issue, respectively. Basic loss per share for the three and nine month periods ended September 30, 1998 are computed on the basis of 30,467,000 and 28,686,000 weighted average number of shares in issue, respectively. 8 9 As explained in Note 8, 1.56 million exchangeable shares at par value of $0.01 were issued to EyeWire stockholders on August 5, 1999 pursuant to the acquisition of that company. When these shares are exchanged for shares of the Company's common stock, 1.56 million shares will be reflected in our earnings per share calculation. 6. FOREIGN CURRENCY TRANSLATION Unrealized net exchange gains of $2,104,000 for the three month period ended September 30, 1999 and unrealized net exchange losses of $1,526,000 for the nine month period ended September 30, 1999 (three and nine month period ended September 30, 1998: $nil) arose on the translation of certain intercompany foreign currency transactions deemed to be of a long-term nature. These transactions are not planned to be settled in the foreseeable future and are reported in the same manner as foreign currency translation adjustments in stockholders' equity in accordance with SFAS 52 "Foreign Currency Translation." 7. SEGMENT INFORMATION Getty Images operates in one business segment and all intercompany transactions are eliminated on consolidation. Revenues from external customers are $167,930,000 for the first nine months of 1999 and $60,823,000 for the quarter ended September 30, 1999 ($135,032,000 for the first nine months of 1998 and $48,975,000 for the quarter ended September 30, 1998). 8. ACQUISITIONS On August 5, 1999, the Company acquired all of the outstanding capital shares of EyeWire Partners, Inc.. In the transaction, EyeWire stockholders received an aggregate of 1.56 million exchangeable shares of a newly formed Nova Scotia subsidiary of the Company. Each exchangeable share is exchangeable for one share of the Company's common stock. The total market value of the acquisition was $32,375,000. Goodwill of $34.7 million arising from the acquisition will be amortized over seven years. 9. OTHER INFORMATION On September 20, 1999, the Company signed a stock purchase agreement with Eastman Kodak Company and Kodak S.A., an affiliate of Eastman Kodak Company, to purchase all of the capital stock of The Image Bank, Inc. and The Image Bank France S.A., which we collectively refer to as "The Image Bank," for approximately $173.0 million plus approximately $10.0 million to compensate Eastman Kodak Company for a tax election made for the Company's benefit. The Image Bank is a leading provider of visual content to the advertising, design, publishing, corporate, broadcast and editorial markets. The Company believes that The Image Bank is the market leader in the film footage market and is a leading source of contemporary stock photography, archival photography and illustrative artwork worldwide. The Company currently expects to close this acquisition on or before December 15, 1999. On September 29, 1999, the Company filed a Registration Statement (which has not yet become effective) for the public offering of up to 5,000,000 shares (5,750,000 shares if the underwriters' over-allotment option is exercised) of newly-issued common stock. The Company currently expects to close the offering contemplated by the Registration Statement during November 1999. 10. SUBSEQUENT EVENTS The Company has entered into an agreement, dated as of October 26, 1999, with Getty Investments L.L.C. ("Getty Investments") providing for the purchase by Getty Investments of 1,579,353 shares of the Company's common stock for $32.0 million in cash or approximately $20.261 per share. The purchase of the shares by Getty Investments is due to be consummated on the business day immediately preceding the closing of the acquisition of The Image Bank. The subscription is subject to the inclusion of these new shares under the Company's existing registration rights agreement with Getty Investments; the execution and delivery of an indemnity agreement similar to that delivered in connection with the sale of the Company's convertible subordinated notes; and the receipt by Getty Investments of an appropriate legal opinion. The closing of the Getty Investments stock purchase is not contingent on the closing of the Company's current public stock offering or the acquisition of The Image Bank. 9 10 11. PRO FORMA INFORMATION RELATING TO ACQUISITIONS (UNAUDITED) The following unaudited pro forma information shows the results of the Company for the nine month periods ended September 30, 1999 and September 30, 1998, respectively, as if the acquisitions of PhotoDisc and Allsport had occurred on January 1, 1998 and the acquisitions of Art.com and EyeWire had occurred on January 1, 1999. The pro forma information includes adjustments related to the financing of the acquisitions, including conversion of the EyeWire exchangeable shares, the effect of amortizing goodwill and other intangible assets acquired, as well as the related tax effects. The pro forma results of operations are unaudited, have been prepared for comparative purposes only and do not purport to indicate the results of operations which would have actually occurred had the combinations been in effect on the dates indicated or which may occur in the future.
UNAUDITED NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- 1999 1998 --------- --------- (IN THOUSANDS EXCEPT LOSS PER SHARE DATA) Sales .............. $ 168,482 $ 141,824 Net loss ........... (74,569) (33,060) Basic loss per share $ (2.03) $ (1.15)
10 11 REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF GETTY IMAGES, INC. We have reviewed the accompanying consolidated balance sheet of Getty Images, Inc. and its subsidiaries as of September 30, 1999, and the related consolidated statements of operations for each of the three month and nine month periods ended September 30, 1999 and September 30, 1998, and the related consolidated statement of comprehensive income and condensed consolidated statement of cash flows for the nine month periods ended September 30, 1999 and September 30, 1998. These financial statements are the responsibility of the company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements for them to be in conformity with generally accepted accounting principles. We previously audited in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 1998, and the related consolidated statements of operations, stockholders' equity and of cash flows for the year then ended (not presented herein), and in our report dated March 31, 1999 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, 1998, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. PricewaterhouseCoopers LONDON England November 11, 1999 11 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING SHOULD BE READ IN CONJUNCTION WITH OUR UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO, AND OTHER FINANCIAL INFORMATION CONTAINED ELSEWHERE IN THIS REPORT ON FORM 10-Q. IN THE FOLLOWING DISCUSSION, REFERENCES TO THE "COMPANY" "WE", "US" AND "OUR" ARE TO GETTY COMMUNICATIONS PLC COMBINED WITH GETTY IMAGES, INC.. ALL FINANCIAL DATA REFERRED TO IN THE FOLLOWING DISCUSSION HAS BEEN PREPARED IN ACCORDANCE WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP). IN ADDITION TO HISTORICAL INFORMATION, THE DISCUSSION IN THIS SECTION MAY CONTAIN CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE FORWARD-LOOKING STATEMENTS RELATE TO, AMONG OTHER THINGS, OPERATING RESULTS, TRENDS IN SALES, GROSS PROFIT, OPERATING EXPENSES, EFFECTIVE TAX RATES, ANTICIPATED EXPENSE LEVELS, LIQUIDITY AND CAPITAL RESOURCES, YEAR 2000 EXPENSES AND THE EFFECT OF FOREIGN CURRENCY HEDGING TRANSACTIONS. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED BY THESE FORWARD-LOOKING STATEMENTS DUE TO FACTORS INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH UNDER THE SECTION ENTITLED "ITEM 1: BUSINESS - H. FACTORS THAT MAY AFFECT THE BUSINESS" IN OUR FORM 10-K. OVERVIEW Founded in March 1995 as Getty Communications plc, Getty Images, Inc. is a leading global visual content provider, offering imagery over the Internet and through a diverse set of distribution channels and media including CD ROMs, demonstration reels and catalogs. We estimate we control over 30 million still images and more than 12,000 hours of film footage. We own or control visual content across major categories of the industry. Through our e-commerce enabled websites and our international network of company-operated offices as well as agents, distributors and affiliates in 51 countries, we provide both business and consumers with effective access to image and footage products. Since 1995, we have been an active consolidator of many of the visual content industry's leading brands, acquiring brands such as Tony Stone Images (tonystone.com), a leading worldwide provider of contemporary stock photography; PhotoDisc (photodisc.com), a pioneer in the development and marketing of digital stock photography, which uses the royalty-free licensing model and the electronic delivery of images; Allsport (allsport.com), a leading worldwide sports photography provider; EyeWire (eyewire.com), a leading provider of royalty-free imagery and visual content-related products and services to the business user market; and Art.com (art.com), a leading provider of framed and unframed art and art-related products to consumers on the Internet. Our visual content product brands are organized into the following divisions to serve our four major types of customers: Creative Professional Division. Tony Stone Images and PhotoDisc, leaders in licensed and royalty-free contemporary stock photography, and Energy Film Library, a leading provider of stock film footage; Press and Editorial Division. Allsport, a leading global provider of sports imagery; Liaison Agency, a leading North American news and features agency; Hulton Getty, one of the world's largest commercially available collections of archival photography; and Online USA, Inc., a leading provider of celebrity news and event photography over the Internet that we acquired in August 1999; Business User Division. EyeWire, a leading provider of royalty-free imagery, footage, audio, typefaces, illustration, clip art and other design products to business users that we acquired in August 1999; and Consumer Division. Art.com, a leading destination for custom framed and unframed art and art-related supplies for consumers on the Internet that we acquired in May 1999. Our sales are primarily derived from the marketing of image reproduction and broadcasting rights to a range of business customers. Sales generally consist of a large number of relatively small transactions involving the sale or licensing of single images, video and film clips or CD ROM products containing between 100 and 300 images. We use a variety of distribution platforms, including digital distribution via the Internet and CD ROM, as well as analog distribution of 35mm film, video and analog transparencies. Price is generally determined by resolution size and the extent of rights granted over the use of the image or clip and can vary significantly across geographic markets and customer groups. We also generate sales from subscription or bulk purchase deals where customers are provided access to imagery online. In the case of our consumer business, we principally sell framed and unframed art products to consumers over the Internet with payment typically being made using a credit card. Revenue arises from three principal types of sales: Fixed license sales are recognized when a license agreement has been completed with the customer for the use of the image, and the image has been made available for use. Fixed license pricing terms do not call for additional fees beyond the fixed license amount, and our customer is contractually obligated to pay the fixed license amount upon agreement of the license terms and availability of the image for use by the customer. 12 13 Royalty-free sales, or sales in which the user pays a one-time fee for unlimited use, are recognized upon the shipment of the CD ROM or at the time images are downloaded by the customer. Consumer sales are recognized upon shipment of the product. Circumstances in which sales are refunded are rare, and refunds are netted in the recognition of revenue. Sales are recorded at invoiced amounts less sales tax, if applicable. "Digital sales" are defined as those sales that are transacted on the Internet or by CD ROM, and "e-commerce sales" are defined as the Internet portion of digital sales. Our cost of sales primarily consists of commission payments to contributing photographers and cinematographers. These suppliers are under contract with us and receive payments of up to 50.0% of sales depending on the type of product and where and how the product is sold. We own a significant number of the images in our collections and these images do not require commission payments. Cost of sales also includes, to the extent applicable, handling and shipping costs for duplicate transparencies, the cost of CD ROM production and costs associated with framing and shipping art products. As a result, our gross margin is impacted by the mix of sales conducted digitally on the Internet, sales of wholly-owned imagery, geographic distribution of sales and brand sales mix. Our selling, general and administrative expenses include salaries and related staff costs, premises and utility costs, and sales and marketing costs. We amortize goodwill and depreciate the cost of the investment in duplicate transparencies, digital files, archival picture collections, computer systems and other fixed assets over their expected useful lives. The acquisitions of PhotoDisc and Allsport in February 1998 have generated approximately $241.9 million in goodwill and $51.0 million in other intangibles. The acquisitions of Art.com in May 1999 and EyeWire in August 1999 have generated approximately $122.2 million and $34.7 million of goodwill, respectively. These acquisitions will result in a substantial charge to be amortized against our earnings in future periods. We are amortizing goodwill relating to PhotoDisc and Allsport over 20 years, goodwill relating to Art.com over three years, and goodwill relating to EyeWire over seven years. We amortize other intangibles over one to three years. As a result of our various acquisitions and their financial and goodwill accounting effects on net income, we believe that EBITDA provides stockholders, investors and analysts with an appropriate measure of our operating performance. We define EBITDA as earnings before interest, taxes, exchange gains/(losses), depreciation, amortization, non-recurring integration and restructuring costs and extraordinary items. EBITDA should not be considered as an alternative to operating income as an indicator of our operating performance or to cash flows as a measure of our liquidity. Following the acquisitions of PhotoDisc and Allsport in February 1998, we commenced a program to integrate our then existing businesses. This resulted in integration and restructuring charges totaling $13.8 million. The charges included restructuring costs, severance costs, consulting and professional fees, systems and process integration costs, and costs associated with contract renegotiations and terminations. Restructuring costs, amounting to $10.1 million in 1998, were for estimated exit costs associated with the closure of certain operating facilities, including asset writedowns and termination costs. The largest element of the asset writedowns consisted of systems assets, primarily hardware and software, which had shortened useful lives as a result of the restructuring plans. Termination costs arose in relation to property related exit costs, termination of agents and photographer contracts and employee terminations. Integration costs of $3.7 million were associated with the activities of teams responsible for integrating our then existing businesses and included items such as consulting and professional fees, systems and process integration costs and contract renegotiation and termination costs. During the three months ended September 30, 1999, we approved and commenced a program to integrate all our businesses, including the new acquisitions Art.com and EyeWire, into four divisions to serve our four major types of customers. This resulted in integration and restructuring charges totaling $7.4 million. The charges included restructuring costs, severance costs, consulting and professional fees, systems and process integration costs and costs associated with terminations. Restructuring costs, amounting to $4.8 million in 1999 were for estimated exit costs associated with the closure of 14 facilities, asset writedowns and employee termination costs. The largest element of the asset writedowns consisted of systems assets, primarily software which had shortened useful lives as a result of the restructuring plans. Termination costs arose in relation to property related exit costs and employee termination. Integration costs of $2.6 million were associated with the activities of teams responsible for integrating our businesses and included items such as consulting and professional fees, systems and process integration costs and content review costs. Content review costs arose from an assessment of the compatibility of our images across our brands following the decision to integrate all our businesses into four divisions. 13 14 UNAUDITED RESULTS OF OPERATIONS: The following table is derived from our consolidated financial statements and sets forth certain items for the periods indicated.
NINE MONTHS ENDED SEPTEMBER 30 -------------------------------------------------------------- % OF % OF 1999 SALES 1998 SALES --------- ------- --------- ------ (IN THOUSANDS, EXCEPT PERCENTAGES) INCOME STATEMENT DATA: Sales ...................................... $ 167,930 100.0% $ 135,032 100.0% Gross profit ............................... 122,879 73.2% 95,952 71.1% Selling, general and administrative expenses (97,316) (58.0%) (71,231) (52.8%) Amortization of intangibles and depreciation ............................... (63,079) (37.6%) (37,151) (27.5%) Non-recurring integration and restructuring costs ...................................... (7,438) (4.4%) (13,755) (10.2%) Operating loss ............................. (44,954) (26.8%) (26,185) (19.4%) Net interest expense ....................... (2,868) (1.7%) (2,119) (1.6%) Net exchange gain/(loss) ................... 244 0.1% (116) (0.1%) Income taxes ............................... (477) (0.3%) (557) (0.4%) Extraordinary items ........................ -- -- (830) (0.6%) Net loss ................................... (48,055) (28.6%) (29,807) (22.1%) ========= ====== ========== ====== OTHER OPERATING DATA: EBITDA(1) .................................. $ 25,563 15.2% $ 24,721 18.3% ========= ====== ========== ======
THREE MONTHS ENDED SEPTEMBER 30 -------------------------------------------------------------- % OF % OF 1999 SALES 1998 SALES --------- ------- --------- ------- (IN THOUSANDS, EXCEPT PERCENTAGES) INCOME STATEMENT DATA: Sales ...................................... $ 60,823 100.0% $ 48,975 100.0% Gross profit ............................... 44,377 73.0% 35,411 72.3% Selling, general and administrative expenses (36,520) (60.0%) (25,646) (52.4%) Amortization of intangibles and depreciation ............................... (25,997) (42.7%) (13,802) (28.2%) Non-recurring integration and restructuring costs ...................................... (7,438) (12.2%) (4,618) (9.4%) Operating loss ............................. (25,578) (42.1%) (8,655) (17.7%) Net interest expense ....................... (1,095) (1.8%) (800) (1.6%) Net exchange gain/(losses) ................. 615 1.0% (57) (0.1%) Income taxes ............................... 1,691 2.8% (188) (0.4%) Extraordinary items ........................ -- -- -- -- Net loss ................................... (24,367) (40.1%) (9,700) (19.8%) ======== ====== ======== ====== OTHER OPERATING DATA: EBITDA(1) .................................. $ 7,857 12.9% $ 9,765 19.9% ======== ====== ======== ======
(1)"EBITDA" is defined as earnings before interest, taxes, exchange gains/(losses), depreciation, amortization, non-recurring integration and restructuring costs and extraordinary items. EBITDA should not be considered as an alternative to operating income as an indicator of our operating performance or to cash flows as a measure of our liquidity. 14 15 SALES Our total sales increased from $135.0 million in the nine months ended September 30, 1998 to $167.9 million in the nine months ended September 30, 1999, an increase of 24.4%, and from $49.0 million in the three months ended September 30, 1998 to $60.8 million in the three months ended September 30, 1999, an increase of 24.2%. These increases were largely attributable to the continued growth of our business-to-business brands, particularly the growth of revenues from our e-commerce websites. We experienced an increase in the rate of demand for both analog and digital search, selection and fulfillment of imagery during the nine months ended September 30, 1999, particularly in North America. Digital sales accounted for 30.1% of our sales or $40.6 million in the nine months ended September 30, 1998 and increased to 44.5% of our sales or $74.8 million in the nine months ended September 30, 1999, representing an 84.0% growth. Digital sales accounted for 34.2% of our sales or $16.7 million in the three months ended September 30, 1998 and increased to 49.8% of sales or $30.3 million in the three months ended September 30, 1999, representing an 80.9% growth. These increases were due, in part, to the inclusion of Allsport's and PhotoDisc's digital sales for the full nine months in 1999, as well as the inclusion of Art.com's and EyeWire's digital sales since their acquisition in May and August 1999, respectively. E-commerce sales accounted for $18.8 million of sales during the nine months ended September 30, 1998 and more than doubled to $43.4 million, or 25.9% of sales in the nine months ended September 30, 1999. E-commerce sales accounted for $7.3 million or 14.9% of sales and $19.4 million or 31.8% of sales, in the three months ended September 30, 1998 and 1999, respectively. GROSS PROFIT Our gross profit margin was 71.1% for the nine months ended September 30, 1998 and increased to 73.2% in the nine months ended September 30, 1999. Our gross profit margin was 72.3% for the three months ended September 30, 1998, and increased to 73.0% in the three months ended September 30, 1999. This result reflects the increasing shift in sales mix to e-commerce with its lower cost of sales, as well as continuing changes in our sales mix at the brand level. OPERATING EXPENSES SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses were 52.8% of sales in the nine months ended September 30, 1998 or $71.2 million compared to 58.0% of sales, or $97.3 million for the nine months ended September 30, 1999. Selling, general and administrative expenses were 52.4% of sales, or $25.6 million and 60.0% of sales, or $36.5 million for the three months ended September 30, 1998 and 1999, respectively. The increase in selling, general and administrative expenses over the comparable periods in 1998 was largely attributable to accelerated investment in advertising and marketing costs associated with our new websites, increased investment in management, new sales offices, and the development of new products and new business systems. The acquisition of Art.com particularly contributed to the increase in selling, general and administrative expenses. We intend to continue to make the investments required to migrate our business from an analog to a digital platform. We are committed to managing selling, general and administrative expenses as we further integrate our businesses, and implement new and standardized business systems. As customers move towards digital image search, retrieval and payment, we plan to streamline our support operations. We also intend to consolidate our offices and other premises throughout the world in line with the recently announced reorganization of our business into four divisions. AMORTIZATION OF INTANGIBLES AND DEPRECIATION Amortization of intangibles increased from $26.9 million in the nine months ended September 30, 1998 to $46.8 million in the nine months ended September 30, 1999, an increase of 74.0%. Amortization of intangibles increased from $10.0 million in the three months ended September 30, 1998 to $19.8 million in the three months ended September 30, 1999, an increase of 97.8%. These increases were attributable to increased goodwill that arose from the acquisitions of PhotoDisc and Allsport in February 1998, Art.com in May 1999 and EyeWire in August 1999. Depreciation increased from $10.2 million in the nine month period ended September 30, 1998 to $16.3 million in the nine month period ended September 30, 1999, an increase of 58.8%. Depreciation increased from $3.8 million in the three month period ended September 30, 1998 to $6.2 million in the three month period ended September 30, 1999, an increase of 63.5%. These increases primarily arose from the acquisitions of PhotoDisc and Allsport in February 1998, Art.com in May 1999 and EyeWire in August 1999, together with increased capital expenditures related to the development of our digital strategy. We expect depreciation to continue to increase as a result of this increased investment. 15 16 NON - RECURRING INTEGRATION AND RESTRUCTURING COSTS During the nine and three months ended September 30, 1999, we approved and commenced a program to integrate all our businesses, including the new acquisitions Art.com and EyeWire, into four divisions to serve our four major types of customers. This resulted in integration and restructuring charges totaling $7.4 million. The charges included restructuring costs, severance costs, consulting and professional fees, systems and process integration costs and costs associated with terminations. Integration costs in the nine and three months ended September 30, 1999 of $2.6 million were associated with the activities of teams responsible for integrating our businesses for the benefit of future operations and included items such as consulting and professional fees, systems and process integration costs and content review costs. Content review costs arose from an assessment of the compatibility of our images across our brands following the decision to integrate all our businesses into four divisions. These costs were expensed as incurred. Restructuring costs, amounting to $4.8 million in the nine and three months' ended September 30, 1999, were for estimated exit costs associated with the closure of 14 facilities, asset writedowns and employee termination costs. The largest element of the asset writedowns consisted of systems assets, primarily software, which had shortened useful lives as a result of the restructuring plans. Termination costs arose in relation to property related exit costs and employee terminations. Further costs associated with the non-recurring integration program, which management anticipates will not exceed $2.5 million, will be recognized as incurred. It is anticipated that the non-recurring integration and restructuring program will be substantially complete by June 30, 2000. Management expects that the total cash costs will amount to approximately $8.4 million. Following the acquisitions of PhotoDisc and Allsport in February 1998 we commenced a program to integrate our then existing businesses. This resulted in integration and restructuring charges of $13.8 million in the nine months ended September 30, 1998 and $4.6 million in the three months ended September 30, 1998. The charges included restructuring costs, severance costs, consulting and professional fees, systems and process integration costs, and costs associated with contract renegotiations and terminations. Integration costs in the nine months and three months ended September 30, 1998 of $3.7 million and $2.4 million, respectively, were associated with the activities of teams responsible for integrating our then existing businesses for the benefit of future operations and included items such as consulting and professional fees, systems and process integration costs and contract renegotiation and termination costs. Restructuring costs, amounting to $10.1 million in the nine months ended September 30, 1998, and $2.2 million in the three months ended September 30, 1998, were for estimated exit costs associated with the closure of certain operating facilities, including asset writedowns and termination costs. The largest element of the asset writedowns consisted of systems assets, primarily hardware and software, which had shortened useful lives as a result of the restructuring plans. Termination costs arose in relation to property related exit costs, termination of agents and photographers contracts and employee terminations. NET EXCHANGE GAINS/(LOSSES) Our operating results are affected by exchange rate fluctuations to the extent that we have receivables or payables that are denominated in a currency other than the local currency. Exchange gains or losses arising on the translation of these balances into local currency or on the settlement of these transactions are recognized in our income statement. Our policy is to hedge a majority of our contracted net receivables and payables using a combination of forward exchange contracts and foreign currency term loans. Net exchange gains were $244,000 in the nine months ended September 30, 1999, compared to a net exchange loss of $116,000 in the same period of 1998. Net exchange gains were $615,000 in the three months ended September 30, 1999, compared to a net exchange loss of $57,000 for the three months ended September 30, 1998. 16 17 INCOME TAXES The tax charge for the nine month period ended September 30, 1999 was $477,000 and the tax credit for the three month period ended September 30, 1999 was $1.7 million. This compares with a tax charge of $557,000 and $188,000 in the nine and three month periods ended September 30, 1999, respectively. Excluding non-recurring integration and restructuring costs, and the tax credits thereon, and the amortization of intangibles, which is largely non tax deductible, the Company had an effective tax rate of 39.4% for the nine months ended September 30, 1999, and 36.8% for the nine months ended September 30, 1998. The tax credit arising from the non-recurring integration and restructuring costs was $2.7 million in both the nine and three month periods ended September 30, 1999 and $4.0 million and $1.7 million for the nine and three month periods ended September 30, 1998. EBITDA EBITDA increased from $24.7 million in the nine months ended September 30, 1998 to $25.6 million in the nine months ended September 30, 1999, an increase of 3.4%. EBITDA decreased from $9.8 million in the three months ended September 30, 1998 to $7.9 million in the three months ended September 30, 1999, a decrease of 19.5%. EBITDA as a percentage of sales decreased from 18.3% in the nine months ended September 30, 1998 to 15.2% in the nine months ended September 30, 1999. EBITDA as a percentage of sales decreased from 19.9% in the three months ended September 30, 1998 to 12.9% in the three months ended September 30, 1999. Excluding Art.com, EBITDA as a percentage of sales increased from 18.3% in the nine months ended September 30, 1998 to 19.0% in the nine months ended September 30, 1999. Excluding Art.com, EBITDA as a percentage of sales, decreased from 19.9% in the three months ended September 30, 1998 to 18.9% in the three months ended September 30, 1999. As with gross profit, our EBITDA, excluding Art.com, has been impacted by our overall growth, including our growth through acquisitions, the growth in digital sales, the increasing sales mix of wholly-owned imagery, as well as operating efficiencies. LIQUIDITY AND CAPITAL RESOURCES
NINE MONTHS ENDED SEPTEMBER 30 ------------------------------ 1999 1998 --------- -------- (IN THOUSANDS) (IN THOUSANDS) Net cash provided by/(used in): Operating activities .......... $ 430 $ 9,764 Investing activities .......... (30,633) (95,298) Financing activities .......... 21,633 84,948 Exchange differences.......... 2,297 892 -------- -------- Net (decrease)/increase in cash and cash equivalents ................... $ (6,273) $ 306 ======== ========
Net cash provided by operating activities amounted to $430,000 in the nine months ended September 30, 1999 compared to $9.8 million in the nine months ended September 30, 1998. The decrease was due to increased spending on marketing and advertising, particularly at Art.com, and the production of new contemporary stock photography catalogs. Net cash used in investing activities in the nine months ended September 30, 1999 was $30.6 million, compared to $95.3 million in the same period last year. The decrease primarily reflected the larger business acquisitions made in the nine months ended September 30, 1998, offset in part by increased investment in technology and related infrastructure in the nine months ended September 30, 1999. Net cash provided by financing activities in the nine months ended September 30, 1999 was $21.6 million, primarily as a result of a $20.0 million short-term revolving credit facility, which was obtained by the Company in the period to fund additional working capital requirements and the acquisition of Art.com. The acquisitions of PhotDisc and Allsport in February 1998 and other businesses throughout the year resulted in a net cash outflow of $80.6 million, including expenses. To fund this amount, we raised a net additional $47.2 million of debt and Getty Investments LLC subscribed for an additional 1,518,644 shares of our common stock, providing $28.0 million of additional capital. On May 20, 1998, we raised $75.0 million from the issuance of our convertible subordinated notes. Of these proceeds, $49.0 million was applied to the repayment of term debt and $3.3 million to debt issuance costs. Also, in the year ended December 31, 1998, we raised $5.3 million from the exercise of options. At December 31, 1998, we had outstanding long term debt of $75.0 million and cash of $16.2 million. 17 18 RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." The standard requires that an entity recognize all derivatives as either assets or liabilities and measure those instruments at fair value. The new rules will be effective for fiscal years beginning after June 15, 2000. The Company does not believe that the new standard will have a material impact on its financial results. THE EURO CONVERSION A new European currency, the Euro, was implemented in January 1999 to replace the separate currencies of eleven Western European countries. This is requiring changes in our operations as we modify systems and commercial arrangements to handle the new currency. Modifications are necessary in operations such as payroll, benefits and pension systems, contracts with suppliers and customers and internal financial reporting systems. Although a three-year transition period is expected during which transactions may also be made in the old currency, we will use dual currency processes for our operations during the transition period. We do not expect the cost of this effort to have a material effect on our business or results of operations, however we cannot be sure that all problems will be foreseen and corrected or that no material disruption of our business will occur. YEAR 2000 READINESS The Year 2000 issue refers to the risk that systems, products and equipment having date-sensitive components will not recognize the Year 2000 as a result of computer programs using two digits rather than four to define the applicable year. The use of noncompliant Year 2000 programs or our inability to update our systems successfully may result in system failures, miscalculations or errors which could cause disruption of operations, the corruption of data or other business problems, including, among other things, a temporary inability to process transactions and invoices, or engage in other business activities. In addition to our computer systems, the Year 2000 issue may affect certain embedded systems such as alarms, gates and time locks, lighting, security, electrical supply control and backup equipment, and communication systems such as switchboards, fax machines and cellular telephones. In addition to Year 2000 issues related to our systems, we may be adversely affected if our key suppliers or other material third party service providers are unable or fail to adequately address the Year 2000 issue. Such suppliers can include infrastructure suppliers in areas such as utilities, communications, transportation and other services. While we are developing alternate power generation sources for our most sensitive systems, the likelihood and effects of failures in infrastructure systems and in the supply chain cannot be estimated. We developed the Year 2000 Compliance Program (the "Program") to identify and mitigate Year 2000 issues in our information systems, facilities and suppliers. The Program can be divided into three phases: (1) evaluation, which includes identifying issues, taking an inventory of the systems affected and developing solutions to address the issues; (2) implementation, which includes deploying program and software changes and completing necessary contingency plans; and (3) testing, which includes performing applications and acceptance testing and certification. The goals of the Program are to ensure that we and our business divisions can continue to function at optimal levels up to and beyond December 31, 1999, to provide our customers and partners with our services throughout the affected period and to ensure that key suppliers are Year 2000 compliant and that there will be no disruption in our supply of services and products. Our Chief Executive Officer, subject to our board of directors' oversight, is responsible for the overall implementation of the Program and ensuring that we become Year 2000 compliant by December 31, 1999. As of September 30, 1999, the bulk of our systems were Year 2000 compliant, and the remainder will reach compliance during the fourth quarter of 1999. Contingency plans have been developed for any matter not resolved in 1999 that may have a material negative impact on our final Year 2000 readiness. Evaluation. We have inventoried all of our major hardware and software platforms, as well as the relevant computer, embedded and communication systems, which may be affected by the Year 2000 issue and assessed our needs to become Year 2000 compliant. We have completed a review of the Year 2000 issues faced by our material suppliers and evaluated the risks and dependencies associated with those suppliers. The review of the Year 2000 issues faced by licensees and agents has been completed. 18 19 Implementation. We are in the advanced stages of our deployment of software and hardware changes. Year 2000 compliance measures have been incorporated into all new Internet initiatives, becoming our standard for all new contracts and have been incorporated into our due diligence program when evaluating potential acquisitions and partnerships. In addition, we have developed our first stage contingency plan which addresses the identification of alternative suppliers and distribution channels and the implementation of manual systems if it becomes necessary. We are continuing to review this process. Testing. We will continue testing our computer, embedded and communication systems as we complete the implementation of software and hardware changes. We estimate that the expected total aggregate costs for our Year 2000 activities and related systems changes will be approximately $2.5 million, of which approximately $2.4 million has been spent as of September 30, 1999. RISKS RELATED TO THE YEAR 2000 ISSUE Although our efforts to be Year 2000 compliant are intended to minimize the adverse effects of the Year 2000 issues on our operations and business, the actual effects of the Year 2000 issue will not be known until 2000. If we fail to become Year 2000 compliant in a timely manner, Year 2000 issues could have a material adverse effect on our business, results of operations and financial condition. The Year 2000 disclosure set forth above is intended to be a "Year 2000 statement" as such term is defined in the Year 2000 Information and Readiness Disclosure Act of 1998 (the "Year 2000 Act") and, to the extent such disclosure relates to our Year 2000 processing or to products or services we offer, is intended to be a "Year 2000 readiness disclosure" as such term is defined in the Year 2000 Act. OTHER INFORMATION On September 20, 1999, the Company signed a stock purchase agreement with Eastman Kodak Company and Kodak S.A., an affiliate of Eastman Kodak Company, to purchase all of the capital stock of The Image Bank, Inc. and The Image Bank France S.A., which we collectively refer to as "The Image Bank," for approximately $173.0 million plus approximately $10.0 million to compensate Eastman Kodak Company for a tax election made for the Company's benefit. The Image Bank is a leading provider of visual content to the advertising, design, publishing, corporate, broadcast and editorial markets. The Company believes that The Image Bank is the market leader in the film footage market and is a leading source of contemporary stock photography, archival photography and illustrative artwork worldwide. The Company currently expects to close this acquisition on or before December 15, 1999. On September 29, 1999, the Company filed a Registration Statement (which has not yet become effective) for the public offering of up to 5,000,000 shares (5,750,000 shares if the underwriters' over-allotment option is exercised) of newly-issued common stock. The Company currently expects to close the offering contemplated by the Registration Statement during November 1999. SUBSEQUENT EVENTS We have entered into an agreement dated as of October 26, 1999, with Getty Investments L.L.C. providing for the purchase by Getty Investments of 1,579,353 shares of the Company's common stock for $32.0 million in cash or approximately $20.261 per share. The purchase of the shares by Getty Investments is due to be consummated on the business day immediately preceding the closing of the acquisition of The Image Bank. The subscription is subject to the inclusion of these new shares under the Company's existing registration rights agreement with Getty Investments; the execution and delivery of an indemnity agreement similar to that delivered in connection with the sale of the Company's convertible subordinated notes; and the receipt by Getty Investments of an appropriate legal opinion. The closing of the Getty Investments stock purchase is not contingent on the closing of the Company's current public stock offering or the acquisition of The Image Bank. On October 26, 1999, the Company issued an aggregate of 428,442 shares of its common stock in exchange for all of the issued and outstanding capital stock of American Royal Arts Corporation. American Royal Arts Corporation is a leading provider of animation art. On October 27, 1999, the Company acquired 95% of the membership interest in Newsmakers L.L.C. for $950,000 of its common stock which has yet to be issued. The price of the Company's common stock to be issued was based on the average closing price per share, as reported on The Nasdaq National Market for the ten day trading period ending on the second day prior to the close of the agreement. Newsmakers L.L.C. is a premiere digital news agency covering current events, news and celebrity photography. 19 20 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to a variety of risks, including changes in interest rates affecting the return on its investments and foreign currency fluctuations. In the normal course of business, the Company employs established policies and procedures to manage its exposure to fluctuations in interest rates and foreign currency values. INTEREST RATE RISK The Company's exposure to market rate risk for changes in interest rates relates primarily to the Company's debt instruments, most of which are fixed-rate borrowings.
MATURITIES FAIR VALUE ----------------------------------------- SEPTEMBER 30, 1999 2001 2003 TOTAL 1999 DEBT INCLUDING CURRENT PORTION (US DOLLARS, IN THOUSANDS) Fixed rate $ 75,000 $ 75,000 $ 75,000 Average interest rate 4.75% Variable rate $ 20,583 $ 1,000 $ 1,000 $ 22,583 $ 22,583 Average interest rate 7.16% 8.25% 8.25%
FOREIGN CURRENCY RISK We conduct our business primarily in the United States and the United Kingdom and, therefore, our cashflows are primarily denominated in U.S. dollars and United Kingdom pounds sterling. We are exposed to foreign exchange risk related to foreign currency denominated assets and liabilities and cash. The introduction of the euro does not significantly affect our foreign exchange exposure. Our functional currency is U.S. dollars. We have entered into forward foreign currency exchange contracts to hedge our contracted net receivables denominated in foreign currencies. The forward foreign currency exchange contracts typically have a term of less than six months. All forward foreign currency exchange contracts at September 30, 1999 were designated and accounted for as hedges. The criteria we use for designating a contract as a hedge include the contract's effectiveness in risk reduction. Gains and losses on these contracts, relating to the hedged risk, are recognized as incurred, reflecting the income statement treatment of the hedge items. If an underlying hedged transaction is terminated earlier than initially anticipated, the offsetting gain or loss on the related forward foreign exchange contract would be recognized in income in the same period. In addition, since we enter into forward contracts only as hedges, any change in currency rates would not result in any material gain or loss, as any gain or loss on the underlying foreign currency denominated balances would be offset by the loss or gain on the forward contract. The following tables present certain information regarding the Company's use of financial instruments and should be read in conjunction with Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 20 21 FOREIGN EXCHANGE RISK (CURRENCY AND US DOLLAR EQUIVALENTS IN THOUSANDS EXCEPT AVERAGE CONTRACTUAL EXCHANGE RATE WHICH IS TO THE NEAREST SECOND DECIMAL POINT)
FAIR VALUE U.S. EQUIVALENT MATURITIES SEPTEMBER 30, 1999 U.S. DOLLAR 1999 EQUIVALENT Buy Pound Sterling/sell Deutsche Mark 2,460 $ 1,342 $ 6 Average contractual exchange rate (Deutsche Mark/Pound Sterling) Buy Pound Sterling/sell French Franc 1,350 222 (2) Average contractual exchange rate (French Franc/Pound Sterling) Buy Pound Sterling/sell Spanish Peseta 26,000 170 (3) Average contractual exchange rate (Spanish Peseta/Pound Sterling) Buy Pound Sterling/sell Swedish Krone 1,350 169 (3) Average contractual exchange rate (Swedish Krone/Pound Sterling) Buy Pound Sterling/sell Italian Lire 250,000 $ 139 $ (1) Average contractual exchange rate (Italian Lire/Pound Sterling)
There are further forward exchange contracts at September 30, 1999 that are together considered immaterial. The US dollar equivalent maturity value of these contracts is $454,000. All foreign exchange risk contracts are foreign currency forward exchange contracts between the indicated currency and the United Kingdom Sterling (Pound Sterling). Forward foreign exchange contracts between United Kingdom Sterling and German Deutsche Mark, French Franc, Spanish Peseta, Swedish Krone and Italian Lire account for 54 percent, 9 percent, 7 percent, 7 percent and 6 percent respectively of the Company's total US dollar equivalents in forward foreign exchange contracts. 21 22 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On August 5, 1999, the Company acquired all of the outstanding capital shares of EyeWire Partners, Inc., an Alberta corporation. In the transaction, EyeWire stockholders received an aggregate of 1,561,010 exchangeable shares of a newly formed Nova Scotia subsidiary of the Company. Each exchangeable share is exchangeable for one share of the Company's common stock. In addition, the 183,318 outstanding EyeWire employee stock options were converted into options to acquire an aggregate of 292,324 shares of the Company's common stock. On August, 19, 1999, the Company issued an aggregate of 99,930 shares of its common stock in exchange for all of the issued and outstanding capital stock of Online USA, Inc.. ITEM 5. OTHER INFORMATION On September 20, 1999, the Company signed a stock purchase agreement with Eastman Kodak Company and Kodak S.A., an affiliate of Eastman Kodak Company, to purchase all of the capital stock of The Image Bank, Inc. and The Image Bank France S.A., which we collectively refer to as "The Image Bank," for approximately $173.0 million plus approximately $10.0 million to compensate Eastman Kodak Company for a tax election made for the Company's benefit. The Image Bank is a leading provider of visual content to the advertising, design, publishing, corporate, broadcast and editorial markets. The Company believes that The Image Bank is the market leader in the film footage market and is a leading source of contemporary stock photography, archival photography and illustrative artwork worldwide. The Company currently expects to close this acquisition on or before December 15, 1999. On September 29, 1999, the Company filed a Registration Statement (which has not yet become effective) for the public offering of up to 5,000,000 shares (5,750,000 shares if the underwriters' over-allotment option is exercised) of newly-issued common stock. The Company currently expects to close the offering contemplated by the Registration Statement during November 1999. The Company entered into an agreement dated as of October 26, 1999, with Getty Investments L.L.C. providing for the purchase by Getty Investments of 1,579,353 shares of the Company's common stock for $32.0 million in cash or approximately $20.261 per share. The purchase of the shares by Getty Investments is due to be consummated on the business day immediately preceding the closing of the acquisition of The Image Bank. The subscription is subject to the inclusion of these new shares under the Company's existing registration rights agreement with Getty Investments; the execution and delivery of an indemnity agreement similar to that delivered in connection with the sale of the Company's convertible subordinated notes; and the receipt by Getty Investments of an appropriate legal opinion. The closing of the Getty Investments stock purchase is not contingent on the closing of the Company's current public stock offering or the acquisition of The Image Bank. On October 26, 1999, the Company issued an aggregate of 428,442 shares of its common stock in exchange for all of the issued and outstanding capital stock of American Royal Arts Corporation. American Royal Arts Corporation is a leading provider of animation art. On October 27, 1999, the Company acquired 95% of the membership interests in Newsmakers L.L.C. for $950,000 of its common stock which has yet to be issued. The price of the Company's common stock to be issued was based on the average closing price per share, as reported on The Nasdaq National Market for the ten trading day period ending on the second day prior to the close of the agreement. Newsmakers L.L.C. is a premiere digital news agency covering current events, news and celebrity photography. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K EXHIBITS Reference is made to the Index of Exhibits beginning on page 23 for a list of all exhibits filed as a part of this report. REPORTS FILED ON FORM 8-K On September 27, 1999 the Company filed a Current Report on Form 8-K relating to the execution of its agreement to acquire The Image Bank. This report was modified, superceded and replaced in its entirety by a Current Report on Form 8-K/A filed on October 13, 1999. 22 23 GETTY IMAGES, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 INDEX TO EXHIBITS Exhibit Number Description of Exhibit 2.1(1) Combination Agreement, dated as of August 5, 1999, among Getty Images, Inc., 3032097 Nova Scotia Limited, EyeWire Partners, Inc. and each of the stockholders of EyeWire Partners, Inc. 2.2(2) Stock Purchase Agreement dated as of September 20, 1999 among Getty Images, Inc., Eastman Kodak Company and Kodak S.A. 3.1.1(3) Amended and Restated Certificate of Incorporation of Getty Images, Inc. 3.1.2(4) Certificate of Amendment to the Certificate of Incorporation of Getty Images, Inc. 3.2(3) Bylaws of Getty Images, Inc. 10.1(1) Registration Rights Agreement, dated as of August 5, 1999, by and among Getty Images, Inc. and each of the former stockholders of EyeWire Partners, Inc. 10.2 Employment Agreement between Getty Images, Inc. and Christopher Roling. 10.3 Employment Agreement between Getty Images, Inc. and Jonathan D. Klein. 27.1 Financial Data Schedule. 99.1 Subscription Agreement dated October 26, 1999 between Getty Images, Inc. and Getty Investments L.L.C. (1) Incorporated by reference from the Exhibits to the Registration Statement of Getty Images, Inc. on Form S-3 filed September 3, 1999 (Registration No. 333-86587). (Exhibit number in the Form S-3 is set forth in italics.) (2) Incorporated by reference from the Exhibits to the Current Report on Form 8-K/A, filed October 13, 1999. (Exhibit number in the Form 8-K/A is set forth in italics.) (3) Incorporated by reference from the Exhibits to the Form S-4 Registration Statement No. 333-38777 of the Registrant. (Exhibit number in the Form S-4 is set forth in italics.) (1) (4) Incorporated by reference from the Exhibits to the 8-K dated November 10, 1998. (Exhibit number in the 8-K is set forth in italics.) 23 24 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GETTY IMAGES, INC. Date: NOVEMBER 11, 1999 By: /s/ Christopher J. Roling ---------------------------- Name: Christopher J. Roling Title: Chief Financial Officer 24 25 EXHIBIT INDEX Exhibit Number Description of Exhibit 2.1(1) Combination Agreement, dated as of August 5, 1999, among Getty Images, Inc., 3032097 Nova Scotia Limited, EyeWire Partners, Inc. and each of the stockholders of EyeWire Partners, Inc. 2.2(2) Stock Purchase Agreement dated as of September 20, 1999 among Getty Images, Inc., Eastman Kodak Company and Kodak S.A. 3.1.1(3) Amended and Restated Certificate of Incorporation of Getty Images, Inc. 3.1.2(4) Certificate of Amendment to the Certificate of Incorporation of Getty Images, Inc. 3.2(3) Bylaws of Getty Images, Inc. 10.1(1) Registration Rights Agreement, dated as of August 5, 1999, by and among Getty Images, Inc. and each of the former stockholders of EyeWire Partners, Inc. 10.2 Employment Agreement between Getty Images, Inc. and Christopher Roling. 10.3 Employment Agreement between Getty Images, Inc. and Jonathan D. Klein. 27.1 Financial Data Schedule. 99.1 Subscription Agreement dated October 26, 1999 between Getty Images, Inc. and Getty Investments L.L.C. (1) Incorporated by reference from the Exhibits to the Registration Statement of Getty Images, Inc. on Form S-3 filed September 3, 1999 (Registration No. 333-86587). (Exhibit number in the Form S-3 is set forth in italics.) (2) Incorporated by reference from the Exhibits to the Current Report on Form 8-K/A, filed October 13, 1999. (Exhibit number in the Form 8-K/A is set forth in italics.) (3) Incorporated by reference from the Exhibits to the Form S-4 Registration Statement No. 333-38777 of the Registrant. (Exhibit number in the Form S-4 is set forth in italics.) (1) (4) Incorporated by reference from the Exhibits to the 8-K dated November 10, 1998. (Exhibit number in the 8-K is set forth in italics.) EX-10.2 2 EMPLOYMENT AGREEMENT WITH CHRISTOPHER ROLING 1 Exhibit 10.2 EMPLOYMENT AGREEMENT THIS AGREEMENT, dated as of this 1st day of July, 1999, by and between GETTY IMAGES, INC., a Delaware corporation (the "Company"), whose principal Employee offices are located at 2101 Fourth Avenue, Suite 500, Seattle, WA 98121 and CHRISTOPHER ROLING, an individual residing at 5401 NE 85th Street, Seattle, WA 98115 (the "Employee"). W I T N E S S E T H: WHEREAS, the Employee is presently serving as Chief Financial Officer of Getty Images, Inc. and currently resides in London. Effective July 1, 1999 the Employee agrees to perform these duties in Seattle, Washington and will then reside in Washington; and WHEREAS, both parties desire that the terms and conditions of the Employee's employment with the Company be governed by the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the promises and the mutual covenants herein contained, the parties hereto hereby agree as follows: 1. EMPLOYMENT AND DUTIES. (a) General. The Company hereby employs the Employee, effective as of the date hereof (the "Effective Date"), and the Employee's period of continuous employment for statutory purposes began on December 15, 1998, and the Employee agrees upon the terms and conditions herein set forth to serve, as Chief Financial Officer of the Company and shall perform all duties customarily appurtenant to such position. In such capacity, the Employee shall report directly to Jonathan Klein, the Chief Executive Officer, or to such other person designated by the Board of Directors of the Company. The Employee's principal place of business shall be 2101 Fourth Avenue, Suite 500, Seattle, Washington 98121 or such other address as the Company may specify from time to time. (b) Services and Duties. For so long as the Employee is employed by the Company, the Employee shall devote his full business time to the performance of his duties hereunder; shall faithfully serve the Company; shall in all respects conform to and comply with the lawful and good faith directions and instructions given to him by Jonathan Klein, or such other person designated by the Board of Directors of the Company; and shall use his best efforts to promote and serve the interests of the Company. (c) No Other Employment. For so long as the Employee is employed by the Company, he shall not, directly or indirectly, render services to any other person or organization for which he receives compensation without the prior approval of Jonathan Klein, or such other person designated by the Board of Directors of the Company. No such approval 1 2 will be required if the Employee seeks to perform inconsequential services without direct compensation therefore in connection with the management of personal investments or in connection with the performance of charitable and civic activities, provided that such activities do not contravene the provisions of Section 6 hereof. 2. TERM OF EMPLOYMENT. The term of the Employee's employment under this Agreement (the "Term") shall commence on the Effective Date and continue until it is terminated by either party giving the other at least six months' written notice; provided, however, that in no event may a non-renewal notice be given prior to July 1, 2000; and provided further, however, that, in any event, the Term shall not extend beyond the last day of the month in which the Employee attains age 65. 3. COMPENSATION AND OTHER BENEFITS. Subject to the provisions of this Agreement, the Company shall pay and provide the following compensation and other benefits to the Employee during the Term as compensation for all services rendered hereunder and the covenants contained in Section 6 hereof: (a) Salary. The Company shall pay to the Executive an annual salary (the "Salary") at the initial rate of Two Hundred Twenty Thousand and Fifty Dollars ($220,050.00), payable to the Employee in accordance with the normal payroll practices of the Company for its employees as are in effect from time to time. In addition, the Employee shall receive an annual foreign service premium of ten percent of the salary and an annual accommodation adjustment of Forty Eight Thousand Dollars ($48,000.00), payable as part of the normal payroll practices. The foreign service premium and the accommodation adjustment mentioned above are the net amounts that will be received by the Employee. The company will be responsible for any tax due on these amounts. The amount of the Employee's Salary shall be reviewed annually by the Board on or about July 1 of each year during the Term beginning in the 2000 calendar year and may be increased on the basis of such review and then-current market practices, but not decreased below such amount. (b) Annual Bonus. The Employee shall be eligible for 1999 and each calendar year thereafter that begins during his employment to participate in an annual incentive bonus program established by the Company, in accordance with the policies of the Company, its subsidiaries and affiliates (hereinafter, collectively the "Group") and subject to such terms and conditions as may be approved annually by the Company. Under the terms of the annual incentive bonus program, the Employee will be afforded the opportunity to earn up to a maximum of sixty percent (60%) of his Salary (the "Bonus") and a minimum of twenty percent (20%) in effect for the applicable calendar year, subject to the achievement of the performance targets established by the Company for that year, to be paid on a pro-rata basis in the event that the Employee is employed for less than a full calendar year (for purposes of determining the 1999 bonus, the Employee shall be deemed to have commenced employment as of January 1, 1999). (c) Relocation Expenses. The Company shall pay to the Employee all 2 3 reasonable temporary housing expenses and moving expenses including: shipping of personal and household effects and insurance for such effects; storage charges for up to three (3) years; temporary accommodations for the Employee and his family in Seattle for up to six 6 weeks; discounted business class flights for the Employee and his family for initial move from London to Seattle; transport and flights from Seattle to London for Employee and his family twice annually (home visits); and a one time relocation allowance of Twenty Five Thousand Three Hundred Ninety Dollars ($25,390.00) (six weeks salary) to cover miscellaneous relocation expenses. Appendix A describes the relocation policy, expenses and additional benefits to be paid in greater detail. (d) Tax. The Company shall reimburse to the Employee costs associated with the preparation of his annual US and UK personal tax returns by PriceWaterhouseCoopers (not to exceed Twenty Five Hundred Dollars ($2,500.00) per year). (e) Expenses. The Company shall pay or reimburse the Employee for all reasonable out-of-pocket expenses incurred by the Employee in connection with his employment hereunder in accordance with Group. Such expenses shall be paid upon the periodic submission of invoices and shall be paid reasonably promptly after the date of such invoice. The reimbursement of expenses under this Section 3(c) shall be subject to the Employee's providing the Company with such documentation of the expenses as the Company may from time to time reasonably request in accordance with the policies of the Group. (f) Pension, Welfare and Fringe Benefits. During the Term, the Employee shall be eligible to participate in the Company's pension, medical, disability insurance plans applicable to Employees of the Company in accordance with the terms of such plans as in effect from time to time. In addition, during the Term, the Company shall maintain a life insurance policy on the life of the Employee for the benefit of the Employee's estate providing a benefit equal to the greater of (i) Seven Hundred Fifty Thousand Dollars ($750,000.00) or (ii) four (4) times the Employee's Salary (and maximum Bonus). The Employee shall also be provided with a car allowance and free parking at the place of employment. Appendix A describes additional paid fringe benefits in greater detail. (g) Long-Term Incentive Program. During the Term, the Employee shall participate in all long-term incentive plans and programs of the Group that are applicable to its senior Employees in accordance with their terms and in a manner consistent with his position with the Company. (h) Holidays. In addition to the usual public and bank holidays, the Employee shall be entitled to twenty (25) days paid vacation annually, which shall be taken at such times as are approved by the Company. The Employee shall be permitted to carry forward any portion of his vacation time for up to one year and, upon the expiration of such one (1) year period, the Employee shall be paid in lieu of such vacation days. 3 4 (i) Options. Future annual share options will be granted under the rules of the Getty Images Stock Incentive Plan (or any subsequently amended plan) and are at the discretion of the CEO but will not be less than an annual grant amount of Fifteen Thousand (15,000) shares (or the minimum amount specified in a subsequently revised Getty Images Stock Incentive Plan if greater than Fifteen Thousand (15,000) shares per year). If there is a generally applicable award of options or restricted shares to senior executives of Getty Images other than the annual award of options, the Employee shall participate in such award(s) on terms consistent with Getty Images' then current practices and with awards made to other senior executives. In the event there is a Change in Control (defined as it is for purposes of the Option Plan), the vesting of the Options shall become immediately exercisable and the Employee shall be entitled to retain such options, for the remainder of their respective terms, as if he had remained an employee of the Company. 4. TERMINATION OF EMPLOYMENT. Subject to the notice and other provisions of this Section 4, the Company shall have the right to terminate the Employee's employment hereunder, and he shall have the right to resign, at any time for any reason or for no stated reason. (a) Termination for Cause; Resignation Without Good Reason. (i) If, prior to July 1, 2000, the Employee's employment is terminated by the Company for Cause or if the Employee resigns from his employment hereunder other than for Good Reason, he shall be entitled to payment of the pro rata portion of his Salary and accrued Bonus (for purposes of this Agreement, "accrued Bonus" shall be determined using the number of days in the applicable calendar year that the Employee was employed by the Company and the applicable performance criteria under the bonus plan, in each case through the date of termination or resignation) through and including the date of termination or resignation, as well as any unreimbursed expenses. Except to the extent required by the terms of any applicable compensation or benefit plan or program or as otherwise required by applicable law, the Employee shall have no rights under this Agreement or otherwise to receive any other compensation or to participate in any other plan, program or arrangement after such termination or resignation of employment with respect to the year of such termination or resignation and later years. (ii) In addition, the Employee shall be entitled to retain the then-vested portion of his options to purchase shares of the Company's common stock until such options expire in accordance with their terms. (iii) Termination for "Cause" shall mean termination of the Employee's employment with the Company because of (A) willful, material or persistently repeated non-performance of the Employee's duties to the Company (other than by reason of the incapacity of the Employee due to physical or mental illness) after notice by the Board of such failure and the Employee's non-performance and continued, willful, material or persistent repeated non-performance after such notice, (B) the indictment of the Employee for a felony offense, (C) fraud against the Group or any willful misconduct that brings the reputation of the Group into 4 5 serious disrepute or causes the Employee to cease to be able to perform his duties, (D) any other material breach by the Employee of any material term of this Agreement, (E) the Employee files for personal bankruptcy under the United States Bankruptcy Code, or (F) the Employee is unable to perform his duties, by reason of disability, for a period of six (6) months or more. (iv) Termination of the Employee's employment for Cause shall be communicated by delivery to the Employee of a written notice from the Company stating that the Employee has been terminated for Cause, specifying the particulars thereof and the effective date of such termination. The date of a resignation by the Employee without Good Reason shall be the date specified in a written notice of resignation from the Employee to the Company. The Employee shall provide at least thirty (30) days' advance written notice of resignation without Good Reason. (b) Involuntary Termination. (i) If, prior to July 1, 2000, the Company terminates the Employee's employment for any reason other than Cause or Employee resigns from his employment hereunder for Good Reason (collectively hereinafter referred to as an "Involuntary Termination"), the Company shall pay to the Employee his Salary and accrued Bonus up to and including the date of such Involuntary Termination, as well as any unreimbursed expenses. In addition, the Company shall continue to pay to the Employee as severance (the "Severance Payments") in accordance with the Company's normal payroll practices, his Salary, at the rate in effect immediately prior to such Involuntary Termination, through and including July 1, 2000. Additionally, if Employee elects and is then eligible, he is entitled to continued health insurance coverage ("COBRA benefits") effective the first of the month following his termination date and the Company agrees to pay for Employees' COBRA benefit premiums through July 1, 2000. (ii) In addition, in the event of the Employee's Involuntary Termination prior to July 1, 2000, all of the Employee's then-outstanding options to purchase shares of the Company's common stock shall continue to vest until July 1, 2000. The Employee shall be entitled to retain the vested portion of his options as if he had remained an Employee until July 1, 2000. (iii) Resignation for "Good Reason" shall mean resignation by Employee because of (A) an adverse and material change in the Employee's duties, titles or reporting responsibilities, (B) a material breach by the Company of any term of the Agreement, (C) a reduction in the Employee's Salary or bonus opportunity or the failure of the Company to pay the Employee any material amount of compensation when due, (D) the assignment to Employee of any material duties that are inconsistent with those described in Section 1 of this Agreement without the Employee's consent, or (E) the Company's requirement that Employee perform a substantial portion of his duties outside the Seattle, Washington metropolitan area, except for travel in furtherance of the Company's business. The Company shall have thirty (30) business days from the date of receipt of such notice to effect a cure of the material breach described therein and, upon cure thereof by the Company to the reasonable satisfaction of the 5 6 Employee, such material breach shall no longer constitute Good Reason for purposes of this Agreement. (iv) The date of termination of employment without Cause shall be the date specified in a written notice of termination to the Employee. The date of resignation for Good Reason shall be the date specified in a written notice of resignation from the Employee to the Company; provided, however, that no such written notice shall be effective unless the cure period specified in Section 4(b)(iv) above has expired without the Company having corrected, to the reasonable satisfaction of the Employee, the event or events subject to cure. (v) Anything in this Agreement to the contrary notwithstanding, no amounts shall be payable under this Section 4(b) if the Employee's employment with the Company ends, for any reason, on or after July 1, 2000. 5. LIMITATION ON PAYMENTS. Notwithstanding anything herein to the contrary, if any of the payments made hereunder would constitute a "parachute payment" (as defined in Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code")), and the net after-tax amount of the parachute payment is less than the net after-tax amount if the aggregate payments to be made to the Employee were three times his "base amount" (as defined in Section 280G(b)(3) of the Code), less One Dollar ($1.00), then the aggregate of the amounts constituting the parachute payment shall be reduced to an amount that will equal three times the base amount, less One Dollar ($1.00). The determinations to be made with respect to this Section 5 shall be made by an independent accounting firm of national standing (other than the Company's regular auditors). The accounting firm shall be paid by the Company for its services performed hereunder. 6. PROTECTION OF THE COMPANY'S INTERESTS. (a) No Competing Employment. For so long as the Employee is employed by the Company and for one (1) year thereafter (such period being referred to hereinafter as the "Restricted Period"), the Employee shall not, without the prior written consent of the Board, directly or indirectly, own an interest in, manage, operate, join, control, lend money or render financial or other assistance to or participate in or be connected with, as an officer, employee, partner, stockholder, consultant or otherwise, any individual, partnership, firm, corporation or other business organization or entity that competes with the Group by providing any goods or services provided or under development by the Group at the effective date of the Employee's termination of employment under this Agreement; provided, however, that this Section 6(a) shall not proscribe the Employee's ownership, either directly or indirectly, of either less than five percent of any class of securities which are listed on a national securities exchange or quoted on the automated quotation system of the National Association of Securities Dealers, Inc.. 6 7 (b) No Interference. During the Restricted Period, the Employee shall not, whether for his own account or for the account of any other individual, partnership, firm, corporation or other business organization (other than the Company), intentionally solicit, endeavor to entice away from the Group or otherwise interfere with the relationship of the Group with, any key person or team who is employed by or otherwise engaged to perform services for the Group or any key person or team or entity who is, or was within the then most recent twelve-month period, a customer, client or supplier of the Group. (c) Secrecy. The Employee recognizes that the services to be performed by him hereunder are special, unique and extraordinary in that, by reason of his employment hereunder, he may acquire confidential information and trade secrets concerning the operation of the Group, the use or disclosure of which could cause the Group substantial losses and damages which could not be readily calculated and for which no remedy at law would be adequate. Accordingly, the Employee covenants and agrees with the Company that he will not at any time, except in performance of the Employee's obligations to the Company hereunder or with the prior written consent of the Board, directly or indirectly disclose to any person any confidential information that he may learn or has learned by reason of his association with the Group. The term "confidential information" means any information not previously disclosed to the public or to the trade by the Group with respect to the Company's, or any of its affiliates' or subsidiaries', products, facilities and methods, trade secrets and other intellectual property, systems, procedures, manuals, confidential reports, product price lists, customer lists, financial information (including the revenues, costs or profits associated with any of the Group's products), business plans, prospects or opportunities. (d) Exclusive Property. The Employee confirms that all confidential information is and shall remain the exclusive property of the Group. All business records, papers and documents kept or made by the Employee relating to the business of the Group shall be and remain the property of the Group. Upon the termination of his employment with the Company or upon the request of the Company at any time, the Employee shall promptly deliver to the Company, and shall not without the consent of the Board retain copies of, any written materials not previously made available to the public, or records and documents made by the Employee or coming into his possession concerning the business or affairs of the Group; provided, however, that subsequent to any such termination, the Company shall provide the Employee with copies (the cost of which shall be borne by the Employee) of any documents which are requested by the Employee and which the Employee has determined in good faith are (i) required to establish a defense to a claim that the Employee has not complied with his duties hereunder or (ii) necessary to the Employee in order to comply with applicable law. (e) Assignment of Developments. All "Developments" (as defined below) that were or are at any time made, conceived or suggested by Employee, whether acting alone or in conjunction with others, during Employee's employment with the Group shall be the sole and absolute property of the Group, free of any reserved or other rights of any kind on the part of Employee. During Employee's employment and, if such Developments were made, conceived or suggested by Employee during his employment with the Group, thereafter, 7 8 Employee shall promptly make full disclosure of any such Developments to the Group and, at the Group's cost and expense, do all acts and things (including, among others, the execution and delivery under oath of patent and copyright applications and instruments of assignment) deemed by the Group to be necessary or desirable at any time in order to effect the full assignment to the Group of Employee's right and title, if any, to such Developments. For purposes of this Agreement, the term "Developments" shall mean all data, discoveries, findings, reports, designs, inventions, improvements, methods, practices, techniques, developments, programs, concepts, and ideas, whether or not patentable, relating to the activities of the Group of which Employee is as of the date of this Agreement aware or of which Employee becomes aware at any time during the Term, excluding any Development for which no equipment, supplies, facilities or confidential information of the Group was used and which was developed entirely on Employee's own time, unless (i) the Development relates directly to the business of the Group, (ii) the Development relates to actual or demonstrably anticipated research or development of the Group, or (iii) the Development results from any work performed by Employee for the Group (the foregoing is agreed to satisfy the written notice and other requirements of Section 49.44.140 of the Revised Code of Washington). (f) Injunctive Relief. Without intending to limit the remedies available to the Company, the Employee acknowledges that a breach of any of the covenants contained in this Section 6 may result in material irreparable injury to the Group for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, the Company shall be entitled to obtain a temporary restraining order and/or a preliminary or permanent injunction restraining the Employee from engaging in activities prohibited by this Section 6 or such other relief as may be required to specifically enforce any of the covenants in this Section 6. Without intending to limit the remedies available to the Employee, the Employee shall be entitled to seek specific performance of the Company's obligations under this Agreement. 7. GENERAL PROVISIONS. (a) Source of Payments. All payments provided under this Agreement, other than payments made pursuant to a plan which provides otherwise, shall be paid in cash from the general funds of the Company, and no special or separate fund shall be established, and no other segregation of assets made, to assure payment. The Employee shall have no right, title or interest whatever in or to any investments which the Company may make to aid the Company in meeting its obligations hereunder. To the extent that any person acquires a right to receive payments from the Company hereunder, such right shall be no greater than the right of an unsecured creditor of the Company; provided, however, that this provision shall not be deemed to waive or abrogate any preferential or other rights to payment accruing to the Employee under applicable bankruptcy laws by virtue of the Employee's status as an employee of the Company. (b) No Other Severance Benefits. Except as specifically set forth in this Agreement, the Employee covenants and agrees that he shall not be entitled to any other form 8 9 of severance benefits from the Company, including, without limitation, benefits otherwise payable under any of the Company's regular severance policies, in the event his employment hereunder ends for any reason and, except with respect to obligations of the Company expressly provided for herein, the Employee unconditionally releases the Company and its subsidiaries and affiliates, and their respective directors, officers, employees and stockholders, or any of them, from any and all claims, liabilities or obligations under this Agreement or under any severance or termination arrangements of the Company or any of its subsidiaries or affiliates for compensation or benefits in connection with his employment or the termination thereof. (c) Tax Withholding. Payments to the Employee of all compensation contemplated under this Agreement shall be subject to all applicable tax withholding. (d) Notices. Any notice hereunder by either party to the other shall be given in writing by personal delivery, or certified mail, return receipt requested, or (if to the Company) by telex or facsimile, in any case delivered to the applicable address set forth below: (i) To the Company: Getty Images, Inc. 2101 Fourth Avenue Suite 500 Seattle, Washington 98121 (ii) To the Employee: Christopher Roling 5401 NE 85th Street Seattle, WA 98115 or to such other persons or other addresses as either party may specify to the other in writing. (e) Representation by the Employee. The Employee represents and warrants that his entering into this Agreement does not, and that his performance under this Agreement and consummation of the transactions contemplated hereby will not, violate the provisions of any agreement or instrument to which the Employee is a party, or any decree, judgment or order to which the Employee is subject, and that this Agreement constitutes a valid and binding obligation of the Employee in accordance with its terms. Breach of this representation will render all of the Company's obligations under this Agreement void ab initio. (f) Limited Waiver. The waiver by the Company or the Employee of a violation of any of the provisions of this Agreement, whether express or implied, shall not operate or be construed as a waiver of any subsequent violation of any such provision. (g) Assignment; Assumption of Agreement. No right, benefit or interest hereunder shall be subject to assignment, encumbrance, charge, pledge, hypothecation or setoff 9 10 by the Employee in respect of any claim, debt, obligation or similar process. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company to assume expressly and to agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. (h) Amendment; Actions by the Company. This Agreement may not be amended, modified or canceled except by written agreement of the Employee and the Company. Any and all determinations, judgments, reviews, verifications, adjustments, approvals, consents, waivers or other actions of the Company required or permitted under this Agreement shall be effective only if undertaken by the Company pursuant to authority granted by a resolution duly adopted by the Board; provided, however, that by resolution duly adopted in accordance with this Section 7(h), the Board may delegate its responsibilities hereunder to one or more of its members other than the Employee. (i) Severability. If any term or provision hereof is determined to be invalid or unenforceable in a final court or arbitration proceeding, (i) the remaining terms and provisions hereof shall be unimpaired and (ii) the invalid or unenforceable term or provision shall be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision. (j) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware (determined without regard to the choice of law provisions thereof). (k) Entire Agreement. This Agreement sets forth the entire agreement and understanding of the parties hereto with respect to the matters covered hereby and supersedes all prior agreements and understandings of the parties with respect to the subject matter hereof. (l) Headings. The headings and captions of the sections of this Agreement are included solely for convenience of reference and shall not control the meaning or interpretation of any provisions of this Agreement. (m) Counterparts. This Agreement may be executed by the parties hereto in counterparts, each of which shall be deemed an original, but both such counterparts shall together constitute one and the same document. (n) Disciplinary and Grievance Procedures. For statutory purposes, there is no formal disciplinary procedure in relation to the Employee's employment. The Employee shall be expected to maintain the highest standards of integrity and behavior. If the Employee has any grievance in relation to his employment or is not satisfied with any disciplinary procedure taken in relation to him, he may apply in writing within 14 days of that decision to the Board, whose decision shall be final. The foregoing shall not be construed, however, to limit the Employee's remedies at law or otherwise. 10 11 11 12 IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the day and year first written above. GETTY IMAGES, INC. By: ______________________________________ Name: Jonathan D. Klein Title: Chief Executive Officer EMPLOYEE By: ______________________________________ Christopher Roling 12 13 APPENDIX A Recommended Policies for relocation of Christopher Roling from London to Seattle OVERALL PRINCIPLES 1. Christopher Roling is viewed as an expatriate on assignment for three years. 2. Family includes spouse or partner, dependent children under 18 and other persons living with or supported by the employee. 3. No consideration is made for loss of employee's spouse or partner's income. 4. Aim is to provide equivalent purchasing power abroad to at least maintain home lifestyle. All annual allowances or payments will apply to Christopher Roling for three years. RELOCATION 1. Getty Images will pay on production of invoices all reasonable relocation and related insurance expenses for sea freight and up to the following limits for airfreight (available for immediate needs ) (anything over (pound)8,000 is taxable to the employee). 200kg by air for the employee 150kg by air for the spouse 100kg by air for each additional person 2. All storage charges will be paid by Getty Images for three years. 3. Hotel costs for employee and family in Seattle will be paid until longer term accommodation (rental or purchase) is secured. Typically 6 weeks maximum. 4. Discounted business class flights are paid for employee and family for initial move from London to Seattle. 5. A one off general relocation allowance is paid of 6 weeks salary to cover electrical goods, curtains and other goods that will need to be purchased. REMUNERATION 1. Total remuneration is split between home and host currency as instructed by expatriate. 2. Professional help with tax advice and tax returns is paid for by Getty Images. 3. A Foreign Service Premium of 10% of base salary is paid to all expatriates for the duration of the assignment. The Foreign Service Premium is paid gross so that the employee gets a net 10% benefit as a result of moving to Seattle. The Premium will be paid monthly throughout the expatriate period and is in addition to any "normal" annual pay rise. It is also shown separately in the pay roll. Pension and bonuses will be calculated on the basic salary i.e. excluding the Foreign Service Premium. 4. No mobility premium is payable on moving. 5. A Goods and Services (cost of living) allowance linked to family size is paid per the ORC efficient purchaser indices table. (This is currently negative for London to Seattle but no deduction will be made). 6. No Hardship Allowances will be paid for Seattle. 13 14 ACCOMMODATION 1. Housing Allowance will be loosely based on the ORC tables, expensive column, research with local real estate agents and management judgement (see individual sheets for estimates). This will be adjusted to enable the employee to receive the amount net assuming they will use this as payment towards the interest on a mortgage (after personal tax deductions and tax rebates) 2. No home housing offset will be made (i.e. no account will be taken of the accommodation arrangements in London). 3. Utility bills will be paid by Getty Images. 4. Real estate taxes will be paid by Getty Images over and above the accommodation allowances provided to each individual. (for purchase only) OTHER BENEFITS 1. Equivalent Healthcare benefits will be provided either by additional coverage of home plan or by inclusion in local Seattle plan. 2. Any life assurance plans will be maintained from London. 3. Permanent Health Insurance and/or disability insurance will, where relevant, continue to be paid by the company. 4. All employees will continue their UK pension arrangements. 5. A car or cash in lieu of a car (cash equivalency of $570.00/month, $6,840.00/year) will be provided for Christopher Roling. In general, employees who choose to take a car instead of the cash will be responsible for arranging the leasing of the vehicle with the cost being borne by the company. 6. Two economy class home leave trips will be provided for the employee and their family annually. This will only be paid for flights to UK. 7. Holiday entitlement will not change. 8. No contribution will be made to children's education expenses. REPATRIATION 1. Christopher Roling will be eligible to receive reimbursement for repatriation costs to UK, equivalent to relocation costs outlined above, throughout the first three years, on resignation at the host location or on termination by Getty Images. 2. No assistance will be given for purchase of a new home in the UK. EXTENSION OF ASSIGNMENT Christopher Roling will migrate to a local package over his fourth year. YEAR 4 Accommodation allowance, UK storage costs and utilities payments reduce to 50% of previous allowance. Health cover converts to local benefits package. UK NI no longer paid. Tax advice and tax returns still paid for Employee still eligible for reimbursement of repatriation costs. Vacation allowance remains the same Car arrangements remain the same 14 15 YEAR 5+ Salaries will be aligned to local salaries using an appropriate benchmarking exercise. Employees lose their right to repatriation at the company's expense. Vacation allowance remains the same All other benefits are as for local employees. 15 EX-10.3 3 EMPLOYMENT AGREEMENT WITH JONATHAN D. KLEIN 1 Exhibit 10.3 EMPLOYMENT AGREEMENT THIS AGREEMENT, dated as of this 1st day of June, 1999, by and between GETTY IMAGES, INC., a Delaware corporation (the "Company"), whose principal executive offices are located at 2101 Fourth Avenue, Suite 500, Seattle, WA 98121, and JONATHAN D. KLEIN, an individual residing at 3815 East John Street, Seattle, WA 98112-5007 (the "Executive"). W I T N E S S E T H: WHEREAS, the Executive is presently serving as Chief Executive Officer of Getty Images, Inc. and currently resides in London. Effective 1st August, 1999 the Executive agrees to perform these duties from Seattle, Washington and will then reside in Washington; and WHEREAS, in connection with his performance of services in the United States and elsewhere, the Company seeks to employ the Executive and the Executive seeks to be employed by the Company; and WHEREAS, both parties desire that the terms and conditions of the Executive's employment with the Company be governed by the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the promises and the mutual covenants herein contained, the parties hereto hereby agree as follows: 1. EMPLOYMENT AND DUTIES. (a) General. The Company hereby employs the Executive, effective as of the date hereof (the "Effective Date"), and the Executive's period of continuous employment for statutory purposes began on 14 March, 1995, and the Executive agrees upon the terms and conditions herein set forth to serve as Chief Executive Officer of the Company and shall perform all duties customarily appurtenant to such position. In such capacity, the Executive shall report directly and only to the Board of Directors of the Company (the "Board"). The Executive's principal place of business shall be 2101 Fourth Avenue, Suite 500, Seattle, Washington 98121 or such other address as the Company may specify from time to time. (b) Services and Duties. For so long as the Executive is employed by the Company hereunder, and except as otherwise expressly provided in Section 1(c) below, the Executive shall devote his full business time to the performance of his duties hereunder; shall faithfully serve the Company; shall in all respects conform to and comply with the lawful and good faith directions and instructions given to him by the Board as the same are consistent with his status and the term hereof; and shall use his best efforts to promote and serve the interests of the Company. Specifically, the Executive shall be solely responsible for the day-to-day operational management of the Company, its subsidiaries and affiliates (hereinafter, collectively the "Group"), provision of operational direction to the Executive Committee ("EC") and oversight of corporate operations, sales, marketing and finance, management of the EC, and 1 2 professional development of all direct reports. In addition, the Executive shall share equal duties and authority with the Chairman for the financial performance of the Group, the management of the Company's shareholders, the development of strategic alliances and partnerships and the optimization of their commercial benefits, communications to both internal and external audiences and external relationships with business, industry and academic communities, and strategic leadership. All employees of the Group (other than the Chairman) shall report, either directly or indirectly, to the Executive. (c) No Other Employment. Except as provided below, for so long as the Executive is employed by the Company, he shall not, directly or indirectly, render services to any other person or organization for which he receives compensation without the prior approval of the Board. No such approval will be required if the Executive seeks to perform inconsequential services without direct compensation therefor in connection with the management of personal investments or in connection with the performance of charitable and civic activities, provided that such activities do not contravene the provisions of Section 6 hereof. Notwithstanding the foregoing, the Company expressly agrees that the Executive may continue to act as a non-executive director of the Conservation Corporation Africa Limited and of Getty Investments LLC. (d) Board Membership. The Executive shall be a member of the Board. In addition, the Executive shall be entitled to attend the meetings of all other committees of the Board, such as the Audit Committee and the Compensation Committee, and shall be a member of any strategy committee of the Board. After his initial term as director, the Company shall nominate the Executive for reelection to the Board and shall use all reasonable efforts to cause the Executive to be elected to such term. (e) Payment for Services to be Performed; Obligations. Compensation to be paid under this Agreement shall be made with regard to all the Executive's services to be provided to the Group globally. 2. TERM OF EMPLOYMENT. The term of the Executive's employment under this Agreement (the "Term") shall commence on the Effective Date and continue until the second anniversary date of the Effective Date. Thereafter, the Term shall continue until it is terminated by either party giving the other at least twelve months' written notice of termination of the Term, with no such notice to be given so as to expire before the third anniversary of the Effective Date. 3. COMPENSATION AND OTHER BENEFITS. Subject to the provisions of this Agreement, the Company shall pay and provide the following compensation and other benefits to the Executive during the Term as compensation for all services rendered hereunder: 2 3 (a) Salary. The Company shall pay to the Executive an annual salary (the "Salary") at the initial rate of Three Hundred Seventy Three Thousand Seven Hundred and Fifty Dollars ($373,750.00), payable to the Executive in accordance with the normal payroll practices of the Company for its executive officers as are in effect from time to time. In addition for the first three years, the Executive shall receive an annual foreign service premium of ten percent of the salary ($37,375 for the initial period of one year) and an annual accommodation adjustment of Seventy Two Thousand Dollars ($72,000.00), payable as part of the normal payroll practices. The foreign service premium and the accommodation adjustment mentioned above are the net after tax amounts that will be received by the Executive. The company will be responsible for any tax due on these amounts. The annual foreign service premium and the accommodation allowance will be paid at fifty percent (50%) in year four and will not be paid in year five. The amount of the Executive's Salary shall be reviewed annually by the Board on or about June 1 of each year during the Term beginning in the 2000 calendar year and may be increased, but not decreased below such amount, on the basis of such review and then-current market practices. (b) Annual Bonus. The Executive shall be eligible for each calendar year thereafter that begins with the Term to participate in an annual incentive bonus program established by the Company in accordance with the policies of the Group and subject to such terms and conditions as may be approved annually by the Compensation Committee of the Board (the "Compensation Committee"). Under the terms of the annual incentive bonus program, the Executive will be afforded the opportunity to earn up to sixty percent (60%) of his Salary (the "Bonus") in effect for the applicable calendar year if the Company achieves the performance targets established by the Compensation Committee for that year, to be paid on a pro-rata basis in the event that the Executive is employed for less than twelve (12) months of any calendar year within the Term (for purposes of determining the 1999 bonus, the Executive shall be deemed to have commenced employment as of 1 January, 1999). (c) Relocation Expenses. The Company shall provide the Executive with all reasonable temporary housing expenses and moving expenses, including: shipping of personal and household effects and insurance for such effects; storage charges for up to three (3) years; temporary accommodations for the Executive and his family in Seattle for up to six (6) weeks; business class flights for the Executive and his family for the initial move from London to Seattle; business class transport and flights from Seattle to London for Executive and his family twice annually (home visits); and a one time relocation allowance of Forty Three Thousand One Hundred Twenty Five Dollars ($43,125.00) (six weeks salary) which is the amount net of tax, to cover miscellaneous relocation expenses. In year four, 50% of all relocation benefits will be paid by the company. In year five all relocation benefits cease except for vacation allowance which remains the same. Appendix A describes the relocation policy, expenses and additional benefits to be paid in greater detail and forms a part of this Employment Agreement. (d) Tax. The Company shall use a tax equalization approach to compensation for the Executive. This means that the Executive will pay the same amount of 3 4 tax as if he were employed in the United Kingdom (UK) on a UK contract and did not receive any of the additional benefits due as a result of the relocation. These additional benefits are the foreign service premium, the one off relocation allowance, the accommodation allowance and all relocation expenses detailed above and in the appendix. Any additional tax due as a result of receiving the additional benefits will be borne by the company. Hypothetical withholding tax will be deducted from the Executive's pay on a monthly basis by the company. (e) Options. In the event that the Executive ceases to be an employee of the Company for any reason other than (i) if he is terminated for "Cause", "Disability" or on account of his death, or (ii) if he resigns without "Good Reason" (as each such term is defined below), the vesting of the Options shall accelerate and the Options shall become immediately exercisable and the Executive shall be entitled to retain such options, for the remainder of their respective terms, as if he had remained an employee of the Company. In the event that the Executive ceases to be an employee of the Company because he is terminated for Cause or resigns without Good Reason, the Executive shall be entitled to retain the then-vested portion of such options as if he had remained an employee of the Company, but the unvested portion of such options shall lapse. In the event of the Executive's death or Disability (as defined below), the vesting of the Options shall accelerate and all options thereunder shall become immediately exercisable and shall remain outstanding for a period of twelve (12) months. (f) Pension Scheme and Life Insurance. During the Term, the Company shall pay to Executive, in addition to the amounts payable under Sections 3(a) through 3(d) above, an amount equal to twenty percent (20%) of his Salary through equal monthly contributions in arrears into a personal pension scheme for the benefit of the Executive, or, at the Executive's sole discretion, the Company shall pay such amount to him as additional compensation. In addition, during the Term, the Company shall maintain a life insurance policy on the life of the Executive for the benefit of the Executive's estate providing a benefit equal to the greater of (i) Seven Hundred Fifty Thousand Dollars ($750,000.00) or (ii) four (4) times the Executive's Salary (and maximum Bonus). (g) Expenses. The Company shall pay or reimburse the Executive for all reasonable out-of-pocket expenses incurred by the Executive in connection with his employment hereunder and expressly agrees that it will reimburse the Executive for his business class airfare on international flights which are over five (5) hours in duration taken in connection with Company business. Such expenses shall be paid upon the periodic submission of invoices and shall be paid reasonably promptly after the date of such invoice. The reimbursement of expenses under this Section 3(g) shall be subject to the Executive's providing the Company with such documentation of the expenses as the Company may from time to time reasonably request in accordance with the policies of the Group. The Company also agrees that, in the event that the Executive is required to travel abroad in connection with the performance of his duties hereunder for a period in excess of two (2) weeks, the Company will reimburse the Executive for the airfare, hotel and other transportation expenses of his spouse and minor children so that they may accompany him on such trip. 4 5 (h) Long-Term Incentive Program. During the Term, the Executive shall participate in all long-term incentive plans and programs of the Group that are applicable to its senior officers in accordance with their terms and in a manner consistent with his position with the Company. (i) Holidays. In addition to the usual public and bank holidays, the Executive shall be entitled to thirty (30) days' paid vacation annually, which shall be taken at such times as are approved by the Board. The Executive shall be permitted to carry forward any portion of his vacation time for up to one (1) year and, upon the expiration of such one year period, the Executive shall be paid in lieu of such vacation days. (j) Benefits. During the term, the Company will provide The Executive with two automobiles of such make and models as the Board deems appropriate and suitable for his status with the company for his and his spouses sole use and will reimburse the Executive for all costs and expenses incurred by the Executive in connection with the use of those vehicles, or, at the Executives sole discretion, the Company shall pay an equivalent amount of such perquisite to him as additional compensation. The Company shall install and pay the rental and unit charges attributable to a dedicated busines telephone and/or ISDN line at his home. During the Term, the Company shall also pay for the Executive's purchase, line charges, rental and unit charges for his mobile phones. The Company shall provide the Executive with a fax machine and computer modem and ISDN line to be installed at the Executive's home and a suitable desktop and laptop computer, as well as all ancillary equipment and maintenance therefor. In addition, the Company will pay for the cost of the Executive's membership in or subscriptions to the internel service provider of his choice, and such professional memberhships and journals as are appropriate to his duties under this agreement. (k) Health and Dental Care. During the Term, the Executive shall be eligible to participate in the Company's medical and disability plans applicable to senior officers of the Company in accordance with the terms of such plans as in effect from time to time. Specifically, the Executive, his spouse and his children who are under the age of 18 shall participate in the Regeance BlueShield Preferred Provider Plan (PPO) plan. In addition, the Executive shall participate in the Company's permanent health insurance plan or receive payment for his personal permanent health insurance plan, at his sole discretion. The Executive shall participate in any disability plan of the Company that replaces his Salary under this Agreement in the event that he suffers a Disability (as defined in Section 4(d)). 4. TERMINATION OF EMPLOYMENT. Subject to the notice and other provisions of this Section 4, as well as in Section 5.13 of the Bylaws of the Company, the Company shall have the right to terminate the Executive's employment hereunder, and he shall have the right to resign, at any time for any reason or for no stated reason. (a) Termination for Cause; Resignation Without Good Reason. (i) If, prior to the expiration of the Term, the Executive's employment is terminated by the Company for Cause or if the Executive resigns from his employment hereunder other than for Good Reason, 5 6 he shall be entitled to payment of the pro rata portion of his Salary, accrued Bonus (for purposes of this Agreement, "accrued Bonus" shall be determined using the number of days in the applicable calendar year that the Executive was employed by the Company and the applicable performance criteria under the bonus plan, in each case through the date of termination or resignation, and supplemental pension contributions as described in Section 3(f),) through and including the date of termination or resignation as well as any unreimbursed expenses. Except to the extent required by the terms of any applicable compensation or benefit plan or program or as otherwise required by applicable law, the Executive shall have no rights under this Agreement or otherwise to receive any other compensation or to participate in any other plan, program or arrangement after such termination or resignation of employment with respect to the year of such termination or resignation and later years (ii) Termination for "Cause" shall mean termination of the Executive's employment with the Company because of (A) willful, material or persistently repeated non-performance of the Executive's duties to the Company (other than by reason of the incapacity of the Executive due to physical or mental disability) after notice by the Board of such failure and the Executive's non-performance and continued, willful, material or persistent repeated non-performance after such notice, (B) the indictment of the Executive for a felony offense, (C) the commission by the Executive of fraud against the Group or any willful misconduct that brings the reputation of the Company into serious disrepute or causes the Executive to cease to be able to perform his duties, (D) any other material breach by the Executive of any material term of this Agreement, (E) the Executive is adjudged bankrupt or makes any arrangement or composition with his creditors or has interim order made against him pursuant to Section 252 of the Insolvency Act 1986. (iii) Termination of the Executive's employment for Cause shall be communicated by delivery to the Executive of a written notice from the Company stating that the Executive has been terminated for Cause, specifying the particulars thereof and the effective date of such termination. The date of a resignation by the Executive without Good Reason shall be the date specified in a written notice of resignation from the Executive to the Company. The Executive shall provide at least 30 days' advance written notice of resignation without Good Reason. (b) Involuntary Termination. (i) If, prior to the expiration of the Term, the Company terminates the Executive's employment for any reason other than Disability or Cause or Executive resigns from his employment hereunder for Good Reason (collectively hereinafter referred to as an "Involuntary Termination"), the Company shall pay to the Executive his Salary and accrued Bonus up to and including the date of such Involuntary Termination, as well as any unreimbursed expenses. In addition, the Company shall continue to pay to the Executive as severance (the "Severance Payments") within thirty (30) days after the date of termination a lump sum payment in an amount equal to the sum of his Salary at the rate in effect immediately prior to such Involuntary Termination, plus his maximum Bonus as described in Section 3(b) and supplemental pension contributions as described in Section 3(f), and benefits as described in Section 3(j) and 3(k), in each case, for the remainder of the Term. 6 7 All relocation benefits, both in this employment agreement and in the attached Appendix will also be paid in full. Anything in this Agreement to the contrary notwithstanding, no amounts shall be payable under this Section 4(b) if the Executive's employment with the Company ends at the expiration of the Term in accordance with Section 2. (ii) Resignation for "Good Reason" shall mean resignation by Executive because of (A) an adverse and material change in the Executive's duties, titles or reporting responsibilities, (B) a material breach by the Company of any term of the Agreement, (C) a reduction in the Executive's Salary or bonus opportunity or the failure of the Company to pay the Executive any material amount of compensation when due, (D) failure by the Company or the Parent to nominate the Executive for reelection to the Board during the Term, (E) the failure of the Executive to be reelected to the Board during the Term, (F) the Company appoints a President without the Executive's prior written approval, or (G) a relocation of the Executive's principal place of business without his prior written consent. The Company shall have 30 business days from the date of receipt of such notice to effect a cure of the material breach described therein and, upon cure thereof by the Company to the reasonable satisfaction of the Executive, such material breach shall no longer constitute Good Reason for purposes of this Agreement. (iii) The date of termination of employment without Cause shall be the date specified in a written notice of termination to the Executive. The date of resignation for Good Reason shall be the date specified in a written notice of resignation from the Executive to the Company; provided, however, that no such written notice shall be effective unless the cure period specified in Section 4(b)(ii) above has expired without the Company having corrected, to the reasonable satisfaction of the Executive, the event or events subject to cure. (c) Termination following a Change in Control. In the event of a Change in Control (defined as it is for purposes of the Option Plan), the Executive shall have the right to resign his employment with the company and will be entitled to receive within thirty (30) days a lump sum payment in an amount equal to the Executive's Salary and benefits, at the rate in effect immediately prior to such Involuntary Termination, plus his maximum Bonus as described in Section 3(b) and supplemental pension contributions as described in Section 3(f), and benefits as described in Section 3(j) and 3(k), and all relocation benefits, both in this employment agreement and in the attached Appendix will also be paid in full, for the reminder of the Term. (d) Termination Due to Disability. In the event of the Executive's Disability (as hereinafter defined), the Company shall be entitled to terminate his employment on providing the Executive with six months' prior written notice. If the Company terminates the Executive's employment due to Disability, the Executive shall be entitled to receive, for the remainder of the Term, his Salary, benefits and relocation benefits as described in Section 3(c) at the rate in effect immediately prior to the Disability, plus his maximum Bonus as described in Section 3(b) and supplemental pension contributions as described Section 3(f), and benefits as described in Section 3(j) and 3(k), less any amounts paid to the Executive under any 7 8 disability plan of the Company. All relocation benefits, both in this employment agreement and in the attached Appendix will also be paid in full. As used in this Section 4(d), the term "Disability" shall mean a physical or mental incapacity that substantially prevents the Executive from performing his duties hereunder and that has continued for at least six of the last twelve months and that can reasonably be expected to continue indefinitely. Any dispute as to whether or not the Executive is disabled within the meaning of the preceding sentence shall be resolved by a physician reasonably satisfactory to the Executive and the Company, and the determination of such physician shall be final and binding upon both the Executive and the Company. (e) Death. In the event of the Executive's death, the Executive's Beneficiary shall be entitled to receive within thirty (30) days a lump sum payment in an amount equal to the Executive's Salary, at the rate in effect immediately prior to his death, plus his maximum Bonus as described in Section 3(b) and supplemental pension contributions as described in Section 3(f), and benefits as described in Section 3(j) and 3(k), in each case for the remainder of the Term, less any death benefits which are provided to the Executive's Beneficiary under the terms of any plan, program or arrangement for the benefit of the Executive at the time of death. All relocation benefits, both in this employment agreement and in the attached Appendix will also be paid in full. (f) Beneficiary. For purposes of this Agreement, "Beneficiary" shall mean the person or persons designated in writing by the Executive to receive benefits under a plan, program or arrangement or to receive the balance of the Severance Payments, if any, in the event of the Executive's death, or, if no such person or persons are designated by the Executive, the Executive's estate. No beneficiary designation shall be effective unless it is in writing and received by the Company prior to the date of the Executive's death. 5. LIMITATION ON PAYMENTS. Notwithstanding anything herein to the contrary, if any of the payments made hereunder would constitute a "parachute payment" (as defined in Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code")), and the net after-tax amount of the parachute payment is less than the net after-tax amount if the aggregate payments to be made to the Executive were three times his "base amount" (as defined in Section 280G(b)(3) of the Code), less One Dollar ($1.00), then the aggregate of the amounts constituting the parachute payment shall be reduced to an amount that will equal three times the base amount, less One Dollar ($1.00). The determinations to be made with respect to this Section 5 shall be made by an independent accounting firm of national standing (other than the Company's regular auditors). The accounting firm shall be paid by the Company for its services performed hereunder. 6. PROTECTION OF THE COMPANY'S INTERESTS. 8 9 (a) No Competing Employment. For so long as the Executive is employed by the Company and, in circumstances where the Executive receives a payment pursuant to Section 4(b), 4(c) or 4(d) or his employment is terminated for Cause, but in no other circumstances, and continuing for the remainder of the Term (such period being referred to hereinafter as the "Restricted Period"), the Executive shall not, without the prior written consent of the Board, directly or indirectly, own an interest in, manage, operate, join, control, lend money or render financial or other assistance to or participate in or be connected with, as an officer, Executive, partner, stockholder, consultant or otherwise, any individual, partnership, firm, corporation or other business organization or entity that competes with the Group by providing any goods or services provided or under development by the Group at the effective date of the Executive's termination of employment under this Agreement; provided, however, that this Section 6(a) shall not proscribe the Executive's ownership, either directly or indirectly, of either less than five percent of any class of securities which are listed on a national securities exchange or quoted on the automated quotation system of the National Association of Securities Dealers, Inc. or any limited partnership investment over which the Executive has no control. (b) No Interference. During the Restricted Period, in circumstances where the Executive receives a payment pursuant to Section 4(b), 4(c) or 4(d) or his employment is terminated for Cause, and in no other circumstances, the Executive shall not, whether for his own account or for the account of any other individual, partnership, firm, corporation or other business organization (other than the Company), intentionally solicit, endeavor to entice away from the Group or otherwise interfere with the relationship of the Group with, any key person or team who is employed by or otherwise engaged to perform services for the Group or any key person or team or entity who is, or was within the then most recent twelve-month period, a customer, client or supplier of the Group. (c) Secrecy. The Executive recognizes that the services to be performed by him hereunder are special, unique and extraordinary in that, by reason of his employment hereunder, he may acquire confidential information and trade secrets concerning the operation of the Group, the use or disclosure of which could cause the Group substantial losses and damages which could not be readily calculated and for which no remedy at law would be adequate. Accordingly, the Executive covenants and agrees with the Company that he will not at any time, except in performance of the Executive's obligations to the Company hereunder or with the prior written consent of the Board, directly or indirectly disclose to any person any secret or confidential information that he may learn or has learned by reason of his association with the Group. The term "confidential information" means any information not previously disclosed to the public or to the trade by the Group with respect to the Group's, or any of its affiliates' or subsidiaries', products, facilities and methods, trade secrets and other intellectual property, systems, procedures, manuals, confidential reports, product price lists, customer lists, financial information (including the revenues, costs or profits associated with any of the Group's products), business plans, prospects or opportunities. 9 10 (d) Exclusive Property. The Executive confirms that all confidential information is and shall remain the exclusive property of the Group. All business records, papers and documents kept or made by the Executive relating to the business of the Group shall be and remain the property of the Group. Upon the termination of his employment with the Company or upon the request of the Company at any time, the Executive shall promptly deliver to the Company, and shall not without the consent of the Board retain copies of, any written materials not previously made available to the public, or records and documents made by the Executive or coming into his possession concerning the business or affairs of the Group; provided, however, that subsequent to any such termination, the Company shall provide the Executive with copies (the cost of which shall be borne by the Executive) of any documents which are requested by the Executive and which the Executive has determined in good faith are (i) required to establish a defense to a claim that the Executive has not complied with his duties hereunder or (ii) necessary to the Executive in order to comply with applicable law. (e) Assignment of Developments. All "Developments" (as defined below) that were or are at any time made, conceived or suggested by Executive, whether acting alone or in conjunction with others, during Executive's employment with the Group shall be the sole and absolute property of the Group, free of any reserved or other rights of any kind on the part of Executive. During Executive's employment and, if such Developments were made, conceived or suggested by Executive during his employment with the Group, thereafter, Executive shall promptly make full disclosure of any such Developments to the Group and, at the Group's cost and expense, do all acts and things (including, among others, the execution and delivery under oath of patent and copyright applications and instruments of assignment) deemed by the Group to be necessary or desirable at any time in order to effect the full assignment to the Group of Executive's right and title, if any, to such Developments. For purposes of this Agreement, the term "Developments" shall mean all data, discoveries, findings, reports, designs, inventions, improvements, methods, practices, techniques, developments, programs, concepts, and ideas, whether or not patentable, relating to the activities of the Group of which Executive is as of the date of this Agreement aware or of which Executive becomes aware at any time during the Term, excluding any Development for which no equipment, supplies, facilities or confidential information of the Group was used and which was developed entirely on Executive's own time, unless (i) the Development relates directly to the business of the Group, (ii) the Development relates to actual or demonstrably anticipated research or development of the Group, or (iii) the Development results from any work performed by Executive for the Group (the foregoing is agreed to satisfy the written notice and other requirements of Section 49.44.140 of the Revised Code of Washington). (f) Injunctive Relief. Without intending to limit the remedies available to the Company, the Executive acknowledges that a breach of any of the covenants contained in this Section 6 may result in material irreparable injury to the Group for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, the Company shall be entitled to obtain a temporary restraining order and/or a preliminary or permanent injunction restraining the Executive from engaging in activities prohibited by this Section 6 or such other relief as may 10 11 be required to specifically enforce any of the covenants in this Section 6. Without intending to limit the remedies available to the Executive, the Executive shall be entitled to seek specific performance of the Company's obligations under this Agreement. (g) The Executive shall during the continuance of his employment (and shall procure that his spouse or partner and his minor children shall comply) with all applicable rules of law, stock exchange regulations and codes of conduct applicable to employees, officers and directors of the Company and the Group for the time being in force in relation to dealings in the shares, debentures and other securities of the Company or any unpublished share price sensitive information affecting the securities of any other company with which the Company has dealings (provided that the Executive shall be entitled to exercise any options granted to him under any share option scheme established by the Company or any member of the Group, subject to the rules of such scheme). (h) The Executive shall in relation to any dealings in securities of overseas companies comply with all laws of any foreign state affecting dealings in the securities of such companies and all regulations of any relevant stock exchanges on which such dealings take place. (i) During the continuance of his employment the Executive shall observe the terms of any policy issued by the Company in relation to payments, rebates, discounts, gifts, entertainment or other benefits (Gratuities") from any third party in respect of any business transacted or proposed to be transacted (whether or not by him) by or on behalf of the Company or any Associated Company. 7. GENERAL PROVISIONS. (a) Source of Payments. All payments provided under this Agreement, other than payments made pursuant to a plan which provides otherwise, shall be paid in cash from the general funds of the Company, and no special or separate fund shall be established, and no other segregation of assets made, to assure payment. The Executive shall have no right, title or interest whatever in or to any investments which the Company may make to aid the Company in meeting its obligations hereunder. To the extent that any person acquires a right to receive payments from the Company hereunder, such right shall be no greater than the right of an unsecured creditor of the Company; provided, however, that this provision shall not be deemed to waive or abrogate any preferential or other rights to payment accruing to the Executive under applicable bankruptcy laws by virtue of the Executive's status as an Executive of the Company. (b) No Other Severance Benefits. Except as specifically set forth in this Agreement, the Executive covenants and agrees that he shall not be entitled to any other form of severance benefits from the Company, including, without limitation, benefits otherwise 11 12 payable under any of the Company's regular severance policies, in the event his employment hereunder ends for any reason and, except with respect to obligations of the Company expressly provided for herein, the Executive unconditionally releases the Company and its subsidiaries and affiliates, and their respective directors, officers, Executives and stockholders, or any of them, from any and all claims, liabilities or obligations under this Agreement or under any severance or termination arrangements of the Company or any of its subsidiaries or affiliates for compensation or benefits in connection with his employment or the termination thereof. (c) Tax Withholding. Payments to the Executive of all compensation contemplated under this Agreement shall be subject to all applicable tax withholding. (d) Notices. Any notice hereunder by either party to the other shall be given in writing by personal delivery, or certified mail, return receipt requested, or (if to the Company) by telex or facsimile, in any case delivered to the applicable address set forth below: (i) To the Company: Getty Images, Inc. 2101 Fourth Avenue 5th Floor Seattle, Washington 98121 (ii) To the Executive: Jonathan D. Klein 3815 East John Street Seattle, WA 98112-5007 or to such other persons or other addresses as either party may specify to the other in writing. (e) Representation by the Executive. The Executive represents and warrants that his entering into this Agreement does not, and that his performance under this Agreement and consummation of the transactions contemplated hereby will not, violate the provisions of any agreement or instrument to which the Executive is a party, or any decree, judgment or order to which the Executive is subject, and that this Agreement constitutes a valid and binding obligation of the Executive in accordance with its terms. Breach of this representation will render all of the Company's obligations under this Agreement void ab initio. (f) Limited Waiver. The waiver by the Company or the Executive of a violation of any of the provisions of this Agreement, whether express or implied, shall not operate or be construed as a waiver of any subsequent violation of any such provision. (g) Assignment; Assumption of Agreement. No right, benefit or interest hereunder shall be subject to assignment, encumbrance, charge, pledge, hypothecation or setoff 12 13 by the Executive in respect of any claim, debt, obligation or similar process. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company to assume expressly and to agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. (h) Amendment; Actions by the Company. This Agreement may not be amended, modified or canceled except by written agreement of the Executive and the Company. Any and all determinations, judgments, reviews, verifications, adjustments, approvals, consents, waivers or other actions of the Company required or permitted under this Agreement shall be effective only if undertaken by the Company pursuant to authority granted by a resolution duly adopted by the Board; provided, however, that by resolution duly adopted in accordance with this Section 7(h), the Board may delegate its responsibilities hereunder to one or more of its members other than the Executive. (i) Severability. If any term or provision hereof is determined to be invalid or unenforceable in a final court or arbitration proceeding, (i) the remaining terms and provisions hereof shall be unimpaired and (ii) the invalid or unenforceable term or provision shall be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision. (j) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware (determined without regard to the choice of law provisions thereof). (k) Entire Agreement. This Agreement sets forth the entire agreement and understanding of the parties hereto with respect to the matters covered hereby and supersedes all prior agreements and understandings of the parties with respect to the subject matter hereof. (l) Headings. The headings and captions of the sections of this Agreement are included solely for convenience of reference and shall not control the meaning or interpretation of any provisions of this Agreement. (m) Counterparts. This Agreement may be executed by the parties hereto in counterparts, each of which shall be deemed an original, but both such counterparts shall together constitute one and the same document. (n) Disciplinary and Grievance Procedures. For statutory purposes, there is no formal disciplinary procedure in relation to the Executive's employment. The Executive shall be expected to maintain the highest standards of integrity and behavior. If the Executive has any grievance in relation to his employment or is not satisfied with any disciplinary procedure taken in relation to him, he may apply in writing within 14 days of that decision to the Board, whose decision shall be final. The foregoing shall not be construed, however, to limit the Executive's remedies at law or otherwise. 13 14 IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the day and year first written above. GETTY IMAGES, INC. By: ______________________________________ Name: Mark Getty Title: Chairman of the Board EXECUTIVE By: ______________________________________ Jonathan D. Klein 14 15 APPENDIX A Agreement for relocation of Jonathan Klein from London to Seattle OVERALL PRINCIPLES 1. Jonathan Klein (the employee) is viewed as an expatriate on assignment for three years. 2. Family includes spouse or partner, dependent children under 18 and other persons living with or supported by the employee. 3. No consideration is made for loss of employee's spouse or partner's income. 4. Aim is to provide equivalent purchasing power abroad to at least maintain home lifestyle. All annual allowances or payments will apply to Jonathan Klein for three years and will then phase out over the next two years. RELOCATION 1. Getty Images will pay on production of invoices all reasonable relocation and related insurance expenses for sea freight and up to the following limits for airfreight (available for immediate needs ) (anything over (pound)8,000 is taxable to the employee). 200kg by air for the employee 150kg by air for the spouse 100kg by air for each additional person 2. All storage charges will be paid by Getty Images for three years. 3. Hotel costs for employee and family in Seattle will be paid until longer term accommodation (rental or purchase) is secured. Typically 6 weeks maximum. 4. Business class flights are paid for employee and family for initial move from London to Seattle. 10. A one off general relocation allowance is paid of 6 weeks salary to cover electrical goods, curtains and other goods that will need to be purchased. REMUNERATION 1. Total remuneration is split between home and host currency as instructed by expatriate. 2. Professional help with tax advice and tax returns is paid for by Getty Images. 3. A Foreign Service Premium of 10% of base salary is paid to all expatriates for the duration of the assignment. The Foreign Service Premium is paid gross so that the employee gets a net 10% benefit as a result of moving to Seattle. The Premium will be paid monthly throughout the expatriate period and is in addition to any "normal" annual pay rise. It is also shown separately in the pay roll. Pension and bonuses will be calculated on the basic salary i.e. excluding the Foreign Service Premium. 4. Tax equalization is carried out. Employees pay no more or no less tax than in London. 5. If required UK NI contributions will be continued, paid for by Getty Images. 6. No mobility premium is payable on moving. 7. A Goods and Services (cost of living) allowance linked to family size is paid per the ORC efficient purchaser indices table. (This is currently negative for London to Seattle but no deduction will be made). 8. No Hardship Allowances will be paid for Seattle. 15 16 ACCOMMODATION 1. Housing Allowance will be loosely based on the ORC tables, expensive column, research with local real estate agents and management judgement (see individual sheets for estimates). This will be adjusted to enable the employee to receive the amount net assuming they will use this as payment towards the interest on a mortgage (after personal tax deductions and tax rebates) 2. No home housing offset will be made (i.e. no account will be taken of the accommodation arrangements in London). 3. Utility bills will be paid by Getty Images. 4. Real estate taxes will be paid by Getty Images over and above the accommodation allowances provided to each individual. 5. Other costs related to the purchase and maintenance of a property in Seattle will be borne by the company and will include: Loan origination fees Appraisal fees Credit report fees Flood fees Application fee to US Bank Tax registration Property Insurance Settlement or closing fee Title insurance Delivery fees Recording fees OTHER BENEFITS 1. Equivalent Healthcare benefits will be provided either by additional coverage of home plan or by inclusion in local Seattle plan. 2. Any life assurance plans will be maintained from London. 3. Permanent Health Insurance and/or disability insurance will, where relevant, continue to be paid by the company. 4. All employees will continue their UK pension arrangements. 5. Two cars or cash in lieu of a car will be provided for Jonathan Klein. In general, employees who choose to take a car instead of the cash will be responsible for arranging the leasing of the vehicle with the cost being borne by the company. 6. Two business class home leave trips will be provided for the employee and their family annually. 7. Holiday entitlement will not change. 8. No contribution will be made to children's education expenses. REPATRIATION 1. Jonathan Klein will be eligible to receive reimbursement for repatriation costs to UK, equivalent to relocation costs outlined above, throughout the first three years, on resignation at the host location or on termination by Getty Images. 2. No assistance will be given for purchase of a new home in the UK. 16 17 EXTENSION OF ASSIGNMENT Jonathan Klein will migrate to a local package over his fourth year. YEAR 4 Accommodation allowance, UK storage costs and utilities payments reduce to 50% of previous allowance. Health cover converts to local benefits package. UK NI no longer paid. Tax advice and tax returns still paid for Employee still eligible for reimbursement of repatriation costs. Vacation allowance remains the same Car arrangements remain the same YEAR 5+ Salaries will be aligned to local salaries using an appropriate benchmarking exercise. Employees lose their right to repatriation at the company's expense. Vacation allowance remains the same. All other benefits are as for local employees. Local taxes will apply. 17 EX-27.1 4 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 9,877 0 48,895 5,200 5,422 93,057 79,436 64,679 620,160 88,711 0 0 0 355 454,834 620,160 167,930 167,930 45,051 97,316 70,117 400 2,868 (47,578) (477) (48,055) 0 0 0 (48,055) (1.44) 0
EX-99.1 5 SUBSCRIPTION AGREEMENT 1 Exhibit 99.1 Getty Investments L.L.C. 1325 Airmotive Way, Suite 262 Reno, Nevada 89502 October 26, 1999 Getty Images, Inc. 701 North 34th Street Seattle, Washington 98103 Dear Sirs: Getty Investments L.L.C., a limited liability company organized under the laws of the State of Delaware ("Getty Investments"), hereby subscribes for and offers to purchase, upon and subject to the conditions set forth below, 1,579,353 validly issued, fully paid and nonassessable shares (the "Shares") of Common Stock, par value $0.01 per share ("Common Stock"), of Getty Images, Inc., a Delaware corporation ("Getty Images"), and to pay therefor in lawful money U.S. $32,000,000 in the aggregate (the "Purchase Price"), by wire transfer in immediately available funds. The Purchase Price shall be payable on the business day preceding the Closing Date (as defined in the Stock Purchase Agreement, dated as of September 20, 1999, among Getty Images, Eastman Kodak Company and Kodak S.A.). The obligations of Getty Investments to subscribe for, and the obligations of Getty Images to issue to Getty Investments, the Shares pursuant to this agreement shall be subject to: (i) the execution and delivery by Getty Images and Getty Investments of an amendment to the Registration Rights Agreement, dated as of February 9, 1998, between Getty Images and Getty Investments, pursuant to which the Shares shall be entitled to the benefits of the Registration Rights Agreement; (ii) the execution and delivery by Getty Images, Getty Investments and the Investors named therein of an Indemnity Agreement in the form to be agreed to by the parties in good faith, but substantially in the form of the Indemnity Agreement delivered by Getty Images to Getty Investments in connection with the issuance by Getty Images of its 4.75% Convertible Subordinated Notes due 2003; and (iii) Getty Investments having received a legal opinion from Weil, Gotshal & Manges LLP, counsel to Getty Images, in a form agreed to by the parties but addressing the following matters as to Getty Images: (a) due organization, valid existence and good standing, (b) corporate power and authority to execute this letter agreement and perform its obligations hereunder, (c) due execution and delivery, (d) enforceability (subject to customary exceptions), (e) due 2 2 authorization and valid issuance of the Shares, (f) that the execution and delivery of this agreement and the issuance of the Shares will not conflict with any constitutional or material agreement of Getty Images, (g) that the execution and delivery of this agreement and the issuance of the Shares will not conflict with or violate any law or governmental order, (h) that the execution and delivery of this agreement and the issuance of the Shares will not require any consent, approval or filing, and (i) that it will not be necessary to register the Shares under the Securities Act. (iv) the expiration or early termination of any applicable waiting period (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Getty Investments hereby represents and warrants to Getty Images that: (a) it understands and acknowledges that the issuance and subscription of the Shares pursuant to this letter agreement have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and that the Shares will be issued to it in a transaction that is exempt from the registration requirements of the Securities Act in reliance upon the representations and warranties of Getty Investments in this agreement. It understands and acknowledges that the Shares cannot be offered or resold within the United States or to or for the account or benefit of U.S. persons except pursuant to registration under the Securities Act or an available exemption from registration and it agrees that it shall not resell the Shares except in compliance with applicable securities laws; (b) it is purchasing the Shares for its own account for investment and not with a view to, or for resale in connection with, the distribution hereof, and it has no present intention of distributing any of the Shares; (c) it understands and acknowledges that all certificates representing the Shares shall bear, in addition to any other legends required under applicable securities laws, the following legend: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Securities Act"). The shares have been acquired by the holder not with a view to, or for resale in connection with, any distribution thereof within the meaning of the Securities Act and may not be sold, pledged or otherwise transferred except in accordance with an exemption from the registration requirements of the Securities Act." (d) it is an accredited investor within the meaning of Regulation D under the Securities Act and it has such knowledge and experience in financial and 3 3 business matters that it is capable of evaluating the merits and risk of its investment in the Shares pursuant to this agreement; (e) it has the financial ability to bear the economic risk of its investment in the Shares pursuant to this agreement, it is aware that it may be required to bear the economic risk of its investment in the Shares for an indefinite period of time, and it has no need for liquidity with respect to its investment therein at this time; and (f) the Shares were not offered or sold to Getty Investments by any form of general solicitation or general advertising. This letter agreement shall be governed by the laws of the State of New York and shall only be amended by written consent of Getty Investments and Getty Images. Please confirm the above and accept this offer by signing in the space provided below. Very truly yours, Getty Investments L.L.C. By: _____________________________ Jan D. Moehl Officer Accepted and confirmed as of October _____, 1999 Getty Images, Inc. By: _______________________________ Jonathan D. Klein Chief Executive Officer -----END PRIVACY-ENHANCED MESSAGE-----