-----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, OEbuAZTknPxmmlHY9ki2CXgcqbrq2ioQUGgNv7gGC3V8hJqPHuVgcKXcs3cU1HyV 1XvbLyGD8mpXZT8ZGGu0fQ== 0000950109-96-003069.txt : 19960517 0000950109-96-003069.hdr.sgml : 19960517 ACCESSION NUMBER: 0000950109-96-003069 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19960330 FILED AS OF DATE: 19960514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEATTLE FILMWORKS INC CENTRAL INDEX KEY: 0000791050 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PHOTOFINISHING LABORATORIES [7384] IRS NUMBER: 910964899 STATE OF INCORPORATION: WA FISCAL YEAR END: 0928 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15338 FILM NUMBER: 96564741 BUSINESS ADDRESS: STREET 1: 1260 16TH AVE WEST CITY: SEATTLE STATE: WA ZIP: 98119 BUSINESS PHONE: 2062811390 MAIL ADDRESS: STREET 1: 1260 16TH AVENUE WEST CITY: SEATTLE STATE: WA ZIP: 98119 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN PASSAGE MARKETING CORP DATE OF NAME CHANGE: 19890320 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: MARCH 30, 1996 Commission file No. 0-15338 -------------- ------- SEATTLE FILMWORKS, INC. ------------------------ (Exact name of registrant as specified in its charter.) Washington 91-0964899 ------------------------------- ------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1260 16th Avenue West, Seattle, WA 98119 ---------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (206) 281-1390 -------------- 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 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes X No ----- ----- As of April 30, 1996, there were issued and outstanding 10,809,951 shares of common stock, par value $.01 per share. Index to Exhibits at Page 14 Page 1 of 64 SEATTLE FILMWORKS, INC. INDEX -----
Page No. -------- PART I -- FINANCIAL INFORMATION Item 1 - Financial Statements 3-7 Balance Sheets as of March 30, 1996 and September 30, 1995 3-4 Statements of Income for the second quarter and six months ended March 30, 1996 and March 25, 1995 5 Statements of Cash Flows for the six months ended March 30, 1996 and March 25, 1995 6 Notes to Financial Statements 7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 8-11 PART II -- OTHER INFORMATION Item 4 - Submission of Matters to a Vote of Security Holders 11-12 Item 6 - Exhibits and Reports on Form 8-K 12 SIGNATURES 13 INDEX TO EXHIBITS 14 EXHIBITS 15-64
Page 2 of 64 PART I -- FINANCIAL INFORMATION ------------------------------- ITEM 1 - FINANCIAL STATEMENTS SEATTLE FILMWORKS, INC. BALANCE SHEETS (in thousands)
(UNAUDITED) (NOTE) March 30, September 30, ASSETS 1996 1995 ============================================================================= CURRENT ASSETS Cash and cash equivalents $ 6,614 $ 8,560 Securities available for sale 500 1,345 Accounts receivable, net of allowance for doubtful accounts 1,286 1,242 Inventories 6,992 4,626 Capitalized promotional expenditures 43 158 Prepaid expenses and other 546 164 Deferred income taxes 353 398 ------- ------- TOTAL CURRENT ASSETS 16,334 16,493 FURNITURE, FIXTURES, AND EQUIPMENT, at cost, less accumulated depreciation 4,329 3,200 CAPITALIZED CUSTOMER ACQUISITION EXPENDITURES 9,645 7,356 DEPOSITS AND OTHER ASSETS 245 68 NON-COMPETE AGREEMENTS, net of accumulated amortization 939 1,127 ------- ------- TOTAL ASSETS $31,492 $28,244 ======= =======
Note: The September 30, 1995 balance sheet has been derived from audited financial statements. See notes to financial statements. Page 3 of 64 SEATTLE FILMWORKS, INC. BALANCE SHEETS (continued) (in thousands, except share information)
(UNAUDITED) (NOTE) March 30, September 30, LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995 ================================================================================ CURRENT LIABILITIES Accounts payable $ 6,470 $ 4,782 Accrued expenses 2,257 2,364 Income taxes payable 856 ------- ------- TOTAL CURRENT LIABILITIES 8,727 8,002 DEFERRED INCOME TAXES 3,126 2,310 ------- ------- TOTAL LIABILITIES 11,853 10,312 SHAREHOLDERS' EQUITY Preferred Stock, $.01 par value authorized 2,000,000 shares, none issued. Common Stock, $.01 par value - authorized 67,500,000 shares, issued and outstanding 10,806,988 108 107 Additional paid-in capital 1,207 955 Retained earnings 18,324 16,870 ------- ------- TOTAL SHAREHOLDERS' EQUITY 19,639 17,932 ------- ------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $31,492 $28,244 ======= =======
Note: The September 30, 1995 balance sheet has been derived from audited financial statements. See notes to financial statements. Page 4 of 64 SEATTLE FILMWORKS, INC. STATEMENTS OF INCOME (UNAUDITED) (in thousands, except share information)
Second Quarter Ended Six Months Ended March 30, March 25, March 30, March 25, 1996 1995 1996 1995 ================================================================================ Net revenues $17,821 $12,293 $34,510 $24,563 Cost of goods and services 10,510 8,141 20,907 15,821 ------- ------- ------- ------- GROSS PROFIT 7,311 4,152 13,603 8,742 Operating expenses: Customer acquisition costs 3,236 2,017 5,774 4,056 Other selling expenses 2,130 931 3,462 1,815 Research and development 274 94 521 211 General and administrative 1,012 661 1,780 1,281 ------- ------- ------- ------- Total operating expenses 6,652 3,703 11,537 7,363 ------- ------- ------- ------- INCOME FROM OPERATIONS 659 449 2,066 1,379 Other income (expense): Interest expense (1) (1) (1) (2) Interest income 112 57 254 117 Non operating income (expense), net (1) (93) 3 ------- ------- ------- ------- Total other income 111 55 160 118 ------- ------- ------- ------- INCOME BEFORE INCOME TAXES 770 504 2,226 1,497 Provision for income taxes (267) (165) (772) (503) ------- ------- ------- ------- NET INCOME $ 503 $ 339 $ 1,454 $ 994 ======= ======= ======= ======= EARNINGS PER SHARE $.04 $.03 $.12 $.09 ==== ==== ==== ==== WEIGHTED AVERAGE SHARES AND EQUIVALENTS OUTSTANDING 11,848,053 11,571,746 11,844,024 11,555,702 ========== ========== ========== ==========
See notes to financial statements. Page 5 of 64 SEATTLE FILMWORKS, INC. STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands)
Six Months Ended March 30, March 25, 1996 1995 ================================================================================ OPERATING ACTIVITIES: - --------------------- Net income $ 1,454 $ 994 Charges to income not affecting cash: Depreciation and amortization 1,111 791 Amortization of capitalized customer acquisition expenditures 5,124 2,579 Deferred income taxes 861 101 Loss or (gain) on disposal of equipment 88 (5) Net change in receivables, inventories, payables and other (2,066) (2,066) Capitalized promotional expenditures, net 115 253 Additions to capitalized customer acquisition expenditures (7,413) (3,066) ------- ------- NET CASH USED IN OPERATING ACTIVITIES (726) (419) INVESTING ACTIVITIES: - --------------------- Purchase of furniture, fixtures, and equipment (2,320) (521) Purchase of securities available for sale (2,350) (11) Sales of securities available for sale 3,195 1,190 Proceeds from sale of equipment 2 17 ------- ------- NET CASH FROM (USED IN) INVESTING ACTIVITIES (1,473) 675 FINANCING ACTIVITY: Proceeds from issuance of 253 181 - ------------------- ------- ------- Common Stock INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,946) 437 Cash and cash equivalents at beginning of period 8,560 2,711 ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,614 $ 3,148 ======= =======
See notes to financial statements. Page 6 of 64 SEATTLE FILMWORKS, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE A -- BASIS OF PRESENTATION Seattle FilmWorks, Inc. (the "Company") principally markets 35mm photographic film, photofinishing services and related photographic products on a direct-to-consumer mail order basis under the brand name of Seattle FilmWorks(R). The Company also markets 35mm photographic film, single-use cameras and photographic supplies on a wholesale basis under the brand name of OptiColor Film and Photo(TM). The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments and changes as discussed in Note D below) considered necessary for fair presentation of interim results have been included. The Company follows a policy of recording its interim periods and year-end on a 5 week, 4 week and 4 week basis for comparability of results and to be consistent with its internal weekly reporting. Operating results for the second quarter and six months ended March 30, 1996 are not necessarily indicative of the results that may be expected for the fiscal year ending September 28, 1996. For further information, refer to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 1995. NOTE B -- STOCK SPLIT On March 15, 1996 the Company effected a three-for-two stock split by declaring a stock dividend of one share for every two shares outstanding. All share information and the related capital accounts in the accompanying financial statements have been retroactively adjusted for this stock split. NOTE C -- RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform with the 1996 financial statements presentation. NOTE D -- CHANGE IN ESTIMATES Effective as of the beginning of the second quarter of fiscal 1996, the Company changed from twelve months to six months the period over which it amortizes certain capitalized customer acquisition expenditures. This change in accounting estimate was made to more accurately match incremental revenues and expenses, and resulted in $414,000 of incremental deferred customer acquisition costs. The Company also recorded an additional $43,000 of amortization related to a change in estimated life of the benefit of a non-compete agreement from ten years to five years. Page 7 of 64 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Information - --------------------------- Statements in this report concerning future results, performance, achievements, expectations or trends, if any, are forward-looking statements. Actual results, performance, achievements, events or trends could differ materially from those expressed or implied by such forward-looking statements as a result of known and unknown risks, uncertainties and other factors including those described below and those identified by the Company from time to time in other filings with the Securities and Exchange Commission, press releases and other communications. General - ------- Seattle FilmWorks, Inc. (the "Company") is one of the largest direct-to- consumer providers of photofinishing services in the United States. The Company offers its services and products primarily on a mail order basis under the brand name Seattle FilmWorks(R). The Company seeks to differentiate its photofinishing services by offering its customers the options of receiving their photographs as conventional prints and/or slides and as digital images delivered either on floppy diskettes under the Pictures On Disk(TM) brand name or over the Internet using the Company's PhotoMail(TM) service. To permit viewing of digital images on personal computers, the Company provides various versions of software under the titles PhotoWorks(TM) and PhotoWorks Plus(TM). The Company also furnishes a variety of reprint and enlargement services. In addition, the Company provides services, products and photofinishing supplies on a wholesale basis to a variety of customers who offer these services and products to their customers at their own retail locations under their own brand names. The Company has the ability to process virtually all 35mm color negative films, including those manufactured for the motion picture industry. To support its direct-to-consumer business, the Company has developed comprehensive computerized marketing models and support systems for designing, implementing and analyzing direct response marketing programs. Demand for the Company's photofinishing-related services and products is highly seasonal with the highest volume of photofinishing activity occurring during the summer months. This seasonality, when combined with the general growth of the Company's photofinishing business, has produced substantially greater photofinishing revenues during the last half of the fiscal year with a peak occurring in the fourth fiscal quarter. Net income is affected by the seasonality of the Company's revenues due to the fixed nature of a large portion of the Company's operating expenses, seasonal variation in sales mix and by the Company's practice of relatively higher expenditures on marketing programs prior to the summer months. Page 8 of 64 Results of Operations The following table presents information from the Company's statements of income, expressed as a percentage of net revenues for the periods indicated.
Second Quarter Ended Six Months Ended March 30, March 25, March 30, March 25, 1996 1995 1996 1995 ================================================================================ Net revenues 100.0% 100.0% 100.0% 100.0% Cost of goods and services 59.0 66.2 60.6 64.4 ----- ----- ----- ----- GROSS PROFIT 41.0 33.8 39.4 35.6 Operating expenses: Customer acquisition costs 18.2 16.4 16.7 16.5 Other selling expenses 11.9 7.6 10.0 7.4 Research and development 1.5 0.7 1.5 0.9 General and administrative 5.7 5.4 5.2 5.2 ----- ----- ----- ----- Total operating expenses 37.3 30.1 33.4 30.0 ----- ----- ----- ----- INCOME FROM OPERATIONS 3.7 3.7 6.0 5.6 Total other income 0.6 0.4 0.4 0.5 ----- ----- ----- ----- INCOME BEFORE INCOME TAXES 4.3 4.1 6.4 6.1 Provision for income taxes 1.5 1.3 2.2 2.1 ----- ----- ----- ----- NET INCOME 2.8% 2.8% 4.2% 4.0% ===== ===== ===== =====
The Company's net revenues for the second quarter of fiscal 1996 increased 45.0% to $17,821,000 compared to net revenues of $12,293,000 in the second quarter of fiscal 1995. For the six months ended March 30, 1996, net revenues increased 40.5% to $34,510,000 compared to $24,563,000 for the same period of fiscal 1995. The increased revenues in fiscal 1996 are primarily due to expanded customer acquisition activities and marketing to existing customers during fiscal year 1995 and the first two quarters of fiscal 1996 which have resulted in increased net revenues from photofinishing services and products. The quarter ending March 30, 1996, marks the fourth consecutive quarter of expanded customer acquisition efforts. Management also believes that its Seattle FilmWorks(R) branded business has benefited from the Company's entry into the home computer market with its PhotoWorks(TM) and Pictures On Disk(TM) products, which were first introduced in January 1994. Cost of goods and services consist of labor, postage and supplies related to the Company's services and products. Gross profit in the second quarter of fiscal 1996 increased to 41.0% of net revenue compared to 33.8% in the second quarter of fiscal 1995. For the first six months of fiscal 1996, gross profit increased to 39.4% compared to 35.6% for the same period of fiscal 1995. The increases in fiscal 1996 periods were due primarily to a product mix containing a higher percentage of the Company's Seattle FilmWorks(R) branded products, which carry a higher gross profit margin than the Company's other lines of business. Gross profit was also favorably impacted in the second quarter of fiscal 1996 by the reversal of $227,000 of state tax reserves upon the resolution of uncertainties related to a recent state tax examination. Fluctuations in gross profit will occur in future periods due to the seasonal nature of revenues, mix of product sales, intensity of promotional activities and other factors. Page 9 of 64 Total operating expenses in the second quarter of fiscal 1996 increased to 37.3% of net revenue compared to 30.1% in the second quarter of fiscal 1995. For the first six months of fiscal 1996 total operating expenses increased to 33.4% of net revenue compared to 30.0% for the same period of fiscal 1995. The increase in total operating expenses for the quarter was due primarily to an increase in customer acquisition and other selling activities. The Company's principal technique for acquiring new customers is its Introductory Offer of two rolls of 35 mm film for $2.00 or less. Customer acquisition costs are comprised of the costs of generating a lead and the direct acquisition costs associated with acquiring the customer. Costs of generating a lead include all advertising, direct response media and other costs associated with developing target customer lists. Direct acquisition costs include film and printed material costs associated with mailings to new and existing customers. A significant portion of the direct acquisition costs, including the cost of film and printed materials, but excluding advertising costs, are initially capitalized as assets on the Company's balance sheet. These deferred costs are amortized over a period of up to three years, based on statistical analyses of historical photofinishing volumes. Effective at the beginning of the second quarter of fiscal 1996 the Company reduced from twelve months to six months the amortization period for certain marketing activities to specific groups of existing customers. This change in accounting estimate resulted in incremental amortization of $414,000 of previously deferred customer acquisition costs.. The Company capitalized $4,417,000 and $2,996,000 of customer acquisition costs in the first and second quarters of fiscal 1996, respectively, compared to $1,688,000 and $1,378,000 for the first and second quarters of fiscal 1995, respectively. Capitalized customer acquisition costs as of March 30, 1996, increased to $9,645,000 compared to $7,356,000 as of September 30, 1995. Management believes this increased investment in customer acquisition combined with new service and product introductions are the primary reasons for the increase in photofinishing related revenues. Each year the Company prepares detailed plans for its various marketing activities, including the mix between customer acquisition expenditures and other selling expenses. However, the Company occasionally changes both the mix and total marketing expenditures between periods to take advantage of marketing opportunities as they become available. Future periods may reflect increased customer acquisition costs due to the amortization of capitalized expenditures or the development and initiation of additional marketing programs. For tax purposes, customer acquisition expenditures are expensed as incurred, thereby reducing current federal income tax liabilities and increasing deferred federal income tax liabilities. Other selling expenses include marketing costs associated with building brand awareness, testing of new marketing strategies and marketing to existing customers, as well as certain costs associated with acquiring new customers. Other selling expenses in the second quarter of fiscal 1996 increased to 11.9% of net revenues compared to 7.6% of net revenues for the second quarter of fiscal 1995. For the first six months of fiscal 1996, other selling expenses increased to 10.0% of net revenues compared to 7.4% of net revenues for the first six months of fiscal 1995. The increase in the 1996 periods is due primarily to increased marketing activities associated with expanded promotional activities to new and existing customers compared to fiscal 1995 periods. The increase in the second quarter of fiscal 1996 includes approximately $43,000 resulting from an increase in amortization of a non-compete agreement due to a change in the estimated life from ten years to five years and $126,000 in expenses related to securing certain rights to the PhotoWorks(TM) mark claimed by a third party. Research and development expenses increased to $274,000 for the second quarter of fiscal 1996 as compared to $94,000 for the second quarter of fiscal 1995. Research and development expenses for the first six months of fiscal 1996 increased to $521,000 as compared to $211,000 for the first six months of fiscal 1995. These increases were primarily related to the Company's continued development of digital services and products. General and administrative expenses increased $351,000 and $499,000 for the second quarter and first six months of fiscal 1996, respectively, as compared to the same periods of fiscal 1995 due to increased compensation expenses based on the Company's profitability and increased legal and accounting costs. General and administrative expenses as a percent of net revenue increased to 5.7% for the second quarter of fiscal 1996 as compared to 5.4% for the second quarter of fiscal 1995 and remained at 5.2% of net revenue for the six month periods in fiscal 1996 and fiscal 1995. Total net other income for the second quarter of fiscal 1996 increased to $111,000 as compared to $55,000 for the second quarter of fiscal 1995. Total net other income increased to $160,000 for the first six months of fiscal 1996 as compared to $118,000 for the first six months of fiscal 1995. The increases are due primarily to interest income from short-term investments due to higher levels of cash generated by operations. Page 10 of 64 The federal income tax rate for the first six months of fiscal 1996 as compared to the first six months of fiscal 1995 increased to 34.7% from 33.6%. The increase in the effective tax rate is due primarily to an increase in the marginal federal corporate tax rate due to expected income levels. Net income in the second quarter of fiscal 1996 was $503,000, or $.04 per share, compared to $339,000 or $.03 per share for the second quarter of fiscal 1995. For the first six months of fiscal 1996, net income was $1,454,000, or $.12 per share compared to $994,000, or $.09 per share for the same period in fiscal 1995. The increase in net income compared to 1995 periods is primarily attributable to the increase in net revenues and gross profit partially offset by the increase in operating expenses. Liquidity and Capital Resources As of April 30, 1996, the Company's principal sources of liquidity included cash and short-term investments of $5,771,135 and an unused revolving line of credit of $6,000,000. The ratio of current assets to current liabilities for the Company was 1.9 to 1 at the end of the second quarter of fiscal 1996, down slightly from the current ratio of 2.0 to 1 at September 30, 1995. During the first two quarters of fiscal 1996 the Company increased inventory levels by $2,366,000 to accommodate expanded marketing plans, achieve faster turnaround of customer orders, and support increased photofinishing volume. This planned increase in inventory was also the principal reason for the $1,688,000 increase in accounts payable. Federal income taxes payable were favorably affected by the increase in capitalized customer acquisition expenditures which are expensed as incurred for federal income tax purposes, thereby having the effect of substantially reducing current federal income tax liabilities. The Company has a commitment to purchase equipment related to its Pictures On Disk(TM) product in the amount of $470,000 by January 1, 1997. In addition, the Company plans to expend approximately $1,180,000 during the remainder of fiscal 1996, principally for photofinishing and data processing equipment and for leasehold improvements, although at this time it has no binding commitments to do so. The Company currently anticipates that existing funds together with anticipated cash flow from operations and the Company's available line of credit of $6,000,000 will be sufficient to finance its operations and planned capital expenditures and to service its indebtedness for the foreseeable future. However, if the Company does not generate sufficient cash from operations to satisfy its ongoing expenses, the Company will be required to seek external sources of financing or to refinance its obligations. Possible sources of financing include the sale of equity securities or additional bank borrowings. There can be no assurance that the Company will be able to obtain adequate financing in the future. PART II -- OTHER INFORMATION ---------------------------- ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS On February 13, 1996, the Company held its annual meeting of shareholders. The shareholders acted on the following matters at the annual meeting. 1. The following individuals were elected to the Company's Board of Directors, to hold office for a term of one year. The number of votes cast for each individual, the number of votes withheld, and the number of broker non- votes are listed for each individual.
For Withheld Non-votes --------- -------- --------- Gary Christophersen 6,510,766 17,728 N/A Sam Rubinstein 6,516,082 12,412 N/A Douglas A. Swerland 6,515,202 13,292 N/A Craig E. Tall 6,516,252 12,242 N/A Peter H. van Oppen 6,516,252 12,242 N/A
Page 11 of 64 2. The shareholders approved a proposal to amend the Seattle FilmWorks, Inc. 1987 Stock Option Plan and Incentive Stock Option Plan (the "Plans") to increase by 300,000 the aggregate numbers of shares of Common Stock available for purchase upon exercise of options granted under either Plan, to create a maximum number of options that may be granted under the Plans to any one employee in any one fiscal year and to extend the terms of the Plans until December 31, 2005. There were 5,936,729 shares of Common Stock voted in favor of the amendments, 491,839 shares voted against, 98,026 shares abstained from voting and 0 shares were broker non-votes. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. --------- 3 Second Restated Articles of Incorporation of Seattle FilmWorks, Inc. 10.1 Business Loan Agreement effective January 31, 1996 with First Interstate Bank of Washington, N.A. 10.2* Supplement to Agfa Division of Miles, Inc. sales contract dated March 29, 1996 10.3 Addendum to lease agreement dated January 1, 1996, between United States of America, Lessors, and the Company 10.64** Sales contract dated August 18, 1995 between the Company and Agfa Division of Miles, Inc. with respect to the purchase of certain products 11 Computation of Earnings Per Share (b) Reports on Form 8-K. -------------------- None * Exhibits for which confidential treatment has been requested. ** Replaces exhibit previously filed with the Company's Annual Report on Form 10-K for the year ended September 30, 1995 Page 12 of 64 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. SEATTLE FILMWORKS, INC. DATED: May 14, 1996 /s/ Gary R. Christophersen ------------------------------------ Gary R. Christophersen President/Chief Executive Officer (Principal Executive Officer) /s/ Case H. Kuehn ------------------------------------ Case H. Kuehn Vice President-Finance/Treasurer (Principal Financial and Chief Accounting Officer) Page 13 of 64 INDEX TO EXHIBITS SEATTLE FILMWORKS, INC. Quarterly Report on Form 10-Q For The Quarter Ended March 30, 1996
Exhibit Description Page No. - ------- -------------------------- -------- 3 Second Restated Articles of Incorporation of Seattle FilmWorks, Inc. 15-22 10.1 Business Loan Agreement effective January 31, 1996 with First Interstate Bank of Washington, N.A. 23-41 10.2* Supplement to Agfa Division of Miles, Inc. sales contract dated March 29, 1996 42-44 10.3 Addendum to lease agreement dated January 1, 1996, between United States of America, Lessors, and the Company. 45 10.64** Sales contract dated August 18, 1995 between the Company and Agfa Division of Miles, Inc. with respect to the purchase of certain products. 46-63 11 Computation of Earnings Per Share 64
* Exhibits for which confidential treatment has been requested. ** Replaces exhibit previously filed with the Company's Annual Report on Form 10-K for the year ended September 30, 1995. Page 14 of 64 EX-3 2 SECOND RESTATE ARTICLES OF INCORPORATION SECOND RESTATED ARTICLES OF INCORPORATION OF SEATTLE FILMWORKS, INC. Except for the amendments to the Amended and Restated Articles of Incorporation made pursuant to the Certificate of Information attached hereto as Exhibit A, these Second Restated Articles of Incorporation correctly set forth - --------- without change the corresponding provisions of the Amended and Restated Articles of Incorporation as theretofore amended and, together with the said amendments which have been incorporated herein, supersede the original Amended and Restated Articles of Incorporation and all amendments thereto. ARTICLE I --------- The name of this corporation is SEATTLE FILMWORKS, INC. ARTICLE II ---------- This corporation has perpetual existence. ARTICLE III ----------- The purpose or purposes for which this corporation is organized are: (1) To advertise and market various products and services, to distribute film, to provide various film developing and processing services and to develop and market various test preparation materials. (2) To engage in any other lawful business or activity whatsoever which may hereafter from time to time be authorized by the Board of Directors. ARTICLE IV ---------- (1) Authorized Capital. The total number of shares which the ------------------ corporation is authorized to issue is sixty-nine million five hundred thousand (69,500,000) consisting of sixty-seven million five hundred thousand (67,500,000) shares of common stock, par value $.01, and two million (2,000,000) shares of preferred stock, par value $.01. Shares shall be issued at such prices as shall be determined by the Board of Directors. The common stock is subject to the rights and preferences of the preferred stock as hereinafter set forth. 15 (2) Issuance of Preferred Stock in Series. The preferred stock may be ------------------------------------- issued from time to time in one or more series in any manner permitted by law and the provisions of these Restated Articles of Incorporation, as determined from time to time by the Board of Directors and stated in the resolution or resolutions providing for the issuance thereof, prior to the issuance of any shares thereof. The Board of Directors shall have the authority to fix and determine and to amend, subject to the provisions hereof, the rights and preferences of the shares of any series that is wholly unissued or to be established. Unless otherwise specifically provided in the resolution establishing any series, the Board of Directors shall further have the authority, after the issuance of shares of a series whose number it has designated, to amend the resolution establishing such series to decrease the number of shares of that series, but not below the number of shares of such series then outstanding. (3) Dividends. The holders of shares of the preferred stock shall be --------- entitled to receive dividends, out of the funds of the corporation legally available therefor, at the rate and at the time or times as may be provided by the Board of Directors in designating a particular series of preferred stock. If such dividends on the preferred stock shall be cumulative, and if dividends shall not have been paid, then the deficiency shall be fully paid or the dividends declared and set apart for payment at such rate, but without interest on cumulative dividends, before any dividends on the common stock shall be paid or declared and set apart for payment. The holders of the preferred stock shall not be entitled to receive any dividends thereon other than the dividends referred to in this section, unless otherwise provided by the Board of Directors in designating a particular series of preferred stock. (4) Redemption. The preferred stock may be redeemable in such ---------- amounts, and at such time or times as may be provided by the Board of Directors in designating a particular series of preferred stock. In any event, such preferred stock may be repurchased by the corporation to the extent legally permissible. (5) Liquidation. In the event of any liquidation, dissolution or ----------- winding up of the affairs of the corporation, whether voluntary or involuntary, then, before any distribution shall be made to the holders of the common stock, the holders of the preferred stock at the time outstanding shall be entitled to be paid the preferential amount or amounts per share as may be provided by the Board of Directors in designating a particular series of preferred stock plus dividends accrued thereon to the date of such payment. The holders of the preferred stock shall not be entitled to receive any distributive amounts upon the liquidation, dissolution or winding up of the affairs of the 16 corporation other than the distributive amounts referred to in this section, unless otherwise provided by the Board of Directors in designating a particular series of preferred stock. (6) Conversion. Shares of preferred stock may be convertible to ---------- shares of common stock at such rate and subject to such adjustments as may be provided by the Board of Directors in designating a particular series of preferred stock. (7) Voting Rights. Holders of preferred stock shall have such voting ------------- rights as may be provided by the Board of Directors in designating a particular series of preferred stock. ARTICLE V --------- Shareholders of this corporation have no preemptive rights to acquire additional shares issued by the corporation. ARTICLE VI ---------- The first directors of the corporation are two in number and their names and addresses are: Name Address ---- ------- Gilbert D. Scherer 509 13th East Seattle, WA 98102 Michael J. Gross 5220 Roosevelt Way N.E. Seattle, WA 98105 The first directors shall serve until the first annual meeting of shareholders and until their successors are elected and qualified. ARTICLE VII ----------- The names and addresses of the incorporators are: Name Address ---- ------- Gilbert D. Scherer 509 13th East Seattle, WA 98102 Michael J. Gross 5220 Roosevelt Way N.E. Seattle, WA 98105 ARTICLE VIII ------------ 17 At each election for directors, every shareholder entitled to vote at such election has the right to vote in person or by proxy the number of shares of stock held by him for as many persons as there are directors to be elected. No cumulative voting for directors shall be permitted. ARTICLE IX ---------- (1) No contracts or other transactions between the corporation and any other corporation, and no act of the corporation shall in any way be affected or invalidated by the fact that any of the directors of the corporation are pecuniarily or otherwise interested in, or are directors or officers of, such other corporation; and (2) Any director individually, or any firm of which any director may he a member, may be a party to, or may be pecuniarily or otherwise interested in, any contracts or transactions of the corporation, provided that the fact that he or such firm is so interested shall be disclosed or shall have been known to the Board of Directors or a majority thereof. ARTICLE X --------- The Corporation reserves the right to amend, alter, change or repeal any provision contained in these Articles of Incorporation, in the manner now or hereafter prescribed by law, and all rights and powers conferred herein on shareholders and directors are subject to this reserved power. ARTICLE XI ---------- (1) Prevention of Greenmail. Any purchase by the corporation of ----------------------- voting shares from an interested shareholder (as hereinafter defined), other than pursuant to an offer to the holders of all of the outstanding shares of the same class of voting shares as those so purchased, at a per share price in excess of its fair market value (as hereinafter defined) at the time of such purchase of the shares so purchased, shall require the affirmative vote of the holders of at least a majority of the shares entitled to be counted under this Article XI, or if any class of shares is entitled under these Restated Articles of Incorporation or under law to vote thereon as a class, then by the affirmative vote of at least a majority of the shares of each class entitled to be counted under this Article XI and of the total shares entitled to be counted under this Article XI. All outstanding shares entitled to vote under these Restated Articles of Incorporation or under law shall be entitled to be counted under this Article XI except shares owned by or voted under the control of an interested shareholder may not be counted to determine whether shareholders have approved such purchase for 18 purposes of this Article XI. The vote of the shares owned by or under the control of an interested shareholder, however, shall be counted in determining whether a quorum exists. 19 (2) Definitions. For the purpose of this Article: ----------- (a) A "person" means any individual, firm, corporation or other entity. (b) An "interested shareholder" means any person (other than the corporation or any subsidiary) or group of affiliated persons who beneficially own twenty percent (20%) or more of the outstanding voting shares of the corporation, excluding any person who, in good faith and not for the purpose of circumventing this Article XI, is an agent, bank, broker, nominee or trustee for another person, if such person is not an interested shareholder. (c) A "subsidiary" means any corporation of which a majority of each class of equity security is owned directly or indirectly by the corporation. (d) An "affiliated person" means any person who either her acts jointly or in concert with, or directly or indirectly controls, is controlled by, or is under common control with another person. (e) "beneficially own" has the meaning ascribed to such term in Rule 13d-3 of the Rules and Regulations under the Securities Exchange Act of 1934, as in effect on January 1, 1986. (f) "fair market value" means the closing sale price on the trading day immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange - Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not quoted on such exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the last sale price or closing bid quotation, whichever is available, with respect to a share of such stock on the trading day immediately preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or, if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by the Board of Directors in good faith. ARTICLE XII ----------- Pursuant to RCW 23B.17.020(3)(d), the Company expressly elects not to be covered by the provisions of RCW 23B.17.020. 20 ARTICLE XIII ------------ LIMITATION OF DIRECTOR LIABILITY -------------------------------- No director of the corporation shall be personally liable to the corporation or its shareholders for monetary damages for his or her conduct as a director on or after the date this Article become effective, except for: (i) acts or omissions that involve intentional misconduct or a knowing violation of law by the director, (ii) approval of certain distributions or loans in violation of RCW 23B.08.310, or (iii) any transaction from which the director will personally receive a benefit in money, property or services to which the director is not legally entitled. If, after approval by shareholders of this Article, the Washington Business Corporation Act, is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the Washington Business Corporation Act, as so amended. Any amendment to or repeal of this Article shall not adversely affect any right or protection of a director of the corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. DATED as of this 5th day of March, 1996. SEATTLE FILMWORKS, INC. By /s/ Gary R. Christophersen Gary R. Christophersen President 21 Exhibit A --------- CERTIFICATE OF INFORMATION TO SECOND RESTATED ARTICLES OF INCORPORATION OF SEATTLE FILMWORKS, INC. This Certificate of Information accompanies and is submitted in connection with the filing of Second Restated Articles of Incorporation of Seattle FilmWorks, Inc., a Washington corporation, pursuant to RCW 23B.10.070(4). 1. The name of the corporation is Seattle FilmWorks, Inc. 2. The amendments to the Amended and Restated Articles of Incorporation of the corporation are as follows: (1) Delete Article IV in its entirety. (2) Amend Article XIII to reflect current statute cites by replacing reference to RCW 23A.08.425(3)(d) and RCW 23A.08.425 with RCW 23B.17.020(3)(d) and RCW 23B.17.020, respectively. (3) Amend Article XIV to reflect the current statute cite by replacing reference to RCW 23A.08.450 with RCW 23B.08.310. (4) Renumber Articles V through XIV as Articles IV through XIII, respectively, and amend the reference to Article XII in Article XII prior to renumbering to Article XI in Article XI after renumbering. 3. The amendments and the Second Restated Articles of Incorporation were duly adopted by the Board of Directors by unanimous consent on March 5, 1996, pursuant to the provisions or RCW 23B.10.020. DATED as of this 5th day of March, 1996. SEATTLE FILMWORKS, INC. By /s/ Gary R. Christophersen Gary R. Christophersen President 22 EX-10.1 3 BUSINESS LOAN AGREEMENT LOAN AGREEMENT This Agreement is made and executed as of April 10, 1996 by and between SEATTLE FILMWORKS, INC., a Washington corporation, referred to in this Agreement as "Borrower," and FIRST INTERSTATE BANK OF WASHINGTON, N.A., a national banking association, referred to in this Agreement as "Bank". It is effective as of January 31, 1996, and supersedes and replaces that certain Loan Agreement dated February 28, 1995, as subsequently modified. All amounts outstanding under the previous Loan Agreement and related promissory notes shall be deemed outstanding under this Loan Agreement and related promissory notes from and after the effective date hereof. In consideration of the mutual promises contained herein, the parties agree as follows: 1. DEFINITIONS. As used in this Agreement, the following terms shall have the ----------- meanings indicated which shall apply both to the singular and the plural of the terms defined: "Agreement" means this agreement, as it may be extended or modified from --------- time to time. "Borrower" means Seattle FilmWorks, Inc. and any successor thereto or any -------- subsidiary as described in Section 6.11 below. "Borrowing" means that portion of the Convertible Line or Convertible Loan representing direct advances of funds (not letters of credit, to the extent available thereunder) subject to an identical and co-terminus Interest Period, and bearing interest at the same rate of interest and calculated by the same method. A Borrowing is (a) a "Prime Borrowing" if the interest rate is based on the Prime Rate, (b) a "LIBOR Borrowing" if the interest rate is based on LIBOR and (c) a Fixed Rate Borrowing if the interest rate is based on the Cost of Funds Rate. A Borrowing may include an Initial Borrowing and/or a Subsequent Borrowing. "Business Day" means a day of the year on which banks are not required or ------------ authorized to close in the State of Washington and, if the term is used in connection with any Borrowing(s) bearing interest based on LIBOR, also on a day on which dealings in United States dollars are carried on in the London Interbank Market. "Capital Expenditures" means investment in fixed or capital assets -------------------- (including capitalized leases). "Convertible Line" means the revolving line of credit extended to Borrower ---------------- pursuant to Section 2.1 hereof. "Convertible Line Limit" means the maximum aggregate amount of all ---------------------- Borrowings and import letters of credit which may be outstanding at any time and which shall in no event exceed six million dollar ($6,000,000.00). "Convertible Line Note" means the promissory note evidencing Borrowings --------------------- under the Convertible Line, to be executed by Borrower pursuant to Section 2.1g hereof. 23 "Convertible Loan" means the outstanding balance of Borrowings under the ---------------- Convertible Line which are converted to a term loan on Maturity of the Convertible Line Note, pursuant to Section 2.2 hereof. "Convertible Loan Note" means the promissory note evidencing the --------------------- Convertible Loan, to be executed upon conversion of the Convertible Line to the Convertible Loan on Maturity of the Convertible Line Note , in accordance with Section 2.2d hereof. "Convertible Loan Term" means five (5) years. --------------------- "Cost of Funds Rate" means the index rate quoted by First Interstate Bank ------------------ of California or its successors as the "First Interstate Long-Term Cost of Funds Rate" for the period approximately equal to the Convertible Loan Term, which rate may not be the actual cost of funds for Bank or First Interstate Bank of California or the successor of either of them. "Event of Default" means any of the events described in Section 8.1 hereof. ---------------- "GAAP" means generally accepted accounting principles set forth in the ---- opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession. "Initial Borrowing" means a Borrowing under which the net effect is that additional funds are advanced by Bank hereunder rather than merely changing the interest rate calculation method or Interest Period. "Interest Period" means (A) with respect to each LIBOR Borrowing, the period commencing on the date of such Borrowing and ending one (1), two (2) or three (3) months thereafter, as Borrower may elect in the applicable Borrowing request; provided that the first day of any such Interest Period shall be (i) for an Initial Borrowing, the date new funds are advanced; or (ii) for a Subsequent Borrowing, the last day of the next preceding Interest Period applicable to such Borrowing, which day shall also be a Business Day; provided further that in determining the Interest Period for each LIBOR Borrowing: (a) any Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day; (b) any Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; and (c) in no event shall Borrower elect any Interest Period ending later than Maturity of the Convertible Line Note or Convertible Loan Note, as applicable, or, to the extent that the Borrowing represents principal which is required to be paid on the next date on which a principal payment is required to be made, ending later than the next date on which a principal payment is required to be made; and 24 (B) with respect to each Fixed Rate Borrowing, the period commencing on, as the case may be, the Borrowing or conversion date with respect to such Fixed Rate Borrowing and ending on the date which is five (5) years thereafter; provided, --------- that no such Interest Period shall extend beyond the Maturity of the Convertible Line Note or Convertible Loan Note, as applicable, or shall end on a day which is not a Business Day. "LIBOR" means, for each Interest Period (i) the rate of interest determined by Bank at which Dollar deposits for the relevant Interest Period would be offered to Bank in the approximate amount of the relevant LIBOR Borrowing in the London interbank market upon request of Bank at 11:00 a.m. (London time) on the day which is two (2) LIBOR Business Days prior to the first day of such Interest Period, divided by (ii) a number equal to 1.00 minus the aggregate (but without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on the day on which the pricing for the relevant LIBOR Borrowing is set (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other governmental authority having jurisdiction with respect thereto, as in effect at the time Bank quotes the rate to Borrower) for Eurocurrency funding of domestic assets (currently referred to as "Eurocurrency liabilities" in Regulation D of such Board) which are required to be maintained by a member bank of such System (such rate to be adjusted to the next higher 1/16 of 1%). "Loan Agreement" means this Loan Agreement between Borrower and Bank. -------------- "Maturity" means the date on which all principal and interest of any Borrowings under the Convertible Line Note or Convertible Loan Note, as applicable, is fully due and payable and after which date no additional Borrowings will be made or letters of credit issued (a) by its terms, which (i) for the Convertible Line Note in no event shall be later than January 31, 1997, and (ii) for the Convertible Loan Note shall be January 31, 2002 or (b) by acceleration. "Prime Rate" means the index rate of interest established from time to time by Bank in connection with the pricing of certain of its loans. Bank may make loans priced at, above or below the Prime Rate. Information concerning the Prime Rate may be obtained from Bank. "Subsequent Borrowing" means a Borrowing which results in no net increase in the aggregate amount of the Loan under which it was made, and for which Borrower may elect a new or different Interest Period or interest rate pursuant to the terms of this Agreement. 2. INDEBTEDNESS 2.1 Revolving Period. ---------------- a. Convertible Line Limit. Subject to all of the terms and conditions of ---------------------- this Agreement, and provided no Event of Default or event which with notice or passage of time or both would be an Event of Default has occurred and is continuing, Bank agrees to make such Borrowings or issue such import letters of credit to Borrower as Borrower may from time to time request during the period from the date hereof to Maturity of the Convertible Line Note; provided, that in -------- no event shall Bank be 25 obligated to make Borrowings and/or import letters of credit to Borrower which, in the aggregate, would exceed the Convertible Line Limit. Within the limits of the Convertible Line Limit and the other terms and conditions hereof, Borrower may borrow, repay, prepay and reborrow from time to time until Maturity of the Convertible Line Note, when the outstanding principal balance up to a maximum of three million dollars ($3,000,000.00) will be automatically converted to the Convertible Loan, any excess will be immediately due and payable, and Borrower will not be able to reborrow any portion of principal which has been repaid. Bank may, from time to time, at its sole option and for such periods as it may determine, extend the Convertible Line or any outstanding balance thereon. b. Borrowing Requests. ------------------ (i) Borrowings may be requested telephonically by an authorized representative of Borrower. Bank may rely on any oral or written request, specification or direction which Bank believes to be genuine and shall be fully protected in doing so without any requirement to make further inquiry. (ii) Bank shall have no obligation to make any Initial Borrowing after Maturity of the Convertible Line Note unless the time for advancing Initial Borrowings is expressly extended by Bank, in writing, at its sole option; however, any Initial Borrowing actually made by Bank to Borrower shall be entitled to all of the benefits of this Agreement, including but not limited to the Events of Default and related remedies set forth herein. (iii) Any request for an Initial Borrowing or other extension of credit under the Convertible Line shall be deemed a representation and warranty by Borrower that all of the conditions precedent of Section 4 are satisfied as of the date of the request and that such Borrowing or extension of credit will be in compliance with the Convertible Line Limit. c. Import Letters of Credit. The Convertible Line will be available to ------------------------ Borrower for issuance by Bank of import commercial letters of credit for the account of Borrower in an aggregate face amount at any time not to exceed one million dollars ($1,000,000.00), subject to documentation acceptable to Bank; provided that in no event shall the outstanding amount of all credit under the Convertible Line, including the face amount of such letters of credit, exceed the Convertible Line Limit. Letters of credit issued by Bank for the account of Borrower hereunder will expire within one hundred eighty (180) days of issuance. Issuance of import letters of credit is subject to standard fees and documentation requirements of Bank in effect on the date of issuance, including but not limited to execution by Borrower of a reimbursement agreement in form and substance satisfactory to Bank. d. Purpose. All Borrowings and letters of credit requested under the ------- Convertible Line shall be used solely for general operating purposes of Borrower, including issuance of letters of credit, repurchase by Borrower of its outstanding stock, Capital Expenditures and acquisitions. e. Interest. Except as provided in Section 8.2 hereof, prior to -------- conversion to the Convertible Loan, all Borrowings made to Borrower under the Convertible Line shall accrue interest at one of the following rates, as selected by Borrower: (i) Prime Borrowings. Interest shall accrue on Prime Borrowings ---------------- under the Convertible Line at a per annum rate equal to the Prime Rate, which interest rate shall be adjusted concurrently with and on the same day as any change in the Prime Rate; or 26 (ii) LIBOR Borrowings. Interest shall accrue on LIBOR Borrowings under ---------------- the Convertible Line at a per annum rate equal to one and one-quarter percent (1.25%) plus LIBOR for the Interest Period selected by Borrower, subject to availability of the LIBOR market to Bank. f. Repayment. --------- (i) Accrued interest on all Prime Borrowings under the Convertible Line shall be payable monthly on the last day of the month. Accrued interest on all LIBOR Borrowings under the Convertible Line shall be payable on the last day of the relevant Interest Period. Notwithstanding anything contained herein, all accrued and unpaid interest on Borrowings under the Convertible Line shall be fully due and payable on the Maturity of the Convertible Line Note. (ii) If at any time prior to Maturity of the Convertible Line Note the outstanding amount of the Borrowings plus the outstanding face amount of all letters of credit made under the Convertible Line exceeds the Convertible Line Limit, Borrower shall immediately pay Bank such amount as may be necessary to reduce the outstanding aggregate amount to an amount which is not greater than the Convertible Line Limit. (iii) If the outstanding amount of the Convertible Line outstanding on Maturity of the Convertible Line Note is in excess of three million dollars ($3,000,000), Borrower shall pay to Bank on Maturity of the Convertible Line Note the amount of such excess principal. (iv) Prepayment of the principal amount of any LIBOR Borrowing before the end of the applicable Interest Period will not be allowed. (v) If any payment date hereunder or under any notes or other agreement for payment of money or any date on which performance is required hereunder or under any such agreement occurs on a day other than a Business Day, such payment shall be made or performance occur on the next succeeding Business Day; provided, that interest shall continue to accrue on any outstanding Borrowings until paid. g. Convertible Line Note. To evidence Borrower's indebtedness under the --------------------- Convertible Line, Borrower shall execute and deliver to Bank a promissory note in form acceptable to Bank. 2.2 Convertible Loan. ---------------- a. Payments. -------- (i) Accrued interest on all Prime Borrowings and any Fixed Rate Borrowing under the Convertible Loan shall be payable quarterly on the same date as any payment of principal required below. Accrued interest on all LIBOR Borrowings under the Convertible Loan shall be payable on the last day of the relevant Interest Period. Notwithstanding anything contained herein, all accrued and unpaid interest on Borrowings under the Convertible Line shall be fully due and payable on the Maturity of the Convertible Line Note. (ii) Up to a maximum of three million dollars ($3,000,000)of the principal balance of Borrowings under the Convertible Line outstanding on Maturity of the Convertible Line Note will be automatically converted to a term loan (the "Convertible Loan") and will be due and payable according to the schedule set forth below until Maturity of the Convertible Loan Note, when the entire balance of outstanding principal and accrued interest on the Convertible Loan shall be immediately due and 27 payable. Borrower shall make principal reductions on the Convertible Loan of at least one-fifth (1/5) of the initial outstanding balance of the Convertible Loan in each calendar year from the date of the Convertible Loan to Maturity of the Convertible Loan Note, at which time the entire outstanding balance thereof, both principal and interest, shall be paid in full. Beginning on June 30, 1997, Borrower shall make a quarterly principal payment equal to the following percentages of the annual required principal payment (which will be based on a full amortization over the Convertible Loan Term of the actual principal balance outstanding on Maturity of the Convertible Line Note):
% of Required Payment Due Annual Reduction -------------- ---------------- March 31 0% June 30 25% September 30 50% December 31 25%
b. Interest. Except as provided in Section 8.2 hereof, the outstanding -------- principal balance of the Convertible Loan shall accrue interest at one of the following rates, as selected by Borrower: (i) Prime Borrowings. Interest shall accrue on Prime Borrowings under ---------------- the Convertible Loan at a per annum rate equal to the Prime Rate, which interest rate shall be adjusted concurrently with and on the same day as any change in the Prime Rate; or (ii) LIBOR Borrowings. Interest shall accrue on LIBOR Borrowings under ---------------- the Convertible Loan at a per annum rate equal to one and one-half percent (1.50%)plus LIBOR for the Interest Period selected by Borrower, subject to availability of the LIBOR market to Bank. (iii) Fixed Rate Borrowing. Interest shall accrue on a Fixed ----- -------------------- Rate Borrowing at a per annum rate equal to one and one-half percent (1.50%) plus the Cost of Funds Rate, fixed at the date of conversion of the Convertible Line to the Convertible Loan. c. Prepayment of Convertible Loan. Borrower may prepay the principal ------------------------------- amount of the Convertible Loan only on the following conditions: (i) Prime Borrowings. Borrower may prepay Prime Borrowings at any ---------------- time. (ii) LIBOR Borrowings. Borrower may repay LIBOR Borrowings at the end ---------------- of the applicable Interest Period only, and Borrower shall not select an Interest Period which will require prepayment of principal in order to comply with Section 2.2a hereof. (iii) Fixed Rate Borrowings. Borrower may repay all or part of a --------------------- Fixed Rate Borrowing at any time; provided, however, that any such reductions will in no event lessen or postpone the payments to be made pursuant to the schedule provided in Section 2.2a hereof, and such prepayments shall be applied in inverse order of principal payments due; provided further, that unless Bank -------- ------- shall have requested compensation pursuant to subparagraph (A) hereof, any such prepayment shall be subject to the fee required under subparagraph (B) hereof. (A) Adjustment to Interest Rate. If after the date hereof, Bank shall --------------------------- have determined that the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental 28 authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any national banking association in the position of lender hereunder with any request or directive after the date hereof regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on Bank's capital as a consequence of its obligations hereunder to a level below that which Bank could have achieved but for such adoption, change or compliance by an amount deemed by Bank to be material, then from time to time, within fifteen (15) days after demand by Bank, Borrower shall pay to Bank such additional amount or amounts as will compensate Bank for such reduction. Bank will promptly notify Borrower of any event of which it has knowledge, occurring after the date hereof, which will entitle Bank to compensation pursuant to this paragraph and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, Bank may use any reasonable averaging and attribution methods. (B) Funding Losses. If Borrower makes any payment of principal with -------------- respect to the Convertible Loan other than those scheduled in Section 2.2a hereof, Borrower shall reimburse Bank on demand for (x) the present value of the difference between interest which would have accrued on the amount so prepaid through the time when such principal would have been paid according to the schedule contained in Section 2.2a herein (taking into account the agreement with respect to application of amounts prepaid) and the return which could be earned by Bank by making a Borrowing of a principal amount equal to the amount so repaid for the same period at the Cost of Funds Rate then in effect plus four 150 basis points, and (y) an amount not to exceed Two Thousand Dollars ($2,000.00) for any actual loss or expense incurred by Bank, including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties; provided, that Bank shall have delivered to Borrower a --------- certificate as to the amount of such loss or expense, which certificate shall be prima facie evidence of such loss or expense and the amount thereof. For - ----- ----- purposes of calculating the present value of the amount described in clause (x) of this paragraph, the actual interest on the Convertible Loan Note shall be used as the "discount rate." d. Convertible Loan Note. To evidence Borrower's indebtedness under the --------------------- Convertible Loan, Borrower shall execute and deliver to Bank at the time of conversion a promissory note in form acceptable to Bank, setting forth the outstanding balance of the Convertible Loan, payments, term and interest rate, as provided in this Section 2.2. 2.3 Additional Rules Applicable to Borrowings Under the Convertible Line and ------------------------------------------------------------------------ the Convertible Loan. The following rules will apply to Borrowings under either - -------------------- of the Convertible Line or the Convertible Loan, and the outstanding principal balance related thereto. a. Borrowing and Rate Requests. In addition to the terms and conditions --------------------------- of any promissory note, the following terms and conditions will apply to any Borrowings unless modified in writing by the parties hereto. No delay, omission or course of dealing shall be deemed a waiver or modification thereof unless agreed to in writing, and shall be effective only to the extent specifically set forth in writing. (i) Borrowings hereunder and requests for interest rates and selections of Interest Period may be telephonically or otherwise requested by an authorized representative of Borrower. Bank may rely on any oral or written request, specification or direction from any person authorized to request a Borrowing pursuant to this paragraph, which Bank believes to be genuine and shall be fully protected in doing so without any requirement to make further inquiry. 29 (ii) Each Borrowing request, whether for an Initial Borrowing or for a Subsequent Borrowing, written or verbal, shall specify the date, amount, the rate calculation method and, if applicable, the Interest Period and/or Borrowing(s) to which the request applies. (iii) In no event shall any request for a Subsequent Borrowing take effect prior to the end of the current Interest Period for the outstanding Borrowing(s) so effected; any such request shall be deemed to be a request for a new Borrowing. (iv) In the event that Borrower fails to make and/or Bank does not approve a new request for Borrowing on or before the end of an Interest Period for any outstanding Borrowing(s), to take effect immediately following such Interest Period, such Borrowing(s) shall, after the current Interest Period, bear interest as Prime Borrowings until repaid or until a new request is received and approved by Bank. (v) If agreed by Bank, requests for Prime Borrowings received by 3:00 P.M. Seattle time, of a Business Day will be funded on the same Business Day; requests for LIBOR Borrowings received by 10:00 A.M. of a Business Day will be funded on the second Business Day following receipt by Bank of the request. (vi) Notwithstanding anything herein, Bank reserves the right to require minimum increments of five hundred thousand dollars ($500,000.00) for LIBOR Borrowings. (vii) Interest on Prime Borrowings shall be calculated on the basis of a year of three hundred sixty-five (365) days and the actual number of days elapsed. Interest on LIBOR Borrowings or the Fixed Rate Borrowings shall be calculated on the basis of a year of three hundred sixty (360) days and the actual number of days elapsed. (viii) Borrower agrees to indemnify and hold Bank harmless from any costs, expenses or losses of any kind incurred solely because Borrower requested a Borrowing which Borrowing request Borrower later cancels. c. Increased Costs; Illegality. ---------------------------- (i) If the adoption of or compliance by Bank with any applicable law, rule or regulation, or any change therein after the date hereof, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or if compliance by Bank with any request, guideline, regulation or directive (whether or not having the force of law) of any such authority, central bank or comparable agency now in effect or at any later time adopted: (A) shall subject Bank to any tax, duty, or other charge with respect to Borrowings made hereunder (except for changes in the rate of tax on the overall net income of Bank imposed by the jurisdiction in which Bank's principal executive office or office through which such Borrowings are made is located); or (B) shall impose, modify or deem applicable any reserve, special deposit or similar requirement (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System or reserves necessary to meet capital adequacy guidelines whether as part of any phase-in, final rule or otherwise, but excluding, with respect to LIBOR Borrowings, any such requirement included in an applicable reserve requirements used in computing LIBOR) and the result of any of the foregoing is to increase the cost to Bank of making or maintaining any fixed rate Borrowing hereunder, or to reduce the amount of any sum received or receivable by Bank under its note with respect thereto, by an amount deemed by Bank to be material, 30 then within fifteen (15) days after demand by Bank to Borrower, Borrower shall pay to Bank such additional amount or amounts as will compensate Bank for such increased cost or reduction. (ii) Notwithstanding any other provision of this agreement, if the introduction of or any change in or interpretation of any law or regulation shall make it unlawful, or any central bank or other governmental authority shall assert that it is unlawful, for Bank to make advances funded through LIBOR sources or to continue to maintain such Borrowings hereunder, Bank may, by notice to Borrower, if necessary in the reasonable opinion of Bank to comply with such law or regulation, convert all such Borrowings to Prime Borrowings. In the event that Bank invokes the provisions of this subparagraph, at Borrower's request, Bank shall consider alternative rates to those for Prime Borrowings, but in no event shall Bank have any obligation to consent to such alternative rate(s). d. Payment. -------- (i) Principal and accrued interest on each Borrowing shall be due and payable at the end of the applicable Interest Period for such Borrowing (except for Prime) and at maturity. For Prime Borrowings, interest shall be due and payable on the last Business Day of each month commencing on the first such date after the Borrowing is made and at the earliest of (A) repayment of such Borrowing, or (B) until readvance of such Borrowing under a different rate option, or (C) until Maturity of the Convertible Line Note or the Convertible Loan Note, as applicable. (ii) The date, amount, interest rate and maturity date of each Borrowing and all payments made on account of principal and interest shall be recorded by Bank in its books and records, computerized or manual, such records being incorporated as a part hereof. All such entries shall be prima facie ----- ----- evidence of all Borrowings made, interest rate, payments of principal and interest and of the outstanding principal balance owed by Borrower. (iii) Principal and interest shall be payable in Federal or other immediately available funds at First Interstate Bank of Washington, N.A., Washington Corporate Commercial Banking Center, First Interstate Center, 999 Third Avenue, P. O. Box 160, Seattle, Washington 98111, Attention: Loan Support, or such other location as Bank may designate. (iv) Unless an Event of Default has occurred and is continuing, all payments made by Borrower shall be applied as directed by Borrower. After the occurrence of an Event of Default or if Borrower does not direct how payments are to be applied, any such payments may be applied to any indebtedness of Borrower to Bank, at Bank's discretion. Borrower authorizes Bank to deduct from any of Borrower's deposit accounts with Bank such amounts as may from time to time be necessary to effect the payment required hereunder. 2.4 Fees. ---- a. Facility Fee. On or before the first Borrowing is made or letter of ------------ credit issued under the Convertible Line, Borrower shall pay to Bank a facility fee of seven thousand five hundred dollars ($7,500). b. Conversion Fee. Borrower shall pay to Bank on Maturity of the -------------- Convertible Line Note Borrowings outstanding under the Convertible Line an additional fee of one-eighth of one percent (1/8%) of the outstanding balance of the Convertible Line converted to the Convertible Loan on the date of conversion. 31 3. ADDITIONAL LOANS. Unless expressly agreed in writing by Bank, any ---------------- subsequent loans made to Borrower as long as this Agreement is in effect shall be subject to the terms of this Agreement. 4. CONDITIONS PRECEDENT. In no event will Bank lend funds to Borrower, issue -------------------- letters of credit or extend any other credit pursuant hereto unless all of the following conditions are satisfied: 4.1 Delivery of Documents. Borrower shall have delivered to Bank this --------------------- Agreement, duly executed; any promissory notes and related instruments and documents required by this Agreement, duly executed and in full force and effect. 4.2 Authority. Borrower shall have delivered to Bank such articles of --------- incorporation, corporate resolutions, certificates of incumbency, certificate of assumed name (if applicable), and other documentation as Bank deems necessary to show that Borrower has the authority to execute, deliver and perform its obligations under this Agreement and the documents and instruments executed pursuant hereto, including but not limited to authority to give notices of borrowing or enter into reimbursement agreements for letters of credit hereunder. 4.3 Representations and Warranties. All representations and warranties set ------------------------------ forth in Section 5 hereof shall be true as of the date of any Borrowing, letter of credit or other extension of credit requested by Borrower with the same effect as though such representations and warranties were made on and as of the date of such Borrowing, letter of credit or other extension of credit. 4.4 Events of Default. No Event of Default or event which, with the passage of ----------------- time or the giving of notice or both, would become an Event of Default, shall have occurred and be continuing. 4.5 Fees. Borrower shall have paid to Bank any and all fees then due ---- hereunder. 4.6 Other Evidence. Borrower shall have furnished to Bank such other evidence -------------- which Bank may reasonably request to establish the consummation of the transactions contemplated by this Agreement and the taking of all necessary corporate action and compliance with the conditions set forth herein. 5. REPRESENTATIONS AND WARRANTIES OF BORROWER. As inducement to Bank to ------------------------------------------ provide the Convertible Line and the Convertible Loan to Borrower, and to extend each Borrowing and letter of credit under the Convertible Line, Borrower makes the following representations and warranties, each of which shall survive the extension of any Borrowing or letter of credit pursuant hereto and until the expiration of the Convertible Line and the Convertible Loan and complete repayment of all of Borrower's obligations pursuant hereto: 5.1 Valid Entity. Borrower is a corporation duly organized and validly ------------ existing and in good standing under the laws of the State of Washington and is qualified to do business in all jurisdictions in which the character of the property owned or leased or the nature of the business conducted by it requires licensing or qualification, and to the best of its knowledge and belief has complied with all applicable laws and regulations in the conduct of its business. 5.2 Authorization. The execution, delivery and performance of this Agreement, ------------- the promissory notes and any other instruments or documents to be executed and/or delivered pursuant hereto and the incurring of indebtedness hereunder have all been duly authorized, are not in contravention of law or the terms of Borrower's articles of incorporation or bylaws or any amendment thereof, or of any agreement or undertaking to which Borrower is a party or by which it is bound. They will, when duly executed and 32 delivered to Bank, constitute the valid and binding obligations of Borrower to Bank, in accordance with the respective terms thereof, and have not been canceled or limited in any way. 5.3 Financial Condition. The financial position of Borrower as reported to ------------------- Bank prior to this Agreement is accurate and dependable and there has not been any material adverse change in such financial position as would adversely affect the ability of Borrower to repay such indebtedness. 5.4 Litigation; Judgments. There is no material litigation at law or in equity --------------------- and no proceedings before any commission or other administrative authority pending or, to the knowledge of Borrower or its officers, directors or principals, threatened against it or any of its subsidiaries. Borrower is not in default with respect to any order, writ, injunction, decree, or demand of any court or administrative body of any governmental unit having jurisdiction over Borrower or Borrower's properties or operations, except as allowed by Section 5.5 hereof, and there are no outstanding judgments against Borrower which would have a material adverse effect on Borrower's operations or financial condition. 5.5 Licenses, Taxes. Borrower has duly paid or caused to be paid any and all --------------- license, franchise and corporation fees. All reports and forms required to be filed by Borrower with the Internal Revenue Service, the State of Washington, the City of Seattle and any other jurisdictions in which Borrower is licensed to do business have been filed and Borrower has paid all taxes shown due on the returns so filed as well as all other taxes, assessments, fees, duties and governmental charges which have become due, except such taxes, if any, as are being contested in good faith by appropriate proceedings and as to which adequate reserves have been provided if so required by GAAP. 5.6 Employee Benefit Plan. Borrower is in compliance in all material respects --------------------- with any applicable provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and the regulations and published interpretations thereunder. No "Reportable Event" within the terms of ERISA has occurred with respect to any pension plan administered by it or any administrator designated by it. 5.7 Representations as a Whole. This Agreement, all financial statements -------------------------- provided to Bank and all other documents, certificates and written statements furnished to Bank by Borrower, taken as a whole, are complete and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements contained herein or therein complete and not misleading. 6. AFFIRMATIVE COVENANTS. Borrower covenants that so long as Bank shall have --------------------- any commitment hereunder and as long as this Agreement remains in effect and until complete repayment of all of Borrower's obligations pursuant hereto, the following covenants will be binding on it: 6.1 Payment. Borrower agrees to pay to Bank the principal of and interest on ------- each Borrowing under the Convertible Line and the Convertible Loan and all other sums due to Bank in accordance with the terms of this Agreement and any instruments, documents and agreements related to or executed pursuant hereto, and to perform all of the obligations pursuant thereto. 6.2 Books and Records. Borrower shall at all times keep proper books and ----------------- records of account in which full, true and correct entries will be made of its transactions such that annual financial statements may be prepared in accordance with GAAP. 6.3 Legal Existence and Operations. Borrower shall maintain its legal ------------------------------ existence and right to carry on business; continuously operate its business except for periodic shutdowns in the ordinary course of business and interruptions caused by strike, labor dispute, catastrophe or any other events over which it has no control; and maintain, preserve and keep its buildings, machinery and equipment in good 33 condition, repair and working order for the proper and efficient operation of its business. If Borrower operates under a trade name, all registrations required by law will be obtained for proper use of such name. Borrower shall maintain in full force and effect any relevant governmental approvals, licenses and permits necessary for the continued operation of its business. 6.4 Insurance. Borrower shall maintain with financially sound and reputable --------- insurance companies or associations insurance of the kinds, covering the risks, and in the relative proportionate amounts usually carried by companies engaged in a business similar to that of Borrower. Borrower agrees to deliver to Bank the policies concerned or such evidence of said insurance as Bank may from time to time request. 6.5 Compliance; Taxes. Borrower shall promptly pay or cause to be paid as they ----------------- become due and payable all taxes, assessments, liens and other governmental charges levied, assessed or imposed against it or its properties or arising out of its operations and shall promptly comply with all laws, rules and regulations of the United States government or any of its departments or agencies, including but not limited to the Federal Trade Commission, the U.S. Postal Service and federal environmental agencies, the State of Washington, the City of Seattle, and any other jurisdictions in which it transacts business or owns property, except where such amounts or the applicability or validity of such assessments, charges, laws, rules or regulations as they apply to Borrower are being contested in good faith by appropriate proceedings and as to which adequate reserves have been provided if so required by GAAP. 6.6 Financial Covenants. Borrower shall at all times maintain the following ------------------- financial conditions, with all ratios calculated in accordance with GAAP, consistently applied: a. Debt Service Coverage Ratio, measured annually at the end of each of Borrower's fiscal years, of not less than 1.5:1.0. For purposes of this covenant, Debt Service Coverage Ratio is defined as: Net Profit + Depreciation + Interest Exp. + Dividends ----------------------------------------------------- Current Portion Long Term Debt + Interest Exp. + Dividends b. Net Worth, measured quarterly at the end of each fiscal quarter, of not less than ten million dollars ($10,000,000.00). c. Ratio of Total Liabilities to Net Worth, measured quarterly at the end of each fiscal quarter, not to exceed 2.5:1.0. 6.7 Financial Reports. Borrower shall deliver to Bank financial data and ----------------- financial statements, in such manner and detail as Bank may request from time to time, including but not limited to the following: a. A copy of Borrower's 10-Q Report, as filed with the SEC, within forty- five (45) days of each quarter end; b. Annual financial statements for each fiscal year end of Borrower, audited in accordance with GAAP by a certified public accounting firm of national standing, and a copy of Borrower's 10-K Report, as filed with the SEC, within ninety (90) days of each fiscal year end; and 34 c. Quarterly report of repurchases by Borrower of its stock, within forty-five (45) days of the end of each calendar quarter, specifying the aggregate amount spent on such repurchases, but only if such aggregate amount spent on such repurchases is in excess of $500,000.00. 6.8 Inspection, Verification. Borrower agrees that Bank may from time to time, ------------------------ through its duly authorized representative or representatives, visit and inspect its properties and offices and examine, check, make copies of or extracts from its books, accounts, orders, records and original correspondence and conduct such investigations as Bank may deem appropriate. Borrower agrees that it will make available to representatives of Bank, at Borrower's place of business during normal business hours, its books, records and files for such purposes. 6.9 Notification. Borrower shall promptly notify Bank in writing of the ------------ occurrence of any Event of Default or event which, with notice or passage of time or both, would constitute an Event of Default; any change in the name or address of Borrower or location of its books and records; the entry of any judgment against Borrower in excess of two hundred fifty thousand dollars ($250,000.00); any lawsuit, claim, proceeding or action of any kind against Borrower and/or any subsidiary in which the uninsured amount sought is or may be two hundred fifty thousand dollars ($250,000.00) or more, or for which the aggregate uninsured amount sought at any one time threatened or pending is or may be two hundred fifty thousand dollars ($250,000.00) or more (in each case "uninsured" includes circumstances in which the insurance carrier has reserved rights against payment or otherwise evidenced an unwillingness or inability to allow or make good on coverage or failed to accept tender of the claim), or which otherwise, if determined adversely, would have a material adverse effect on the operations of Borrower or any subsidiary. 6.10 Bank Accounts. Borrower shall at all times maintain bank accounts with ------------- Bank. This requirement is not meant as a restriction upon the maintenance of other banking relationships as may be convenient or necessary for the business of Borrower but for the purpose that the principal banking relationships may be maintained with the principal source of financing so that loan transactions hereunder may be facilitated, and so that Bank may have the fullest possible information as to Borrower's financial activities, and so that Bank may have reasonably available to it opportunities to set-off in the event of collection of indebtedness hereunder. 6.11 Additional Borrowers. In the event that Borrower reorganizes its structure in such a way that all, substantially all or a major portion of its operating assets are transferred to a subsidiary, Borrower shall, not more than thirty (30) days from the effective date of such transfer or reorganization cause such subsidiary to execute this Agreement, the Convertible Line Note and the Convertible Loan Note as an additional "Borrower" and not a guarantor or surety and to take such other actions as will cause Bank to be in no less favorable position as it was prior to the reorganization or transfer. Notwithstanding the foregoing, this paragraph shall in no way relieve Borrower of its obligations hereunder or under the related documents or agreements, nor shall it be deemed in any way a waiver of any provisions contained in Section 7 below. 7. NEGATIVE COVENANTS. As long as Bank shall have any commitment hereunder ------------------ and as long as this Agreement remains in effect and until complete repayment of all of Borrower's obligations pursuant hereto, Borrower agrees that it will not, without the prior written consent of Bank: 7.1 Encumbrances of Property. Mortgage, pledge, assign, grant a security ------------------------ interest in, encumber or hypothecate to any person or entity other than Bank any of Borrower's assets other than (a) liens for taxes, assessments, or similar charges either not yet due or being contested in good faith; (b) liens of materialmen, mechanics, warehousemen, or carriers, or other like liens arising in the ordinary course of business and 35 securing obligations which are not yet delinquent; (c) liens and security interests which, as of the date of this Agreement, have been disclosed to and approved by Bank in writing; (d) liens on real property purchased or otherwise acquired by Borrower for its own use and occupancy after the date of this agreement so long as such liens to not exceed the purchase price of such property; and (e) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of Borrower's assets; 7.2 Indebtedness. Incur or commit itself to incur any indebtedness for ------------ borrowed money (except for capitalized leases unless not within the limitation of Section 7.3 hereof) in excess of five hundred thousand dollars ($500,000.00) in any one fiscal year, non-cumulative from year to year; 7.3 Capital Expenditures. Invest or commit itself to invest in fixed or -------------------- capital assets (including capitalized leases) in any fiscal year, non-cumulative from year to year, in the aggregate (combined with investments pursuant to Section 7.7 hereof) in excess of the greater of four million five hundred thousand dollars ($4,500,000.00) or Borrower's cash and short-term investment position, less outstanding bank debt, as reported by Borrower in its most recent 10-Q or 10-K Report filed by Borrower with the Securities and Exchange Commission; 7.4 Guaranties. Guarantee or otherwise become surety in respect to the ---------- obligations of, or lend its credit to, any other person or entity, except for guaranties of indebtedness of wholly owned subsidiaries of Borrower in the aggregate in excess of one million dollars ($1,000,000.00); 7.5 Nature of Business. Change the general character of its business as ------------------ proposed to be conducted at the date hereof, or engage in any type of business not reasonably related to such business as normally conducted; 7.6 Merger, Liquidation, Sale of Assets. Dissolve, liquidate or merge with or ----------------------------------- into any other business entity; or sell, lease or otherwise dispose of all or substantially all of its assets except as specifically permitted in Section 6.11 above; 7.7 Expansion. Acquire capital stock or assets of, or any interest in, any --------- other entity; provided that Borrower may invest in capital stock or assets in a similar line of business (direct to consumer marketing, digital image processing, sales and distribution of imaging materials and/or photofinishing) in the aggregate (combined with capital expenditures pursuant to Section 7.3 hereof) in excess of the greater of three million dollars ($3,000,000.00) or Borrower's cash and short-term investment position, less outstanding bank debt, as reported by Borrower in its most recent 10-Q or 10-K Report filed by Borrower with the Securities and Exchange Commission in any fiscal year, non-cumulative from year to year. Borrower shall notify Bank of any such investment in excess of one hundred thousand dollars ($100,000.00); 7.8 Distributions. Declare or pay any dividends on its capital shares of any ------------- class, make any distribution to any stockholder as such or to any partner, owner, or principal, or purchase, redeem or otherwise acquire for value shares of stock of any class in the aggregate in excess of four million dollars ($4,000,000.00) in any fiscal year, non-cumulative from year to year; or 7.9 Investments; Loans. Purchase or otherwise acquire, hold or invest in the ------------------ securities of, or make any loans or advances to, any other person or entity, except loans or investments in the ordinary course of business or as allowed by Section 7.7 hereof. 36 8. DEFAULT. ------- 8.1 Events of Default. The occurrence of any of the following shall constitute ----------------- an Event of Default hereunder and under each of the notes, security agreements and other documents related hereto or executed pursuant hereto: a. Nonpayment. Borrower shall fail to pay when due the amount of any ---------- principal, interest or fees on either of the Convertible Line or Convertible Loan, or on any other loans made to Borrower by Bank under this Agreement, as it may be amended from time to time, and such failure shall not be cured within twenty (20) days after written notice to Borrower by Bank of such Event of Default; or b. Selected Covenants. Borrower shall fail to perform any of the ------------------ covenants or agreements on its part under Sections 6.2, 6.3, 6.4, 6.5, 6.6, 6.7, 7.1, 7.2, 7.3, 7.4, 7.5, 7.7, 7.8 or 7.9 hereof and such failure shall not be cured within thirty (30) days after written notice to Borrower by Bank of such Event of Default; or c. Other Covenants. Borrower shall fail to perform any of the other --------------- covenants or agreements on its part under this Agreement, as it may be amended from time to time, or under any documents executed pursuant hereto; or d. Breach of Warranty. Any representation or warranty made by Borrower ------------------ in this Agreement or related to this transaction shall prove to have been false, misleading or inaccurate in any material respect when made; or e. Other Agreements. Any of the security agreements or other documents ---------------- required by this Agreement, as it may be amended from time to time, shall not continue in full force and effect or a default shall occur thereunder; or f. Insolvency. The insolvency of Borrower; the filing by or against ---------- Borrower of a petition for bankruptcy, liquidation or reorganization, seeking, consenting to or acquiescing in the appointment of any trustee, receiver, liquidator or custodian of all or such part of its property as in the opinion of the Bank is a substantial part of its assets; or any such proceeding instituted against Borrower is not dismissed within thirty (30) days after institution thereof; the general inability of Borrower to pay its debts as they come due or any admission in that regard; or the making by Borrower of a general assignment for the benefit of creditors; or the taking of corporate action by Borrower to authorize any of the actions set forth in this subsection; or g. Cessation of Existence. The cessation of corporate existence of ---------------------- Borrower; or h. Cross-Default. Borrower shall fail to pay when due any indebtedness ------------- or perform any term or covenant pursuant to agreement with any other party and such failure shall continue after any applicable grace period if the effect of such failure is to accelerate or permit the acceleration of the maturity of any indebtedness of five hundred thousand dollars ($500,000.00) or more to such party; or i. Judgments. A final judgment is entered against Borrower in excess of --------- one hundred thousand dollars ($100,000.00) and is not satisfied or stayed within thirty (30) days; or j. Condemnations. All or a substantial portion of the property of ------------- Borrower shall be condemned, seized or otherwise apportioned. 37 8.2 Remedies. Upon the occurrence of one or more of the Events of Default set -------- forth herein, Bank shall have no obligation to make any further Borrowings, issue letters of credit or extend further credit to Borrower and Bank shall be entitled, at its sole option and without further notice to Borrower, to declare any or all indebtedness due on the Convertible Line or Convertible Loan, as applicable, and all other indebtedness of Borrower to Bank immediately due and payable without the expiration of any further period of grace other than specified in Section 8.1 hereof; and Bank shall be entitled to all legal recourse against Borrower and to pursue and enforce, either successively or concurrently, all rights and remedies set forth in this Agreement and any other agreements executed pursuant hereto and such other rights and remedies as Bank may have under applicable law. Further, upon demand by Bank in an Event of Default, Borrower shall pay to the credit of such account as Bank shall stipulate, an amount equal to the maximum actual and contingent liabilities of Bank under each letter of credit issued and outstanding hereunder, which account Bank shall be authorized to hold as collateral until all obligations of Borrower to Bank hereunder, matured and unmatured, shall have been paid in full and against which Bank is hereby authorized to draw for payment of such obligations as they may become due; unless and until such time as Borrower shall have paid all of its indebtedness to bank hereunder, Borrower shall have no rights to any funds in such account. All remedies available to Bank shall be cumulative and not alternate. In addition, interest shall accrue on the outstanding balance of the Convertible Line or Convertible Loan and any other indebtedness of Borrower to Bank pursuant hereto at a rate per annum equal to two percent (2%) in excess of Bank's Prime Rate. 9. COSTS AND EXPENSES; ATTORNEYS' FEES. Borrower shall pay all fees, costs, ----------------------------------- charges and expenses of Bank, including without limitation expenses for the services of counsel both retained and employed by Bank, in perfecting Bank's security interest in the Collateral (other than attorneys' fees); in collecting or attempting to collect any indebtedness referred to in this Agreement (including trial, appellate, arbitration and bankruptcy proceedings and actions without suit); or in enforcing any right of Bank hereunder or pursuant to any agreements or instruments related to or executed pursuant hereto. 10. NON-WAIVER. No delay or failure of Bank to enforce its rights, remedies or ---------- options under this Agreement, or any other agreement between Borrower and Bank shall be deemed to be a waiver thereof nor shall any single or partial exercise of any such right or power preclude any further exercise thereof or the exercise of any other right or power. Any waiver, permit, consent or approval of any kind by Bank must be in writing and shall be effective only to the extent specifically set out in such writing. 11. NOTICES. Any notice to be given to Bank hereunder may be given to Bank at ------- P.O. Box 160 (M/S 984), Seattle, Washington 98111, Attention: Washington Corporate Banking - Jo Surbrugg. Any notice to be given to Borrower may be given to it at 1260 - 16th Ave. W., Seattle, Washington 98119-3401, Attention: Treasurer. Such addresses for notices may be changed by giving ten (10) days written notice to the other party. 12. CONSTRUCTION; ARBITRATION; CONSENT TO VENUE. This Agreement and all ------------------------------------------- promissory notes, security agreements and other instruments and documents related hereto (the "Loan Documents") shall be governed by and construed in accordance with the laws of the State of Washington. Any agreement herein to grant a security interest to Bank in any property shall be deemed to constitute a grant of such a security interest, subject to the terms and conditions of any security agreements executed pursuant hereto; provided however that in the case of any inconsistency, the terms of this Agreement will prevail. Any and all disputes arising out of or in connection with or related to this Agreement or any of the related Loan Documents shall be resolved in accordance with the First Interstate Bank Arbitration Program, a copy of which is attached hereto as Exhibit A and 38 made a part of this Agreement. Subject to the terms of the First Interstate Bank Arbitration Program, jurisdiction over and venue of any action to enforce, interpret, construe or otherwise in connection with this Agreement or any of the Loan Documents shall be in the United States District Court for the Western District of Washington at Seattle or Superior Court, King County, Washington in Seattle. 13. ASSIGNMENT. This Agreement shall be binding upon and inure the benefit of ---------- the parties and their respective successors and assigns, provided that neither party may assign or otherwise transfer all or any part of its rights or obligations hereunder without the prior written consent of the other party. This shall not preclude an assignment by Bank to an affiliate, parent or subsidiary or an assignment by operation of law to a successor in interest to Bank. 14. SEVERABILITY. Any provision of this Agreement which is prohibited or ------------ unenforceable in any jurisdiction shall as to such jurisdiction be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions or affecting the validity or enforceability of such provision in any other jurisdiction. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. FIRST INTERSTATE BANK SEATTLE FILMWORKS, INC. OF WASHINGTON, N.A. By /s/ Jo Surbrugg By /s/ Case H. Kuehn Its Vice President Its Vice President g:lrr-071.doc 39 Exhibit A --------- FIRST INTERSTATE BANK ARBITRATION PROGRAM 1. Binding Arbitration. Upon the demand of any party ("Party/Parties"), to a ------------------- Document (as defined below), whether made before the institution of any judicial proceeding or not more than 60 days after service of a complaint, third party complaint, third party complaint, cross-claim or counterclaim or any answer thereto or any amendment to any of the above, any Dispute (as defined below) shall be resolved by binding arbitration in accordance with the terms of this Arbitration Program. A "Dispute" shall include any action, dispute, claim or controversy of any kind, whether founded in contract, tort, statutory or common law, equity, or otherwise, now existing or hereafter arising between any of the Parties arising out of, pertaining to or in connection with any agreement, document or instrument to which this Arbitration Program is attached or in which it appears or is referenced or any related agreements, documents, or instruments ("Documents"). Any Party who fails to submit to binding arbitration following a lawful demand by another Party shall bear all costs and expenses, including reasonable attorneys' fees (including those incurred in any trial, bankruptcy proceeding or on appeal) incurred by the other Party in obtaining a stay of any pending judicial proceeding or compelling arbitration of any Dispute. The Parties agree that any agreement, Document or instrument which includes, attaches to or incorporates this Arbitration Program represents a transaction involving commerce as that term is used in the Federal Arbitration Act, ("FAA") Title 9 United States Code. THE PARTIES UNDERSTAND THAT BY THIS AGREEMENT THEY HAVE DECIDED THAT UPON DEMAND OF ANY OF THEM, THEIR DISPUTES SHALL BE RESOLVED BY BINDING ARBITRATION RATHER THAN IN COURT, AND ONCE DECIDED BY ARBITRATION NO DISPUTE CAN LATER BE BROUGHT, FILED OR PURSUED IN COURT. 2. Governing Rules. Arbitrations conducted pursuant to this Arbitration --------------- Program shall be administered by the American Arbitration Association ("AAA"), or other mutually agreeable administrator ("Administrator") in accordance with the terms of this Arbitration Program and the Commercial Arbitration Rules of the AAA. Proceedings hereunder shall be governed by the provisions of the FAA. The arbitrator(s) shall resolve all Disputes in accordance with the applicable substantive law designated in the Documents. Judgment upon any award rendered hereunder may be entered in any court having jurisdiction provided, however, that nothing herein shall be construed to be a waiver by any party that is a bank of the protections afforded pursuant to 12 U.S.C. 91 or any similar applicable state law. 3. Preservation of Remedies. No provision of, nor the exercise of any rights ------------------------ under, this arbitration clause shall limit the right of any Party to: (1) foreclose against any real or personal property collateral or other security, or obtain a personal or deficiency award; (2) exercise self-help remedies (including repossession and setoff rights); or (3) obtain provisional or ancillary remedies such as injunctive relief, sequestration, attachment, replevin, garnishment, or the appointment of a receiver from a court having jurisdiction. Such rights can be exercised at any time except to the extent such action is contrary to a final award or decision in any arbitration proceeding. The institution and maintenance of an action as described above shall not constitute a waiver of the right of any Party to submit the Dispute to arbitration, nor render inapplicable the compulsory arbitration provisions hereof. Any claim or Dispute related to exercise of any self-help, auxiliary or other rights under this paragraph shall be a Dispute hereunder. 4. Arbitrator Powers and Qualifications; Awards. The Parties agree to select -------------------------------------------- a neutral "qualified" arbitrator or a panel of three "qualified" arbitrators to resolve any Dispute hereunder. "Qualified" means a practicing attorney, with not less than 10 years practice in commercial law, licensed to practice in the state of the applicable substantive law designated in the Documents. A Dispute in which the claims or amounts in controversy do not exceed $1,000,000.00, shall be decided by a single arbitrator. A single arbitrator shall have authority to render an award up to but not to exceed $1,000,000.00 including all damages of any kind whatsoever, costs, fees, attorneys' fees and expenses. Submission to a single arbitrator shall be a waiver of all Parties' claims to recover more than $1,000,000.00. A Dispute involving claims or amounts in controversy exceeding $1,000,000.00 shall be decided by a majority vote of a panel of three qualified arbitrators. The arbitrator(s) shall be empowered to, at the written request of any Party in any Dispute, 1) to consolidate in a single proceeding any multiple party claims that are substantially identical or based upon the same underlying transaction; 2) to consolidate any claims and Disputes 40 between other Parties which arise out of or relate to the subject matter hereof, including all claims by or against borrowers, guarantors, sureties and or owners of collateral; and 3) to administer multiple arbitration claims as class actions in accordance with Rule 23 of the Federal Rules of Civil Procedure. In any consolidated proceeding the first arbitrator(s) selected in any proceeding shall conduct the consolidated proceeding unless disqualified due to conflict of interest. The arbitrator(s) shall be empowered to resolve any dispute regarding the terms of this arbitration clause, including questions about the arbitrability of any Dispute, but shall have no power to change or alter the terms of this Arbitration Program. The prevailing Party in any Dispute shall be entitled to recover its reasonable attorneys' fees in any arbitration, and the arbitrator(s) shall have the power to award such fees. The award of the arbitrator(s) shall be in writing and shall set forth the factual and legal basis for the award. 5. Miscellaneous. All statutes of limitation applicable to any Dispute shall ------------- apply to any proceeding in accordance with this arbitration clause. The Parties agree, to the maximum extent practicable, to take any action necessary to conclude an arbitration hereunder within 180 days of the filing of a Dispute with the Administrator. The arbitrator(s) shall be empowered to impose sanctions for any Party's failure to proceed within the times established herein. Arbitrations shall be conducted in the state of the applicable substantive law designated in the Documents. The provisions of this Arbitration Program shall survive any termination, amendment, or expiration hereof or of the Documents unless the Parties otherwise expressly agree in writing. Each Party agrees to keep all Disputes and arbitration proceedings strictly confidential, except for disclosures of information required in the ordinary course of business of the Parties or as required by applicable law or regulation. If any provision of this Arbitration Program is declared invalid by any court, the remaining provisions shall not be affected thereby and shall remain fully enforceable. THE UNDERSIGNED HEREBY ACKNOWLEDGE RECEIPT OF A COPY OF THIS ARBITRATION PROGRAM. Dated: April 15, 1996 SEATTLE FILMWORKS, INC. By /s/Case H. Kuehn Its Vice President FIRST INTERSTATE BANK OF WASHINGTON, N.A By /s/ Jo Surbrugg Its Vice President 41 EX-10.2 4 SUPPLEMENT TO AGFA DIVISION OF MILES, INC. SUPPLEMENT TO SEATTLE FILM WORKS CONTRACT DATED AUGUST 18, 1995 [Note: Confidential portions of this document have been omitted (such portions being marked by brackets) and have been filed separately with the Securities and Exchange Commission.] Re: Changes to the contract addendum 2. Products/Pricing ---------------- Film
Running Meters Invoice CN 100 135 RM $[____]/RM CN 200 135 RM $[____]/RM CN 400 135 RM $[____]/RM ======================================
During each [_____ (__)_____] period of this contract (starting October 1, 1995), once Seattle Film Works has purchased [_____________] running meters (all speeds combined) the following prices will go into effect for the balance of the period: CN 100 135 RM $[____]/RM CN 200 135 RM $[____]/RM CN 400 135 RM $[____]/RM ====================================== 20-Exposure Pre-Spooled: ====================================== CN 200 135-20 $[__]/ea CN 400 135-20 $[__]/ea ======================================
During each [__________ (__) ____] period of this contract (starting October 1, 1995), once Seattle Film Works has purchased [_________] rolls of 20-exposure pre-spooled film (all speeds combined) the following prices will go into effect for the balance of the period: CN 200 135-20 $[__]/roll CN 400 135-20 $[__]/roll ======================================
42 [Note: Confidential portions of this document have been omitted (such portions being marked by brackets) and have been filed separately with the Securities and Exchange Commission.] Minimum shipments per order [_____] rolls per speed. During each [_____ (__) ____] period of this contract Seattle Film Works will receive a [__]% rebate when the combined purchases of running meters and pre-spooled 20-exposure exceed $[_________]. Seattle Film Works will provide Agfa a [______] rolling forecast, the first [______] are fixed. If Agfa fails to meet the delivery dates at the fixed forecast a penalty of a [__]% will apply to the value of the late delivery. 3. Pricing Review -------------- The first paragraph of this section is deleted and replaced by the following: Both parties agree to a pricing review upon each anniversary date of this agreement. In view of the constant, rapidly rising costs of pulp, plastics and other raw material costs for producing paper, film and chemistry, Agfa will seek an annual price increase of at least [__]% to compensate for such inflationary costs. The adjustment could however, be more depending on general price increases in the marketplace. Agfa will propose a proper raw material indexing system as a basis for future price adjustments. Should both parties not come to terms upon the price adjustments by the anniversary date, either SFW or Agfa can cancel the contract for either paper, film or chemistry or all with [__] days notice. In such an event, Agfa agrees to ship product at the original price in reasonable quantities for [__] days from date of cancellation. Price renegotiations can also occur should SFW deviate significantly from the projected volumes. 43 In case of extraordinary circumstances, such as rampant inflation of related costs beyond seller's control, seller can require renegotiations at any time and the aforementioned exit clause will also apply. AGREED TO: Date: March 29, 1996 Date: March 29, 1996 By:/s/ Case H. Kuehn By:/s/ Urs W. Stampfli Case H. Kuehn Urs W. Stampfli Title: Treasurer Title: Vice President Marketing 44 EX-10.3 5 ADDENDUM TO LEASE AGREEMENT DATED 1/1/96 GENERAL SERVICES ADMINISTRATION SUPPLEMENTAL AGREEMENT DATE: PUBLIC BUILDINGS SERVICE NO. 1 JANUARY 25, 1996 SUPPLEMENTAL LEASE AGREEMENT TO LEASE NO. GS-10PES-OL-5-42 ADDRESS OF PREMISES: Federal Center South 1202 Warehouse 4735 E. Marginal Way South Seattle, WA 98134 THIS AGREEMENT, made and entered into this date by and between Seattle FilmWorks, Inc. whose address is 1260 16th Avenue West Seattle, WA 98119 hereinafter called the Lessee, and the UNITED STATES OF AMERICA, hereafter called the Government: WHEREAS, the parties hereto desire to amend the above Lease. NOW THEREFORE, these parties for the considerations hereinafter mentioned covenant and agree that the said Lease is amended, effective January 1, 1996, as follows: This SLA reflects an increase in square footage of 10,000 square feet of warehouse space, located at Federal Center South, 1202 Warehouse, 4734 E. Marginal Way S., Seattle, WA 98134. Paragraphs 2 and 4 are amended as follows: 2. WITNESSETH: The Lessor hereby leases to the Lessee approximately 80,000 square feet of enclosed warehouse space, located in the northern most portion of the 1202 Warehouse, at column markers C46 south to F33 north, west to F33 north, south to G36 inclusive, Federal Center South, 4735 E. Marginal Way South, Seattle, WA 98134. 4. The Lessee shall pay the Lessor an annual rental of $249,600.00 (Two hundred forty nine thousand six hundred dollars and no/100), payable at the rate of $20,800.00 (Twenty thousand eight hundred dollars and no/100), per month in advance. All other terms and conditions of the lease shall remain in force and effect. IN WITNESS WHEREOF, the parties subscribed their names as of the above date. LESSEE BY /s/ Case H. Kuehn Vice President, Chief Financial Officer and Treasurer (Signature) (Title) IN PRESENCE OF /s/ Linda M. Clay 910-223rd Court N.E., Redmond, WA 98053 (Signature) (Address) UNITED STATES OF AMERICA BY /s/ Brenda Dang 1/25/96 CONTRACTING OFFICER, GENERAL SERVICES ADMINISTRATION (Signature) (Official Title) 45 EX-10.64 6 SALES CONTRACT DATED AUGUST 18, 1995 SALES CONTRACT SOLD TO: SEATTLE FILMWORKS 1260 16th Avenue West Seattle, WA 98119-3401 CONTRACT PERIOD: October 1, 1995 - September 30, 1998 PRODUCTS: Agfa Color Negative Paper Agfa Color Negative Film Agfa Chemistry Agfa Equipment ATTACHMENTS: A, B, C, D This Agreement or order is subject to the terms and conditions set forth on the front and back hereof. All orders received shall be subject to credit approval. Likewise, all Agreements or orders shall not be considered binding or valid until accepted by a Vice President of Agfa Division, Bayer Corporation (hereinafter "Agfa") at its principle office in New Jersey. All accounts will be reviewed after six months. If Buyer's purchases are not at the level forecasted herein, pricing will revert to the appropriate price group, and Agfa Division, Bayer Corporation will issue corrected invoices reflecting the appropriate pricing. Accepted Agfa Division of Bayer Corporation Dated: August 18, 1995 Dated: August 18, 1995 -------------------------- --------------------------- By:/s/ Case H. Kuehn By:/s/ Hans R. Thieme ----------------------------- ------------------------------ Print Name: Case H. Kuehn Print Name: Hans R. Thieme --------------------- ---------------------- Title: V.P. Treasurer and C.F.O. Title: Sr V.P. --------------------- --------------------------- 46 [Note: Confidential portions of this document have been omitted (such portions being marked by brackets) and have been filed separately with the Securities and Exchange Commission.] TERMS AND CONDITIONS General - ------- 1. Prices are exclusive of taxes which, if applicable, will be shown separately on the invoice. 2. The minimum acceptable order is [$___] at net billing prices and only items contained herein may be used to meet the [$___] minimum order requirement. Seller may change the minimum acceptable order at any time during the term of this Agreement. 3. All orders received shall be subject to credit approval. Likewise, all agreements or orders shall not be considered binding or valid until accepted by a vice president of Agfa Division, Bayer Corporation (hereinafter "Agfa") at its principle office in New Jersey. 4. No drop shipments will be made. 5. It is agreed that any trademarks, trade names, trade dress and original packaging of Agfa Division, Bayer Corporation, and/or the affiliates shall not be used improperly. 6. In the event of any clerical or mathematical error, Agfa is hereby authorized to and reserves the right to correct such errors. 7. Agfa reserves the right to add late charges on any past due amount equivalent to the greater of [___] percent or the maximum allowed by local statutes. 8. No deductions or setoffs may be made from any statement or invoice for any reason without prior written authorization from Agfa. Any unauthorized deduction shall be of no effect and shall be null and void. 9. The resale of Agfa product to a reseller not owned by Buyer is prohibited in this agreement. Transportation - -------------- All shipments will be made F.O.B. [_________________]. Transportation charges will be prepaid on each order totaling 47 $[___] or more, except where indicated, at net billing prices shown in current catalogs, provided such order calls for a single [Note: Confidential portions of this document have been omitted (such portions being marked by brackets) and have been filed separately with the Securities and Exchange Commission.] shipment to one destination. If an order totals less than $[___], transportation charges will be added to the invoice. All shipments will be made by surface transportation by carriers of Agfa's choice in accordance with Agfa's standard transportation policy. If shipment is made by other means, in accordance with the instructions of the customer, transportation charges will be added to the invoice with no freight allowance, regardless of the amount of the order. Seller may change this transportation minimum at any time during the term of this agreement. Transportation for Equipment Only - --------------------------------- All shipments will be made F.O.B. [_________________] with transportation charges to be billed to customer in accordance with Conditions of Sale on the Agfa lab equipment purchase order. Damages, Shortages and Errors - ----------------------------- Inasmuch as all shipments are receipted by the delivering carrier as being in good order, all shipments must be checked immediately on arrival for damage and carton count. If outside damage and/or shortage of carton count, note on Bill of Lading before signing carrier receipt and file claim at once with delivering carrier. If concealed (inside) damage, file claim with delivering carrier within 15 working days of receipt of merchandise. Request inspection by delivering carrier and obtain inspection report. If shortages (inside carton) and/or error in shipment, notify Agfa Division, Bayer Corporation within 48 hours of day merchandise was received. Returns - ------- No returns will be accepted without a prior written authorization form from Agfa Division, Bayer Corporation which will set forth the terms of such returns. Prepaid returns may be required in cases where Agfa Division, Bayer Corporation is free from fault. It is recommended that parcel post shipments be insured. Returns for Equipment shall be in accordance with Conditions of Sale on the Agfa - --------------------- lab equipment purchase order. 48 [Note: Confidential portions of this document have been omitted (such portions being marked by brackets) and have been filed separately with the Securities and Exchange Commission.] Terms of Payment - ---------------- Subject to Credit Department approval and unless otherwise specified, terms of payment shall be [__]% [__] days [___], net [__] days [___]. No cash discount will be allowed where an account is past due. All remittances should be made to Agfa Division, Bayer Corporation at the address shown on the monthly statement. Terms of Payment for Equipment shall be in accordance with the Conditions of - ------------------------------ Sale on the Agfa lab equipment purchase order. Force Majeure - ------------- The nonperformance of Agfa Division, Bayer Corporation of its obligations to deliver any merchandise ordered hereunder shall be excused if such nonperformance is occasioned by any strike or any other labor trouble, flood, fire, accident or any other casualty, act of God, war, governmental restrictions, shortage or inability to obtain raw materials, damage by the elements, failure of equipment or other cause of like or unlike nature beyond the control of Agfa Division, Bayer Corporation. Agfa Division, Bayer Corporation may, in the exercise of reasonable discretion, discontinue shipments to any account, revoke or modify any provisions in this agreement or allocate distribution of any of its products. Warranty - -------- All sales are without warranty of any kind, express or implied including, but not limited to, any warranty of merchantability or fitness for a particular purpose. Agfa's liability is limited to the replacement of products defective in manufacture, labeling, or packaging. In no event shall Agfa Division, Bayer Corporation or its parent, subsidiary or affiliated companies be liable for special or indirect, or consequential damages arising out of any sale or subsequent handling of any product, even where such damages are caused by negligence of Agfa Division, Bayer Corporation or that of its parent, subsidiary or affiliated companies. Warranty for photofinishing equipment shall be in accordance with Conditions of Sale on the Agfa Division, Bayer Corporation lab equipment purchase order. 49 Assurances - ---------- Whenever, in the reasonable judgment of Seller, there exists the possibility that Buyer is unwilling or unable to perform fully its obligations under this agreement, the Seller shall be entitled to demand of Buyer further assurances of due performance as Seller shall reasonably deem proper. If Buyer fails to provide reasonable assurances under this paragraph, Seller may ship goods C.O.D. or terminate this agreement without further liability to Buyer. Security Interest - ----------------- Agfa Division, Bayer Corporation shall retain and the Buyer hereby grants Agfa a purchase money security interest in all equipment and good and their proceeds until all moneys due hereunder are paid in full. Customer shall perform all acts necessary to protect Agfa's security interest. Agfa may file this Agreement or a copy of its as a financing statement. Strict Compliance - ----------------- The waiver of strict compliance or performance of any of the terms of this Agreement or of any breach thereof on the part of Seller shall not be held or deemed to be a waiver of any subsequent failure to comply strictly with, or perform the same or any other term or condition of this Agreement, or of any breach thereof. Applicable Law - -------------- The interpretation, instruction, performance, and/or enforcement of this document shall be governed by the laws of the State of New Jersey. Should any provision herein be held invalid or unenforceable as written by court of competent jurisdiction, said provision, along with the remainder of the Agreement, shall nonetheless be enforceable to the extent allowable under applicable law. Entire Agreement - ---------------- All previous understanding and commitments, oral or written, made between the parties hereto are merged in this Agreement, which represents the entire Agreement between the parties hereto relating to the subject matter hereof. Except as otherwise stated herein, no amendment or change hereof shall be effective or binding upon the parties hereto unless reduced to writing and signed by both Seller and Buyer. In the event of any conflict between the terms of this Agreement and the terms of any purchase order, the terms hereof shall prevail. 50 Equipment - --------- All purchases and leases of equipment must be accompanied by an Agfa lab equipment purchase order. Termination - ----------- The Seller reserves the right, among other remedies, to either cancel this contract or suspend further deliveries under it in the event Buyer fails to pay for any one shipment when same becomes due. Should Buyer's financial responsibility become unsatisfactory to Seller, cash payments or satisfactory security may be required by Seller. Prices - ------ This contract is firm and not renegotiable during its term. Prices, as stated on the front hereof, shall remain in effect for the period of the contract unless: 1. There is a significant change in the Seller's cost beyond Seller's control. 2. The price in the market increases by three percent or more. In either event, prices are guaranteed for a minimum of 90 days from the date of this contract. Thirty days written notice must be provided before a price change becomes effective. Confidentiality - --------------- It is understood that the terms of this Agreement shall be kept confidential between the parties herein and shall be disclosed only as required to lenders, counsel, auditors or others having legitimate business interest in the contents hereof. Buyer shall not, without Seller's permission, reveal any confidential information or trade secrets regarding Seller's products, business or methods of operation learned by Buyer during the term of this Agreement. Effective April 1995. 51 [Note: Confidential portions of this document have been omitted (such portions being marked by brackets) and have been filed separately with the Securities and Exchange Commission.] Seattle FilmWorks Sales Contract Addendum ----------------------------------------- 1. Period: October 1, 1995 to September 30, 1998. ------ 2. Products/Pricing: ---------------- * Paper: ----- - Invoice Price $[____]/ft/2/ - Projected min. [_________]/ft/2/ or 100% of SFW's requirements * Film: ---- - Projected min. [__________] running meters ISO 100 135 invoice price $[____]/RM [________] RM est. ISO 200 135 invoice price $[____]/RM [________] RM est. ISO 400 135 invoice price $[____]/RM [________] RM est. - Projected min. [________] 135-20 rolls in bulk: ISO 200 invoice price $[___]/ea. [_________] rolls est. ISO 400 invoice price $[___]/ea. [_________] rolls est. * Chemistry: --------- - 100% of SFW's requirements - Invoice Price see Attachment A * Equipment: --------- - SFW will be entitled to purchase [___ (_)] MSP [_______] and [__(_)] Labomater [__] as specified in the enclosed price quotes - Attachments B and C. * Prices: ------ - The above prices are valid through 9/30/96. * Free Goods: ---------- - SFW will be entitled to [___] million sq. ft of free color negative paper based on [___] million sq. ft purchased during the contract period. This equals [____]% to be released on a quarterly basis based on the number of sq. ft purchased during the previous quarter. SFW will determine the sizes and surfaces of such free goods. 52 [Note: Confidential portions of this document have been omitted (such portions being marked by brackets) and have been filed separately with the Securities and Exchange Commission.] 3. Pricing Review: Both parties agree to a pricing review upon each -------------- anniversary date of this agreement. In view of the constant, rapidly rising costs of pulp, plastics and other raw material costs for producing paper, film and chemistry, Agfa will seek an annual price increase of at least [___]% to compensate for such inflationary costs. The adjustment could, however, be more depending on general price increases in the marketplace. Agfa will propose a proper raw material indexing system as a basis for future price adjustments. Should both parties not come to terms upon the price adjustments by the anniversary date, either SFW or Agfa can cancel the contract for either paper, film or chemistry or all with [__] days notice. In such an event, Agfa agrees to ship product at the original price in reasonable quantities for [__] days from date of cancellation. Price re-negotiations can also occur should SFW deviate significantly from the projected volumes. In case of extraordinary circumstances, such as rampant inflation of related costs beyond seller's control, seller can require renegotiations at any time and the aforementioned exit clause will also apply. 4. Terms of Payment: Net [___] days [___]. ---------------- 5. Terms and Conditions: See Attachment D. -------------------- 6. This contract supersides any previous agreement, understandings or commitments. 53 [Note: Confidential portions of this document have been omitted (such portions being marked by brackets) and have been filed separately with the Securities and Exchange Commission.]
ATTACHMENT A ================================================================================================================================== SEATTLE FILM WORKS - ---------------------------------------------------------------------------------------------------------------------------------- New Chemical Pricing - ---------------------------------------------------------------------------------------------------------------------------------- Product Invoice Code Product Name Description Size Makes Price - ---------------------------------------------------------------------------------------------------------------------------------- B3C12 94 CDS RA-4 DEVELOPER STARTER CONC. 1 GAL. 33 GAL. [$____] - ---------------------------------------------------------------------------------------------------------------------------------- B1FJD 94 CDJ PT. A RA-4 DEVELOPER REGENERATOR PT. A 60 L. 1,371 GAL. [$____] - ---------------------------------------------------------------------------------------------------------------------------------- B20TQ 94 CDJ PT. B RA-4 DEVELOPER REGENERATOR PT. B 60 L. 1,371 GAL. [$____] - ---------------------------------------------------------------------------------------------------------------------------------- B1GAK 94 CDJ PT. C RA-4 DEVELOPER REGENERATOR PT. C 60 L. 619 GAL. [$____] - ---------------------------------------------------------------------------------------------------------------------------------- B3S54 94 CDLR PT. A RA-4 DEVELOPER REPLENISHER PT. A 75 GAL. 75 GAL. [$____] - ---------------------------------------------------------------------------------------------------------------------------------- B3S66 94 CDLR PT. B RA-4 DEVELOPER REPLENISHER PT. B 75 GAL. 75 GAL. [$____] - ---------------------------------------------------------------------------------------------------------------------------------- B3S78 94 CDLR PT. C RA-4 DEVELOPER REPLENISHER PT. C 75 GAL. 75 GAL. [$____] - ---------------------------------------------------------------------------------------------------------------------------------- B3TSJ 94 CDLR PTS. A-C RA-4 DEVELOPER REPLENISHER 25 GAL. 25 GAL. [$____] - ---------------------------------------------------------------------------------------------------------------------------------- B3S8B 94 BXMR PTS. A&C RA-4 BLEACH FIX REPLENISHER 25 GAL. 25 GAL. [$____] - ---------------------------------------------------------------------------------------------------------------------------------- B3S9D 94 BXMR PTS. B RA-4 BLEACH FIX REPLENISHER 25 GAL. 25 GAL. [$____] - ---------------------------------------------------------------------------------------------------------------------------------- B28E6 94 LIGHT BLJ RA-4 LIGHT BLEACH REGENERATOR 300 L. 97 GAL. [$____] - ---------------------------------------------------------------------------------------------------------------------------------- B28F8 94 LIGHT BLJ RA-4 LIGHT BLEACH REGENERATOR 1,000 L. 322 GAL. [$____] - ---------------------------------------------------------------------------------------------------------------------------------- S9YMY SC94 SBR SOLID PAPER STABILIZER 100 L. 26.4 GAL. [$____] - ----------------------------------------------------------------------------------------------------------------------------------
54
================================================================================================================================== SEATTLE FILM WORKS - ---------------------------------------------------------------------------------------------------------------------------------- New Chemical Pricing - ---------------------------------------------------------------------------------------------------------------------------------- Product Invoice Code Product Name Description Size Makes Price - ---------------------------------------------------------------------------------------------------------------------------------- BQDBT 70 CDLR PT. A C-41 DEVELOPER LOW REPLENISHER 300 L. 79.3 GAL. [$____] - ---------------------------------------------------------------------------------------------------------------------------------- BQDCV 70 CDLR PT. B&C C-41 DEVELOPER LOW REPLENISHER 300 L. 79.3 GAL. [$____] - ---------------------------------------------------------------------------------------------------------------------------------- BRE5V 70 BL CONC. C-41 BLEACH CONCENTRATE 15 GAL. 267 GAL. [$____] - ---------------------------------------------------------------------------------------------------------------------------------- B3ZXK 70 LIGHT BLJ C-41 LIGHT BLEACH REGENERATOR 210 L. 1,003 GAL. [$____] - ---------------------------------------------------------------------------------------------------------------------------------- BRE94 FX UNIV. UNIVERSAL FIXER CONCENTRATE 15 GAL. VAR. [$____] - ---------------------------------------------------------------------------------------------------------------------------------- BIY14 70 FI C-41 FINAL BATH REPLENISHER 75 GAL. 75 GAL. [$____] - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- BWA8S 44 FDR-AR E-6 FIRST DEVELOPER REPLENISHER 5 GAL. 25 GAL. [$____] - ---------------------------------------------------------------------------------------------------------------------------------- BWA9U 44 RE-AR E-6 REVERSAL BATH REPLENISHER 5 GAL. 100 GAL. [$____] - ---------------------------------------------------------------------------------------------------------------------------------- BWBAY 44 CDR-AR PT. A E-6 COLOR DEVELOPER REPL. PT. A 5 GAL. 25 GAL. [$____] - ---------------------------------------------------------------------------------------------------------------------------------- BWBB1 44 CDR-AR PT. B E-6 COLOR DEVELOPER REPL. PT. B 5 GAL. 25 GAL. [$____] - ---------------------------------------------------------------------------------------------------------------------------------- BWBC3 44 BC-AR E-6 BLEACH CONDITIONER REPLENISHER 5 GAL. 25 GAL. [$____] - ---------------------------------------------------------------------------------------------------------------------------------- BWB9Y 44 BLR-AR E-6 BLEACH REPLENISHER 5 GAL. 5 GAL. [$____] - ---------------------------------------------------------------------------------------------------------------------------------- B12YD 44 FI-AR E-6 FINAL BATH REPLENISHER 5 GAL. 500 GAL. [$____] - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- BZXVG 73 CDR CN-16Q DEVELOPER REPLENISHER 40 L. 10.6 GAL. [$____] - ---------------------------------------------------------------------------------------------------------------------------------- BZXWJ 73 BLR CN-16Q BLEACH REPLENISHER 8 L. 2.1 GAL. [$____]
55
================================================================================================================================== SEATTLE FILM WORKS - ---------------------------------------------------------------------------------------------------------------------------------- New Chemical Pricing - ---------------------------------------------------------------------------------------------------------------------------------- Product Invoice Code Product Name Description Size Makes Price - ---------------------------------------------------------------------------------------------------------------------------------- BZXXL 73 FXR CN-16Q FIXER REPLENISHER 24 L. 6.3 GAL. [$____] - ---------------------------------------------------------------------------------------------------------------------------------- BZZSJ 73 SBR CN-16Q STABILIZER REPLENISHER 40 L. 10.6 GAL. [$____] ==================================================================================================================================
56 [Note: Confidential portions of this document have been omitted (such portions being marked by brackets) and have been filed separately with the Securities and Exchange Commission.] ATTACHMENT B MSP [ ] AUTOMATIC PRINTER - ---------------------------------- [$________] each Shipping and handling [$_____] (FOB [________)] Terms: Net [___] days [___] This quote is valid for 30 days. Subject to credit approval. PRODUCT SPECIFICATIONS - AS STATED IN MSP PRODUCT LITERATURE INCLUDES: - -------- [______________________________] OPTIONAL ACCESSORIES: - --------------------------- PAPER MAGAZINES $ [_____] 110, 126 FILM GUIDES [_____] MIRROR BOX [_____] * MSP-URS CONVERSION KIT [_____] URS DECKS [_____] URS SOFT MIRROR BOX [_____] * GREETING CARDS [_____] EXTENDED DX & FNS [_____] * INK JET BACK PRINTER [_____] * TRI PRINT [_____] AUTOMATIC 1/2 FRAME [____] FACTORY INSTALLED MANUAL 1/2 FRAME [_____] * WALLET PRINTS FOR REPRINT [_____] BORDER PRINTS [_____] * BLACK & WHITE [_____] * PANORAMIC KIT (3.5" x 10") [_____] * DUAL FILM TAKE UP (USE CORES) [_____] DUAL PAPER SYSTEM [____] FACTORY INSTALLED Note: * Panoramic Kit: The 10" paper deck can not make a 3.5" paper advance such as 3.5" x 3.5" 126 or manual half frame 5" x 3.5". * Installation additional on conversion kits. 57 [Note: Confidential portions of this document have been omitted (such portions being marked by brackets) and have been filed separately with the Securities and Exchange Commission.] ATTACHMENT C LABOMATOR[ ] 4" PAPER PROCESSING - ------------------------------------------------- [______________________________________________] [$_______] each INCLUDES: - -------- [____________________] Shipping and handling [$_____] (FOB [________)] Terms: Net [__] days [___] This quote is valid for 30 days. SUBJECT TO CREDIT APPROVAL. PRODUCT SPECIFICATIONS - AS STATED IN LAB H PRODUCT LITERATURE 58 [Note: Confidential portions of this document have been omitted (such portions being marked by brackets) and have been filed separately with the Securities and Exchange Commission.] ATTACHMENT D TERMS AND CONDITIONS -------------------- General - ------- 1. Prices are exclusive of taxes which, if applicable, will be shown separately on the invoice. 2. The minimum acceptable order is $[___] at net billing prices and only items contained herein may be used to meet the $[___] minimum order requirement. Seller may change the minimum acceptable order at any time during the term of this Agreement. 3. All orders received shall be subject to credit approval. Likewise, all agreements or orders shall not be considered binding or valid until accepted by a vice president of Agfa Division, Bayer Corporation (hereinafter "Agfa") at its principle office in New Jersey. 4. No drop shipments will be made. 5. It is agreed that any trademarks, trade names, trade dress and original packaging of Agfa Division, Bayer Corporation, and/or the affiliates shall not be used improperly. 6. In the event of any clerical or mathematical error, Agfa is hereby authorized to and reserves the right to correct such errors. 7. Agfa reserves the right to add late charges on any past due amount equivalent to the greater of [___] percent or the maximum allowed by local statutes. 8. No deductions or setoffs may be made from any statement or invoice for any reason without prior written authorization from Agfa. Any unauthorized deduction shall be of no effect and shall be null and void. 9. The resale of Agfa product to a reseller not owned by Buyer is prohibited in this agreement. Transportation - -------------- 59 All shipments will be made F.O.B. [_________________]. Transportation charges will be prepaid on each order totaling [Note: Confidential portions of this document have been omitted (such portions being marked by brackets) and have been filed separately with the Securities and Exchange Commission.] $[____] or more, except where indicated, at net billing prices shown in current catalogs, provided such order calls for a single shipment to one destination. If an order totals less than $[____], transportation charges will be added to the invoice. All shipments will be made by surface transportation by carriers of Agfa's choice in accordance with Agfa's standard transportation policy. If shipment is made by other means, in accordance with the instructions of the customer, transportation charges will be added to the invoice with no freight allowance, regardless of the amount of the order. Seller may change this transportation minimum at any time during the term of this agreement. Transportation for Equipment Only - --------------------------------- All shipments will be made F.O.B. [________________] with transportation charges to be billed to customer in accordance with Conditions of Sale on the Agfa lab equipment purchase order. Damages, Shortages and Errors - ----------------------------- Inasmuch as all shipments are receipted by the delivering carrier as being in good order, all shipments must be checked immediately on arrival for damage and carton count. If outside damage and/or shortage of carton count, note on Bill of Lading before signing carrier receipt and file claim at once with delivering carrier. If concealed (inside) damage, file claim with delivering carrier within 15 working days of receipt of merchandise. Request inspection by delivering carrier and obtain inspection report. If shortages (inside carton) and/or error in shipment, notify Agfa Division, Bayer Corporation within 48 hours of day merchandise was received. Returns - ------- No returns will be accepted without a prior written authorization form from Agfa Division, Bayer Corporation which will set forth the terms of such returns. Prepaid returns may be required in cases where Agfa Division, Bayer Corporation is free from fault. It is recommended that parcel post shipments be insured. 60 Returns for Equipment shall be in accordance with Conditions of Sale on the Agfa - --------------------- lab equipment purchase order. [Note: Confidential portions of this document have been omitted (such portions being marked by brackets) and have been filed separately with the Securities and Exchange Commission.] Terms of Payment - ---------------- Subject to Credit Department approval and unless otherwise specified, terms of payment shall be [__]% [__] days [___], net [__] days [___]. No cash discount will be allowed where an account is past due. All remittances should be made to Agfa Division, Bayer Corporation at the address shown on the monthly statement. Terms of Payment for Equipment shall be in accordance with the Conditions of - ------------------------------ Sale on the Agfa lab equipment purchase order. Force Majeure - ------------- The nonperformance of Agfa Division, Bayer Corporation of its obligations to deliver any merchandise ordered hereunder shall be excused if such nonperformance is occasioned by any strike or any other labor trouble, flood, fire, accident or any other casualty, act of God, war, governmental restrictions, shortage or inability to obtain raw materials, damage by the elements, failure of equipment or other cause of like or unlike nature beyond the control of Agfa Division, Bayer Corporation. Agfa Division, Bayer Corporation may, in the exercise of reasonable discretion, discontinue shipments to any account, revoke or modify any provisions in this agreement or allocate distribution of any of its products. Warranty - -------- All sales are without warranty of any kind, express or implied including, but not limited to, any warranty of merchantability or fitness for a particular purpose. Agfa's liability is limited to the replacement of products defective in manufacture, labeling, or packaging. In no event shall Agfa Division, Bayer Corporation or its parent, subsidiary or affiliated companies be liable for special or indirect, or consequential damages arising out of any sale or subsequent handling of any product, even where such damages are caused by negligence of Agfa Division, Bayer Corporation or that of its parent, subsidiary or affiliated companies. Warranty for photofinishing equipment shall be in accordance with Conditions of Sale on the Agfa Division, Bayer Corporation lab equipment purchase order. 61 Assurances - ---------- Whenever, in the reasonable judgment of Seller, there exists the possibility that Buyer is unwilling or unable to perform fully its obligations under this agreement, the Seller shall be entitled to demand of Buyer further assurances of due performance as Seller shall reasonably deem proper. If Buyer fails to provide reasonable assurances under this paragraph, Seller may ship goods C.O.D. or terminate this agreement without further liability to Buyer. Security Interest - ----------------- Agfa Division, Bayer Corporation shall retain and the Buyer hereby grants Agfa a purchase money security interest in all equipment and good and their proceeds until all moneys due hereunder are paid in full. Customer shall perform all acts necessary to protect Agfa's security interest. Agfa may file this Agreement or a copy of its as a financing statement. Strict Compliance - ----------------- The waiver of strict compliance or performance of any of the terms of this Agreement or of any breach thereof on the part of Seller shall not be held or deemed to be a waiver of any subsequent failure to comply strictly with, or perform the same or any other term or condition of this Agreement, or of any breach thereof. Applicable Law - -------------- The interpretation, instruction, performance, and/or enforcement of this document shall be governed by the laws of the State of New Jersey. Should any provision herein be held invalid or unenforceable as written by court of competent jurisdiction, said provision, along with the remainder of the Agreement, shall nonetheless be enforceable to the extent allowable under applicable law. Entire Agreement - ---------------- All previous understanding and commitments, oral or written, made between the parties hereto are merged in this Agreement, which represents the entire Agreement between the parties hereto relating to the subject matter hereof. Except as otherwise stated herein, no amendment or change hereof shall be effective or binding upon the parties hereto unless reduced to writing and signed by both Seller and Buyer. In the event of any conflict between the terms of this Agreement and the terms of any purchase order, the terms hereof shall prevail. 62 Equipment - --------- All purchases and leases of equipment must be accompanied by an Agfa lab equipment purchase order. Termination - ----------- The Seller reserves the right, among other remedies, to either cancel this contract or suspend further deliveries under it in the event Buyer fails to pay for any one shipment when same becomes due. Should Buyer's financial responsibility become unsatisfactory to Seller, cash payments or satisfactory security may be required by Seller. Prices - ------ This contract is firm and not renegotiable during its term. Prices, as stated on the front hereof, shall remain in effect for the period of the contract unless: 1. There is a significant change in the Seller's cost beyond Seller's control. 2. The price in the market increases by three percent or more. In either event, prices are guaranteed for a minimum of 90 days from the date of this contract. Thirty days written notice must be provided before a price change becomes effective. Confidentiality - --------------- It is understood that the terms of this Agreement shall be kept confidential between the parties herein and shall be disclosed only as required to lenders, counsel, auditors or others having legitimate business interest in the contents hereof. Buyer shall not, without Seller's permission, reveal any confidential information or trade secrets regarding Seller's products, business or methods of operation learned by Buyer during the term of this Agreement. Effective April 1995. 63 EX-11 7 COMPUTATION OF EARNINGS PER SHARE Exhibit 11 SEATTLE FILMWORKS, INC. COMPUTATION OF EARNINGS PER SHARE
Second Quarter Ended Six Months Ended March 30, March 25, March 30, March 25, 1996 1995 1996 1995 ===================================================================================================================== COMPUTATION OF PRIMARY EARNINGS PER SHARE: - ------------------------------------------ Weighted average shares outstanding 10,761,135 10,569,869 10,744,079 10,556,409 Net effect of dilutive stock options based on the treasury stock method using average market price 1,044,137 998,967 1,045,128 979,716 ----------- ----------- ----------- ----------- Total shares and equivalents 11,805,272 11,568,836 11,789,207 11,536,125 ========== ========== ========== ========== Net income $503,461 $338,962 $1,454,172 $994,182 ======== ======== ========== ======== PRIMARY EARNINGS PER SHARE $.04 $.03 $.12 $.09 ==== ==== ==== ==== COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE: - ------------------------------------------------ Weighted average shares outstanding 10,761,135 10,569,869 10,744,079 10,556,409 Net effect of dilutive stock options based on the treasury stock method using the higher of quarter-end market price or average market price 1,086,918 1,001,877 1,099,945 999,293 ----------- ----------- ----------- ----------- Total shares and equivalents 11,848,053 11,571,746 11,844,024 11,555,702 ========== ========== ========== ========== Net income $503,461 $338,962 $ 1,454,172 $994,182 ======== ======== =========== ======== FULLY DILUTED EARNINGS PER SHARE $.04 $.03 $.12 $.09 ==== ==== ==== ====
Note - All share data has been retroactively restated to reflect a three-for-two stock split effected in the form of a stock dividend on March 15, 1996. Page 46 of 46 EX-27 8 ARTICLE 5 - FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEATTLE FILMWORKS, INC. SECOND QUARTER 1996 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS SEP-28-1996 OCT-01-1995 MAR-30-1996 7,114 0 1,286 0 6,992 16,334 4,329 0 31,492 8,727 0 0 0 108 19,531 31,402 0 34,510 20,907 11,537 (161) 0 1 2,226 772 0 0 0 0 1,454 .12 .12 ASSET VALUES REPRESENT NET AMOUNTS
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