Press Release: PhotoWorks' Shareholders Successfully Ratify $6.5 Million Recapitalization Agreements; Company Receives an Additional $2 Million Cash Infusion, Converts $4.5 Million Debt into Common Stock and Amends Bylaws to Further Shareholders' Interest


PhotoWorks(R), Inc. (OTCBB:FOTO), a leading provider of digital and film photography services, announced today that it has successfully secured shareholder approval of its recapitalization agreements. The comprehensive plan negotiated with the holders of the subordinated debt and holders of the preferred shares results in a $2 Million cash infusion of equity strengthening the company's balance sheet.  

In addition, the agreement calls for the conversion of $4.5 Million of interest bearing debt to common stock and the conversion of the Series A Preferred Stock with its $20 million liquidation preference into common stock. A five-for-one reverse stock split was also approved, a move that is aimed at increasing the marketability and liquidity of the company's common stock. 
"I am extremely pleased and gratified by such a positive endorsement on the part of our shareholders," said Philippe Sanchez, President and CEO of PhotoWorks and the chief architect of the restructure. "The management team and I are committed to increasing the value of the company for our shareholders and this restructuring gives us the means to build on the strong foundations we've put in place and position the company for rapid growth." 
As evidence of management's commitment to shareholders' interests, the restructuring plan also addressed and enhanced several corporate governance issues. Specifically, the following were also approved: 
-- An amendment of the company's articles of incorporation and bylaws to repeal its classified board and establish the annual election of all directors; 
-- Repeal of the company's "Poison Pill" -- a provision that allows management to defend against hostile takeover but that research suggests decreases shareholder value. 
"The new capital and governance structure establishes sound fundamentals for the company and increases credibility with the investment community," continued Sanchez. "The approved measures strengthen our balance sheet, eliminate approximately $295,000 a year in interest expense, and the simplified capital structure facilitates the company's ability to engage in future financing." 
The shareholder vote and agreements by the holders of the subordinated debt and holders of preferred stock to convert into common stock are votes of confidence in the opportunity ahead and the rapid progress of the turnaround. Over the past 18 months, the new management team has succeeded in repositioning the company from a legacy film processing organization to one focused on the higher margin and rapidly growing digital photography market. The company attracted a new leadership team along with marketing and technology professionals, migrated to a new digital imaging platform, and launched new digital products and services such as Custom Photo Books and high-end Signature Greeting Cards that have been featured on TV shows and high profile publications including The TODAY Show, ABC-TV New York, Real Simple Magazine, InStyle Magazine and PC Magazine. 
About PhotoWorks 
PhotoWorks(R), Inc. (OTCBB:FOTO) is an online photography services company with a 25-year national heritage of helping photographers -- both film and digital -- share and preserve their memories with innovative and inspiring products and services. In addition to offering high quality prints, email sharing and Signature Greeting Cards, PhotoWorks specializes in the creation of sophisticated Custom Photo Books that are easily created online at PhotoWorks.com, allowing consumers to showcase their pictures in a professionally printed and bound book. More information on the Company is available at www.photoworks.com or by e-mailing customercare@photoworks.com. 
PhotoWorks(R) is a registered trademark of PhotoWorks, Inc. All other marks are the property of their respective owners. 

Posted: Thu - June 30, 2005 at 09:32 AM          

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