EXHIBIT 10.1
SEATTLE FILMWORKS, INC.
INCENTIVE STOCK OPTION PLAN
AMENDED AND RESTATED
AS OF APRIL 1, 1996
This Incentive Stock Option Plan (the "Plan") provides for the grant of
options (the "Options") to acquire shares of Common Stock, $.01 par value (the
"Common Stock") of Seattle FilmWorks, Inc. (the "Corporation") and is intended
to qualify under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"). Options qualifying under Section 422 of the Code are referred to
herein as "Incentive Stock Options" and Options not qualifying under section 422
are referred to herein as "Non-Qualified Stock Options."
1. PURPOSE
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The purpose of this Plan is to retain the services of key employees of the
Corporation, to encourage such employees to acquire a greater proprietary
interest in the Corporation, thereby strengthening their incentive to achieve
the objectives of the shareholders, and to serve as an aid and inducement in the
hiring of new key employees.
2. ADMINISTRATION
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This Plan shall be administered by the Board of Directors of the
Corporation (the "Board"), if each director is both a "disinterested person" (as
defined below) and an "outside director" (as defined below). If all directors
are not "disinterested persons" and "outside directors," or if the Board so
desires, the Plan shall be administered by a committee designated by the Board
and composed solely of two (2) or more members of the Board, each of whom is a
"disinterested person" and an "outside director" which committee (the
"Committee") may be an executive, compensation or other committee, including a
separate committee especially created for this purpose. The Committee shall have
the powers and authority vested in the Board hereunder (including the power and
authority to interpret any provision of this Plan or of any Option). The members
of any such Committee shall serve at the pleasure of the Board. A
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majority of the members of the Committee shall constitute a quorum, and all
actions of the Committee shall be taken by a majority of the members present.
Any action may be taken by a written instrument signed by all of the members of
the Committee and any action so taken shall be fully effective as if it had been
taken at a meeting. The Board, or any committee thereof appointed to administer
the Plan, is referred to herein as the "Plan Administrator." "Disinterested
person" shall be defined by reference to the rules and regulations promulgated
under Section 16(b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). "Outside director" shall be defined by reference to the
regulations promulgated under Section 162(m)(4)(C)(i) of the Code.
Subject to the provisions of this Plan, and with a view to effecting its
purpose, the Plan Administrator shall have sole authority, in its absolute
discretion, to (a) construe and interpret this Plan; (b) define the terms used
in this Plan; (c) prescribe, amend and rescind rules and regulations relating to
this Plan, (d) correct any defect, supply any omission or reconcile any
inconsistency in this Plan; (e) determine the individuals to whom Options shall
be granted under this Plan and whether the Option is an Incentive Stock Option
or a Non-Qualified Stock Option; (f) determine the time or times at which
Options shall be granted under this Plan; (g) determine the number of shares of
Common Stock subject to each Option, the exercise price of each Option, the
duration of each Option and the times at which each Option shall become
exercisable; (h) determine all other terms and conditions of Options; and (i)
make all other determinations necessary or advisable for the administration of
this Plan. All decisions, determinations and interpretations made by the Plan
Administrator shall be binding and conclusive on all participants in this Plan
and on their legal representatives, heirs and beneficiaries.
The Board or the Committee may delegate to one or more executive officers
of the Corporation the authority to grant Options under this Plan to employees
of the Corporation who, at the time of grant, are neither subject to Section
16(b) of the Exchange Act with respect to the Common Stock nor a "covered
employee" within the meaning of Section 162(m)(3) of the Code ("Non-Insiders")
and in connection therewith the authority to
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determine: (a) whether the Option is an Incentive Stock Option or a NonQualified
Stock Option; (b) the number of shares of Common Stock subject to such Option;
(c) the duration of the Option; (d) the vesting schedule for determining the
times at which such Option shall become exercisable; and (e) all other terms and
conditions of such Options. The exercise price for any Option granted by action
of an executive officer pursuant to such delegation of authority shall not be
less than the fair market value per share of the Common Stock on the Date of
Grant. Unless expressly approved in advance by the Board or the Committee, such
delegation of authority shall not include the authority to accelerate the
vesting, extend the period for exercise or otherwise alter the terms of
outstanding Options. The term "Plan Administrator" when used in any provision of
this Plan other than Sections 2, 5(k), 5(l) and 11 shall be deemed to refer to
the Board or the Committee, as the case may be, and an executive officer who has
been authorized to grant Options pursuant hereto, insofar as such provision may
be applied to Non-Insiders and Options granted to Non-Insiders.
Pursuant to action taken by the Board, the President of the Corporation is
authorized to grant options to Corporation personnel, all of whom must be Non-
Insiders, in amounts to be determined from time to time by the Board.
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3. ELIGIBILITY
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Persons eligible to receive Options shall be such regular and full-time
employees of the Corporation holding key positions (the "Employees" or
"Employee") as the Plan Administrator in its discretion, may select. Options
may be granted in substitution for outstanding options of another corporation in
connection with the merger, consolidation, acquisition of property or stock or
other reorganization between such other corporation and the Corporation or any
subsidiary of the Corporation. Options also may be granted in exchange for
outstanding Options. If any Option granted pursuant to this Plan expires or is
terminated for any reason, those shares of Common Stock allocable to the
unexercised portion of such Option may again be subject to an Option granted to
the same or a different Optionee. No person shall be granted options to
purchase more than 375,000 shares of Common Stock in any fiscal year (subject to
adjustment as set forth in Section 5(m) hereof). Any person to whom an Option
is granted under this Plan is referred to herein as an "Optionee."
4. STOCK
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The Stock for which Options may be granted under this Plan and under the
Corporation's 1987 Stock Option Plan shall be an aggregate of not more than
4,603,125 of the Corporation's authorized but unissued, or reacquired, Common
Stock, subject to adjustment as set forth in Section 5(1). If any outstanding
Option expires or is terminated for any reason, those shares of Stock allocable
to the unexercised portion of such Option may again be subject to an Option to
the same or to a different Employee; provided however, that any cancelled
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Options will be counted against the maximum number of shares with respect to
which Options may be granted to any particular person as set forth in Section 3
hereof.
5. TERMS AND CONDITIONS OF OPTIONS
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Each Option granted pursuant to this Plan shall be evidenced by written
agreements approved by the Plan Administrator (the "Agreements"). Agreements
may contain such additional provisions, not inconsistent herewith, as the Plan
Administrator
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in its discretion may deem advisable. All Options shall also comply with the
following requirements:
a. Number of Shares
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Each Agreement shall state the number of shares to which it pertains and
whether the Option evidenced thereby is an Incentive Stock Option or a Non-
Qualified Option. The aggregate fair market value (determined at the Date of
Grant, as defined below) of the stock with respect to which Incentive Stock
Options are exercisable for the first time by the Optionee during any calendar
year (granted under this Plan and all other Incentive Stock Option plans of the
Corporation or a predecessor corporation) shall not exceed $100,000, or such
other limit as may be prescribed by the Code as it may be amended from time to
time. Any Option which exceeds the annual limit shall not be void but rather
shall be a Non-Qualified Stock Option.
b. Date of Grant
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Each Agreement shall state the date which the Plan Administrator has deemed
to be the effective date of the Option for purposes of this Plan (the "Date of
Grant").
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c. Option Price
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(1) Each Option shall state the price per share of Stock at which it
is exercisable. This price shall be equal to or greater than the fair market
value of the Stock on the Date of Grant. For the purposes of this Section the
term "fair market value" on any given day means: (i) if the Common Stock is
listed on a national securities exchange, the average of the high and low prices
of the Common Stock of the Corporation on such exchange or such other national
securities exchange as shall be designated by the Plan Administrator; or (ii) if
the Common Stock is traded in the over-the-counter securities market, the last
sale price of the Common Stock as quoted by NASDAQ National Market System or, if
the Common Stock is not quoted in the National Market System, the mean between
the closing bid and asked prices of Common Stock as quoted by NASDAQ. Incentive
Stock Options granted in substitution for outstanding Options of another
corporation in connection with the merger, consolidation, acquisition of
property or stack or other reorganization involving such other corporation and
the Corporation or any subsidiary of the Corporation may be granted with an
exercise price equal to the exercise price for the substituted Option of the
other corporation, subject to any adjustment consistent with the terms of the
transaction pursuant to which the substitution is to occur.
(2) If an Employee owns more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation or its parent
or subsidiary corporation the Option price for any Incentive Stock Option
granted hereunder shall be one hundred ten percent (110%) of the value otherwise
determined in section 5(c)(1) and such Incentive Stock Option must lapse by its
terms within five (5) years from the date of grant. The attribution of stock
ownership rules in section 424(d) of the Code are incorporated herein by this
reference and apply for purposes of calculating the ten percent (10%) voting
power limitation.
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d. Termination of Employment
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(1) Death: If Employee's employment with the Corporation is
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terminated by reason of death, the Employee's personal representative, heirs or
devisees shall be entitled to exercise all vested Options for one (1) year after
the date of death.
(2) Disability: If Employee's employment with the Corporation is
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terminated by reason of disability the Employee shall be entitled to exercise
all vested Options for one (1) year after the date of disability.
For purposes of the Plan, unless otherwise defined in the Agreement,
the Plan Administrator shall determine whether an Optionee has incurred a
disability on the basis of medical evidence acceptable to the Plan
Administrator. Upon making a determination of disability, the Plan
Administrator shall, for purposes of the Plan, determine the date of an
Optionee's termination of employment or contractual relationship.
(3) Other Termination: If Employee's employment by the corporation is
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terminated, voluntarily or involuntarily, for any other reason, the Employee
shall be entitled to exercise all Options which are vested on the date of
termination for a period of three (3) months after such date of termination.
(4) All Options not exercised during the periods prescribed in section
5(d), herein, shall terminate. Unless accelerated in accordance with Section
5(e) below, unvested Options shall terminate immediately upon the termination of
employment of the Optionee by the Corporation for any reason whatsoever,
including death or disability.
e. Term and Vesting of Options
---------------------------
In order to ensure that the Corporation will receive the benefits
contemplated in exchange for the grant of Options pursuant hereto, no Option
shall be exercisable until it has vested or as provided in subsections (k) or
(1) below. The vesting schedule for each Option shall be specified by the Plan
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Administrator at the time of grant of the Option. Each Option shall terminate,
to the extent not previously exercised, upon the occurrence of the first to
occur of the following events: (i) the expiration of the period prescribed in
Section 5(c) or (d) herein; or (ii) the date which is ten (10) years after the
date of grant.
All outstanding Options shall become immediately vested and fully
exercisable on the day before the first to occur of the following events (each
an "Event"), unless a majority of the Board of Directors in office on the date
an Event occurs shall approve a resolution providing otherwise within three
business days after an Event occurs:
(i) Any Person (as defined in Section 13(d) of the Securities
Exchange Act of 1934 (the "Exchange Act")), other than a broker, bank or
trust company holding Common Stock of the Corporation for the account of
customers who are not members of a "group" (within the meaning of section
13(d) of the Exchange Act), becomes the record or beneficial owner of 30%
or more of any class of the Corporation's voting equity securities, as
disclosed in the Corporation's stock records or in any other way,
including, without limitation, any filing with the Securities and Exchange
Commission or otherwise; or
(ii) The purchase of 30% or more of any class of the Corporation's
stock pursuant to any tender offer or exchange offer for shares of the
Corporation's stock, other than one made by the Corporation; or
(iii) Approval by the shareholders of the Corporation (or, if later,
approval by the shareholders of a third party) of any merger,
consolidation, reorganization or other transaction providing for the
conversion or exchange of more than 50% of the outstanding shares of the
Corporation's stock into securities of a third party, or cash, or property,
or a combination of any of the foregoing.
f. Exercise of Options
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Options shall be exercisable, to the extent vested, either all or in part,
at any time during the term prescribed above; provided, however, that no
Incentive Stock Options granted prior to January 1, 1987 may be exercised until
all previously granted Incentive Stock Options have been exercised or lapsed in
accordance with their terms. The foregoing proviso shall not apply to Incentive
Stock Options granted on or after January 1, 1987. If less than all of the
vested shares under the terms of any Option are purchased, the difference
between the amount vested and the amount purchased may be purchased at any
subsequent time prior to the expiration of the Option term with respect to said
shares. Only whole shares may be issued pursuant to an Option, and to the
extent that an Option covers a fraction of a share, it is unexercisable.
Options or portions thereof may be exercised by giving written notice thereof to
the Corporation, which notice shall specify the number of shares to be
purchased, and be accomplished by payment in cash or by certified or cashier's
check in the amount of the aggregate Option price for the Stock so purchased.
The Corporation shall not be obligated to issue, transfer, or deliver a
certificate evidencing Common Stock to any Employee, or his personal
representative, until the entire Option price for all shares for which the
Option shall have been exercised is paid.
g. Payment Upon Exercise of Option
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In addition to payment in cash by certified check or cashier's check, an
Optionee may pay for all or any Stock purchased upon the exercise of any Option
by delivering to the Corporation shares of Stock previously held by such
Optionee or, with the permission of the Plan Administrator, by having shares
withheld from the amount of shares of Stock to be received by the Optionee. The
shares of Stock received by the Corporation or withheld by the Corporation as
payment for shares of Stock purchased upon the exercise of Options shall have a
fair market value (as established by the Plan Administrator) equal to the
aggregate Option exercise price (or portion thereof) to be paid through the
exchange of previously held shares of Stock or through the withholding of shares
of Stock to be received by the Optionee upon exercise.
h. Rights as a Shareholder
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An Optionee or a transferee of an Option shall have no rights as a
shareholder with respect to any shares covered by the Option, until the Optionee
becomes a record holder of such shares, irrespective or whether or not he has
given notice of exercise. Subject to the provisions of Section 5(1) hereof, no
rights shall accrue to an Optionee and no adjustments shall be made on account
of dividends (ordinary or extraordinary whether in cash, securities or other
property) or distributions or other rights declared on, or created in, the
capital stock of the Corporation for which the record date is prior to the date
the Optionee becomes a record holder of the shares covered by the Option,
irrespective of whether or not he has given notice of exercise.
i. Transfer of Options
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Options shall not be transferred by the Optionee other than by will or the
laws of descent and distribution.
j. Securities Regulation
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(1) No Option shall be exercisable unless such Option and Stock to be
issued pursuant thereto shall be registered under appropriate federal and state
securities laws, or shall be exempt therefrom, in the opinion of the Plan
Administrator upon advice of counsel to the Company.
Each Agreement shall contain adequate provisions to assure that there are
no violations of the relevant provisions of laws. Where necessary to effect
exemption from registration under such laws, an Optionee hereunder shall be
required, upon the exercise of an Option, to take the Common Stock with
investment intent and not with a view to its distribution, and to present to the
Plan Administrator a letter to that effect in a form suitable to the Plan
Administrator. The Plan Administrator may take such other action or require
such other action or agreement by an Optionee as may from time to time be
necessary to comply with appropriate federal and state securities laws. This
provision shall in no way obligate the Corporation to undertake the registration
of the Options or shares of Common Stock issuable upon exercise thereof.
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(2) Issue, transfer or delivery of certificates of Common Stock
pursuant to the exercise of Options may be delayed, at the discretion of the
Plan Administrator, until the Plan Administrator is satisfied that the
applicable requirements of the federal and state securities laws and the
withholding provisions of the Code have been met.
k. Mandatory Exercise
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If the Corporation files a registration statement under the Securities Act
of 1933, as amended with respect to the Corporation's Common Stock, the Plan
Administrator may require the holders of any outstanding Options to exercise any
portion of or all of the Options held by them within thirty (30) days after the
receipt by such Option holders of notice from the Corporation. Any outstanding
Options required to be exercised by the Corporation pursuant to this subsection
and not exercised within said thirty day period shall terminate.
l. Stock Dividend, Reorganization or Liquidation
---------------------------------------------
Until the Optionee becomes a record holder of the shares of Common Stock
covered by each outstanding Option, the number of such shares and the Option
price per share thereof shall be proportionately adjusted for an increase or
decrease in the number of issued shares of the Corporation resulting from a
subdivision or consolidation of shares, payment of a stock dividend, or any
other increase or decrease in the number of shares effected by the Corporation
without receipt of or for a nominal consideration, and to the extent that such
action shall include an increase or decrease in the number of shares of Common
Stock subject to outstanding Options. The number of shares available under
Section 4 of this Plan shall automatically be increased or decreased, as the
case may be, proportionately, without further action on the part of the Plan
Administrator, the Corporation or the Corporation's shareholders.
If the presently authorized capital stock of the Corporation is changed
into the same number of shares with a different par value, the stock resulting
from any such change shall be deemed to be Common Stock within the meaning of
the Plan, and each
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Option shall apply to the same number of shares of such new stock as it applied
to old shares immediately prior to such change.
If the Corporation is the surviving or resulting corporation in any
"reorganization," as that term is defined in Section 368 of the Code, each
outstanding Option shall apply to such securities of the Corporation after the
reorganization as a holder of the number of shares of Common Stock subject to
the Option would be entitled under the terms of the reorganization. If, pursuant
to the terms of any reorganization in which the Corporation is not the surviving
or resulting corporation, Options granted hereunder are assumed by the surviving
or resulting corporation, each Option shall continue in full force and effect,
and shall apply to the same number and class of securities of the surviving
corporation as a holder of the number of shares of Common Stock subject to the
Option would be entitled under the terms of the reorganization. Should any such
surviving or resulting corporation assume Options granted hereunder, the type
and terms of securities of the surviving of resulting corporation to which
Options would then be deemed to apply shall be fixed solely by the terms of any
applicable reorganization agreement, and holders of Options shall have no rights
whatsoever concerning the type and terms of the substituted securities to which
Options would then apply. In particular, holders of Options shall have no
rights as to the setting of distribution, payment, expiration or maturity dates
of any preferred stock, certificates of contingent interest, bonds, debentures,
warrants rights, Options or other securities of any surviving or resulting
corporation, with respect to the date or dates of exercise of such Options; but
any such distribution, payment, expiration or maturity date shall be determined
solely by the terms of any such reorganization agreement.
If the Corporation is liquidated or dissolved, or if there is a
reorganization in which the corporation is not the surviving or resulting
corporation and the Options granted hereunder are not assumed by the surviving
or resulting corporation, the Plan Administrator, in its sole discretion may
allow the holders of any outstanding Options to exercise all or any part of the
unvested portion of the Options held by them; provided, however, that such
Options are exercised prior to the effective date of the liquidation or
dissolution or reorganization. If the Option
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holders do not exercise their Options prior to such effective date, or if the
Corporation does not allow the Option holders to exercise the unvested portion
of such Options, each outstanding Option shall terminate as of the effective
date of the liquidation or dissolution or reorganization.
In lieu of assuming any Option, any resulting or surviving corporation may
substitute new options for Options, as contemplated by (S) 424 of the Code, and
in such event each outstanding Option shall terminate as of the date of
effectiveness of the corresponding substitute option. In the event of
reorganization, surviving Options or substitute options shall have the same
vesting dates as the corresponding Incentive Stock Options granted hereunder.
The foregoing adjustments in the shares subject to Options shall be made by
the Plan Administrator, or by any successor administrator of the Plan, or by the
applicable terms of any assumption or substitution document, any adjustments so
made shall be final, binding and conclusive.
Except as provided in this Section 5(1), no Optionee shall have rights by
reason of any subdivision or consolidation of shares of Common Stock of any
class including shares of Common Stock, or the payment of any Common Stock
dividend on shares of Common Stock or any other increase or decrease in the
number of shares of Common Stock, or by reason of any liquidation, dissolution,
corporate combination or division; and any issue by the Corporation of shares of
Common Stock of any class including shares of Common Stock, or securities
convertible into shares of Common Stock of any class including shares of Common
Stock shall not affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to any Option.
The grant of an Option shall not affect in any way the right or power of
the Corporation to make adjustments, reclassification, reorganizations or
changes in its capital or business structure, or to merge, consolidate, dissolve
or liquidate, or to sell or transfer all or any part of its business or assets.
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6. TERM OF PLAN
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Options may be granted pursuant to this Plan from time to time until
December 31, 2005.
7. NO OBLIGATION TO EXERCISE STOCK OPTIONS
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The granting of an Option shall impose no obligation upon the Optionees to
exercise such Option.
8. NO RIGHT TO OPTIONS OR EMPLOYMENT
---------------------------------
The decision as to whether to grant or to whom to grant any Options to be
granted hereunder shall be exclusively within the discretion of the Plan
Administrator, and nothing contained herein shall be construed as giving any
Employee any right to participate hereunder. The granting of an Option hereunder
shall in no way constitute any form of agreement or understanding binding on the
corporation, express or implied, that the Corporation will employ an Optionee
for any length of time.
9. APPLICATION OF FUNDS
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The proceeds received by the Corporation from the sale of Stock, pursuant
to Options granted hereunder, will be used for general corporate purposes.
10. INDEMNIFICATION OF PLAN ADMINISTRATOR
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In addition to all other rights of indemnification they may have as
directors of the Corporation or as members of the Committee, members of the
Board and of the Plan Administrator shall be indemnified by the Corporation for
all reasonable expenses and liabilities of any type and nature, including
attorneys' fees, incurred in connection with any action, suit or proceeding to
which they or any of them are a party by reason of, or in connection with, any
Option granted hereunder; and against all amounts paid by them in settlement
thereof (if such settlement be approved by the independent legal counsel
selected by the Corporation), except to the extent that such expenses relate to
matters for which it be adjudged such Plan Administrator members are liable for
willful misconduct; provided
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that within fifteen (15) days after institution of any such action, suit or
proceeding the Plan Administrator member(s) involved therein shall, in writing,
notify the Corporation thereof, so that the Corporation may have the opportunity
to make appropriate arrangements to prosecute or defend the same.
11. AMENDMENT OF PLAN
-----------------
The Plan Administrator may, at any time, modify or amend this Plan and
Options granted hereunder, except that no amendment with respect to an
outstanding Option shall be made over the objection of the Optionee thereof; and
provided further, that any amendment for which shareholder approval is required
by Securities and Exchange commission Rule 16b-3, as amended from time to time,
or any successor rule or regulatory requirements (the "Rule"), in order for the
Plan to be eligible or continue to qualify for the benefits of the Rule shall be
subject to approval of the requisite percentage of the shareholders of the
Corporation in accordance with the Rule. Without limiting the generality of the
foregoing, the Plan Administrator may modify grants to persons who are eligible
to receive Options under this Plan who are foreign nationals or employed outside
the United States to recognize differences in local law, tax policy or custom.
SEATTLE FILMWORKS, INC.
/s/ Case H. Kuehn
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Case H. Kuehn, Vice President, Treasurer
and Chief Financial Officer
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