SEATTLE FILMWORKS, INC.
1999 EMPLOYEE STOCK OPTION PLAN
1. PURPOSES
1.1 The purpose of the Seattle Filmworks, Inc. 1999 Employee Stock Option
Plan (the "Plan") is to enhance the long-term shareholder value of Seattle
Filmworks, Inc., a Washington corporation (the "Company"), by offering
opportunities to employees, persons to whom offers of employment have been
extended, consultants, agents, advisors and independent contractors of the
Company and its Subsidiaries (as defined in Section 2) to participate in the
Company's growth and success, and to encourage them to remain in the service of
the Company and its Subsidiaries and to acquire and maintain stock ownership in
the Company.
2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below:
2.1 Acquired Entities.
"Acquired Entities" has the meaning given in Section 6.
2.2 Acquisition Transaction.
"Acquisition Transaction" has the meaning given in Section 6.
2.3 Board.
"Board" means the Board of Directors of the Company.
2.4 Cause.
"Cause" means dishonesty, fraud, misconduct, disclosure of confidential
information, conviction of, or a plea of guilty or no contest to, a felony under
the laws of the United States or any state thereof, habitual absence from work
for reasons other than illness, intentional conduct which causes significant
injury to the Company, habitual abuse of alcohol or a controlled substance, in
each case as determined by the Plan Administrator, and its determination shall
be conclusive and binding.
2.5 Change in Control.
"Change in Control" means (i) the consummation of a merger or consolidation
of the Company with or into another entity or any other corporate
reorganization, if more than 50% of the combined voting power of the continuing
or surviving entity's securities outstanding immediately after such merger,
consolidation or other reorganization is owned by persons who were not
shareholders of the Company immediately prior to such merger, consolidation or
other reorganization or (ii) the sale, transfer or other disposition of all or
substantially all of the Company's assets. A transaction shall not constitute a
Change in Control if its sole purpose is to change the state of the Company's
incorporation or to create a holding company that will be owned in substantially
the same proportions by the persons who held the Company's securities
immediately before such transaction.
2.6 Common Stock.
"Common Stock" means the common stock, par value $.01, of the Company.
2.7 Disability.
"Disability" means a medically determinable mental or physical impairment
or condition of the Holder which is expected to result in death or which has
lasted or is expected to last for a continuous period of 12 months or more and
which causes the Holder to be unable, in the opinion of the Plan Administrator
on the basis of evidence acceptable to it, to perform his or her duties for the
Company. Upon making a determination of Disability, the Plan Administrator
shall, for purposes of the Plan, determine the date of the Holder's termination
of employment, service or contractual relationship.
2.8 Exchange Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.9 Fair Market Value.
"Fair Market Value" shall be as established in good faith by the Plan
Administrator or (a) if the Common Stock is listed on the Nasdaq National
Market, the closing sales price for the Common Stock as reported by the Nasdaq
National Market for a single trading day or (b) if the Common Stock is listed on
the New York Stock Exchange or the American Stock Exchange, the closing sales
price for the Common Stock as such price is officially quoted in the composite
tape of transactions on such exchange for a single trading day. If there is no
such reported price for the Common Stock for the date in question, then such
price on the last preceding date for which such price exists shall be
determinative of Fair Market Value.
2.10 Grant Date.
"Grant Date" means the date the Plan Administrator adopted the granting
resolution or a later date designated in a resolution of the Plan Administrator
as the date an Option is to be granted.
2.11 Holder.
"Holder" means the Participant to whom an Option is granted or the personal
representative of a Holder who has died.
2.12 Option.
"Option" means the right to purchase Common Stock granted under Section 7.
Options granted under the Plan are not intended to be "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended from time to time.
2.13 Option Shares.
"Option Shares" means the shares of Common Stock issuable upon a Holder's
exercise of an Option granted under the Plan.
2.14 Participant.
"Participant" means an individual who is a Holder of an Option or, as the
context may require, any employee, consultant, agent, advisor or independent
contractor of the Company or a Subsidiary who has been designated by the Plan
Administrator, subject to the limitations in Section 5, as eligible to
participate in the Plan.
2.15 Plan Administrator.
"Plan Administrator" means the Board or any committee designated to
administer the Plan under Section 3.1.
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2.16 Securities Act.
"Securities Act" means the Securities Act of 1933, as amended.
2.17 Subsidiary.
"Subsidiary," except as expressly provided otherwise, means any entity that
is directly or indirectly controlled by the Company or in which the Company has
a significant ownership interest, as determined by the Plan Administrator, and
any entity that may become a direct or indirect parent of the Company.
3. ADMINISTRATION
3.1 Plan Administrator.
The Plan shall be administered by the Board or a committee or committees
(which term includes subcommittees) appointed by, and consisting of two or more
members of, the Board. Any such committee shall have the powers and authority
vested in the Board hereunder (including the power and authority to interpret
any provision of the Plan or of any Option). The Board, or any committee thereof
appointed to administer the Plan, is referred to herein as the "Plan
Administrator." The Board or Plan Administrator may delegate the responsibility
for administering the Plan with respect to designated classes of eligible
Participants to one or more senior executive officers or committees thereof, the
members of which need not be members of the Board, subject to such limitations
as the Board deems appropriate. Committee members shall serve for such term as
the Board may determine, subject to removal by the Board at any time.
3.2 Administration and Interpretation by the Plan Administrator.
Except for the terms, conditions and limitations explicitly set forth in
the Plan, the Plan Administrator shall have exclusive authority, in its absolute
discretion, to determine all matters relating to Options under the Plan,
including the selection of individuals to be granted Options, the number of
shares of Common Stock subject to an Option, all terms, conditions, restrictions
and limitations, if any, of an Option and the terms of any instrument that
evidences the Option. The Plan Administrator shall also have exclusive authority
to interpret the Plan and may from time to time adopt, change and rescind rules
and regulations of general application for the Plan's administration. This
authority shall include the sole authority to correct any defect, supply any
omission or reconcile any inconsistency in this Plan and make all other
determinations necessary or advisable for the administration of the Plan and do
everything necessary or appropriate to administer the Plan. The Plan
Administrator's interpretation of the Plan and its rules and regulations, and
all actions taken and determinations made by the Plan Administrator pursuant to
the Plan, shall be conclusive and binding on all parties involved or affected.
The Plan Administrator may delegate administrative duties to such of the
Company's officers as it so determines.
4. STOCK SUBJECT TO THE PLAN
4.1 Authorized Number of Shares.
Subject to adjustment from time to time as provided in Section 9.1, a
maximum of 800,000 shares of Common Stock shall be available for issuance under
the Plan. Shares issued under the Plan shall be drawn from authorized and
unissued shares.
4.2 Reuse of Shares.
Any shares of Common Stock that have been made subject to an Option that
cease to be subject to the Option (other than by reason of exercise or payment
of the Option) shall again be available for issuance in connection with future
grants of Options under the Plan. Also, upon a stock-for-stock exercise only the
net number of shares will be deemed to have been used under this Plan.
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5. ELIGIBILITY
Options may be granted under the Plan to those employees, consultants,
agents, advisors and independent contractors who provide services to the Company
and its Subsidiaries as the Plan Administrator from time to time selects;
provided that no individual who is an officer or director of the Company may be
granted Options under the Plan.
6. ACQUIRED COMPANY OPTIONS
Notwithstanding anything in the Plan to the contrary, but subject to the
limitations in Section 5, the Plan Administrator may grant Options under the
Plan in substitution for awards issued under other plans, or assume under the
Plan options issued under other plans, if the other plans are or were plans of
other acquired entities ("Acquired Entities") (or the parent of the Acquired
Entity) and the new Option is substituted, or the old Option is assumed, by
reason of a merger, consolidation, acquisition of property or of stock,
reorganization or liquidation (an "Acquisition Transaction"). Such Options shall
not reduce the number of shares of Common Stock available for issuance pursuant
to this Plan. If a written agreement pursuant to which an Acquisition
Transaction is completed is approved by the Board and said agreement sets forth
the terms and conditions of the substitution for or assumption of outstanding
awards of the Acquired Entity, said terms and conditions shall be deemed to be
the action of the Plan Administrator without any further action by the Plan
Administrator, except as may be required for compliance with Rule 16b-3 under
the Exchange Act, and the persons holding such Options shall be deemed to be
Participants and Holders.
7. STOCK OPTIONS
7.1 Grant of Options.
The Plan Administrator is authorized under the Plan, in its sole
discretion, to grant Options to those individuals who meet the eligibility
requirements in Section 5.
7.2 Option Exercise Price.
The exercise price for shares purchased under an Option shall be as
determined by the Plan Administrator, but shall not be less than 100% of the
Fair Market Value of the Common Stock on the Grant Date.
7.3 Term of Options.
The term of each Option shall be as established by the Plan Administrator
or, if not so established, shall be five (5) years from the Grant Date.
7.4 Exercise of Options.
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option the time at which or the installments in which the
Option shall become exercisable. If not so established in the instrument
evidencing the Option or otherwise set at the time of grant, the Option will be
subject to the following: (a) 25% of the Option shall vest and become
exercisable one year after the Grant date and the balance of the Option shall
vest and become exercisable in a series of twelve (12) successive quarterly
installments for each additional quarter thereafter; and (b) in no event shall
any additional Option Shares vest after termination of Holder's employment by or
service to the Company.
To the extent that the right to purchase shares has accrued thereunder, an
Option may be exercised from time to time by written notice to the Company, in
accordance with procedures established by the Plan Administrator, setting forth
the number of shares with respect to which the Option is being exercised and
accompanied by payment in full as described in Section 7.5. An Option may not be
exercised as to less than 100 shares at any one time (or the lesser number of
remaining shares covered by the Option).
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7.5 Payment of Exercise Price.
The exercise price for shares purchased under an Option shall be paid in
full to the Company by delivery of consideration equal to the product of the
Option exercise price and the number of shares purchased. Such consideration
must be paid in cash or check (unless, at the time of exercise, the Plan
Administrator determines not to accept a personal check), except that the Plan
Administrator, in its sole discretion, may, either at the time the Option is
granted or at any time before it is exercised and subject to such limitations as
the Plan Administrator may determine, authorize payment in cash and/or one or
more of the following alternative forms: (a) tendering (either actually or, if
and so long as the Common Stock is registered under Section 12(b) or 12(g) of
the Exchange Act, by attestation) Common Stock already owned by the Holder for
at least six months (or any shorter period necessary to avoid a charge to the
Company's earnings for financial reporting purposes) having a Fair Market Value
on the day prior to the exercise date equal to the aggregate Option exercise
price; (b) if and so long as the Common Stock is registered under Section 12(b)
or 12(g) of the Exchange Act, delivery of a properly executed exercise notice,
together with irrevocable instructions, to (i) a third party designated by the
Company to deliver promptly to the Company the aggregate amount of sale or loan
proceeds to pay the Option exercise price and (ii) the Company to deliver the
certificates for such purchased shares directly to such third party, all in
accordance with the regulations of the Federal Reserve Board; or (c) such other
consideration as the Plan Administrator may permit.
7.6 Post-Termination Exercises.
In case of termination of the Holder's employment or services other than by
reason of death or Cause, the Option shall be exercisable, to the extent of the
number of shares purchasable by the Holder at the date of such termination, only
(a) within one year if the termination of the Holder's employment or services
are coincident with Disability or (b) within three months after the date the
Holder ceases to be an employee, consultant, agent, advisor or independent
contractor of the Company or a Subsidiary if termination of the Holder's
employment or services is for any reason other than death or Disability, but in
no event later than the remaining term of the Option. Any Option exercisable at
the time of the Holder's death may be exercised, to the extent of the number of
shares purchasable by the Holder at the date of the Holder's death, by the
personal representative of the Holder's estate entitled thereto at any time or
from time to time within one year after the date of death, but in no event later
than the remaining term of the Option. In case of termination of the Holder's
employment or services for Cause, the Option shall automatically terminate upon
first discovery by the Company of any reason for such termination and the Holder
shall have no right to purchase any Shares pursuant to such Option, unless the
Plan Administrator determines otherwise. If a Holder's employment or services
with the Company are suspended pending an investigation of whether the Holder
shall be terminated for Cause, all the Holder's rights under any Option likewise
shall be suspended during the period of investigation.
A transfer of employment or services between or among the Company and its
Subsidiaries shall not be considered a termination of employment or services.
The effect of a Company-approved leave of absence or short-term break in service
on the terms and conditions of an Option shall be determined by the Plan
Administrator, in its sole discretion.
8. ASSIGNABILITY
Except as otherwise specified or approved by the Plan Administrator at the
time of grant or any time prior to its exercise, no Option granted under the
Plan may be assigned, pledged or transferred by the Holder other than by will or
by the laws of descent and distribution, and during the Holder's lifetime, such
Options may be exercised only by the Holder. Notwithstanding the foregoing, the
Plan Administrator, in its sole discretion, may permit such assignment, transfer
and exercisability and may permit a Holder of such Option to designate a
beneficiary who may exercise the Option or receive compensation under the Option
after the Holder's death; provided, however, that (i) any Option so assigned or
transferred shall be subject to all the same terms and conditions contained in
the instrument evidencing the Option, (ii) the original Holder shall remain
subject to withholding taxes upon exercise, (iii) any subsequent transfer of an
Option shall be prohibited and (iv) the events of termination of employment or
contractual relationship set forth in subsection 7.6 shall continue to apply
with respect to the original transferor-Holder.
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9. ADJUSTMENTS
9.1 Adjustment of Shares.
In the event that, at any time or from time to time, a stock dividend,
stock split, spin-off, combination or exchange of shares, recapitalization,
merger, consolidation, distribution to shareholders other than a normal cash
dividend, or other change in the Company's corporate or capital structure
results in (a) the outstanding shares, or any securities exchanged therefor or
received in their place, being exchanged for a different number or class of
securities of the Company or of any other corporation or (b) new, different or
additional securities of the Company or of any other corporation being received
by the holders of shares of Common Stock of the Company, then the Plan
Administrator, in its sole discretion, shall make such equitable adjustments as
it shall deem appropriate in the circumstances in the maximum number and class
of securities subject to the Plan as set forth in Section 4.1 and the number and
class of securities that are subject to any outstanding Option and the per share
price of such securities, without any change in the aggregate price to be paid
therefor. The determination by the Plan Administrator as to the terms of any of
the foregoing adjustments shall be conclusive and binding.
9.2 Dissolution, Liquidation or Change in Control Transactions.
(a) In the event of the proposed dissolution or liquidation of the Company,
the Company shall notify each Holder at least fifteen (15) days prior to such
proposed action. To the extent not previously exercised, all Options will
terminate immediately prior to the consummation of such proposed action.
(b) If, in connection with a Change in Control, an Option does not remain
outstanding, and either such Option is not assumed by the surviving entity or
its parent, or the surviving entity or its parent does not substitute options
with substantially the same terms for such Option, such Option shall, unless the
applicable agreement representing an Option provides otherwise, or unless the
Plan Administrator determines otherwise in its sole and absolute discretion,
become exercisable in full, whether or not the vesting requirements set forth in
the Option Agreement have been satisfied, for a period prior to the effective
date of such Change in Control of a duration specified by the Plan
Administrator, and thereafter the Option shall terminate.
(c) Notwithstanding Subsection (b) above, if the Company and the other
party to the transaction constituting a Change in Control agree that such
transaction is to be treated as a "pooling of interests" for financial reporting
purposes, and if the Company's independent public accountants and such other
party's independent public accountants separately determine in good faith that
the transaction constituting a Change in Control would qualify for treatment of
as a "pooling of interests" but for the acceleration of vesting provided for in
Subsection (b) above, then the acceleration of exercisability shall not occur to
the extent that the Company's independent public accountants and such other
party's independent public accountants separately determine in good faith that
such acceleration would preclude the use of "pooling of interests" accounting
for such transaction.
9.3 Further Adjustment of Options.
Subject to the preceding Section 9.2, the Plan Administrator shall have the
discretion, exercisable at any time before a sale, merger, consolidation,
reorganization, dissolution, liquidation or Change in Control of the Company, as
defined by the Plan Administrator, to take such further action as it determines
to be necessary or advisable, and fair and equitable to Participants, with
respect to Options. Such authorized action may include (but shall not be limited
to) establishing, amending or waiving the type, terms, conditions or duration
of, or restrictions on, Options so as to provide for earlier, later, extended or
additional time for exercise, payment or settlement and other modifications, and
the Plan Administrator may take such actions with respect to all Participants,
to certain categories of Participants or only to individual Participants. The
Plan Administrator may take such actions before or after granting Options to
which the action relates and before or after any public announcement with
respect to such sale, merger, consolidation, reorganization, dissolution,
liquidation or Change in Control that is the reason for such action. Without
limiting the generality of the foregoing, if the Company is a party to a merger
or consolidation, outstanding Options shall be subject to the agreement of
merger or consolidation. Such agreement, without the Holder's consent, may
provide for:
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(a) the continuation of such outstanding Option by the Company (if the
Company is the surviving corporation);
(b) the assumption of the Plan and some or all outstanding Options by
the surviving corporation or its parent;
(c) the substitution by the surviving corporation or its parent of
Options with substantially the same terms for such outstanding Options; or
(d) the cancellation of such outstanding Options with or without
payment of any consideration.
9.4 Limitations.
The grant of Options will in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
9.5 Fractional Shares.
In the event of any adjustment in the number of shares covered by any
Option, any fractional shares resulting from such adjustment shall be
disregarded and each such Option shall cover only the number of full shares
resulting from such adjustment.
10. WITHHOLDING
The Company may require the Holder to pay to the Company the amount of any
withholding taxes that the Company is required to withhold with respect to the
grant, exercise, payment or settlement of any Option. In such instances, the
Plan Administrator may, in its discretion and subject to the Plan and applicable
law, permit the Holder to satisfy withholding obligations, in whole or in part,
by paying cash. The Company may deduct from any Option any other amounts due
from the Participant to the Company or a Subsidiary.
11. AMENDMENT AND TERMINATION OF PLAN
11.1 Amendment of Plan.
The Plan may be amended by the Board in such respects as it shall deem
advisable including, without limitation, such modifications or amendments as are
necessary to maintain compliance with applicable statutes, rules or regulations.
The Board may condition the effectiveness of any amendment on the receipt of
shareholder approval at such time and in such manner as the Board may consider
necessary for the Company to comply with or to avail the Company, the Holders or
both of the benefits of any securities, tax, market listing or other
administrative or regulatory requirement which the Board determines to be
desirable. Whenever shareholder approval is sought, and unless required
otherwise by applicable law or exchange requirements, the proposed action shall
require the affirmative vote of holders of a majority of the shares present,
entitled to vote and voting on the matter without including abstentions or
broker non-votes in the denominator.
11.2 Termination Of Plan.
The Company's shareholders or the Board may suspend or terminate the Plan
at any time. The Plan will have no fixed expiration date.
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12. GENERAL
12.1 Option Agreements.
Options granted under the Plan shall be evidenced by a written agreement
which shall contain such terms, conditions, limitations and restrictions as the
Plan Administrator shall deem advisable and which are not inconsistent with the
Plan.
12.2 Continued Employment or Services; Rights In Options.
None of the Plan, participation in the Plan as a Participant or any action
of the Plan Administrator taken under the Plan shall be construed as giving any
Participant or employee of the Company any right to be retained in the employ of
the Company or limit the Company's right to terminate the employment or services
of the Participant.
12.3 Registration; Certificates For Shares.
The Company shall be under no obligation to any Participant to register for
offering or resale or to qualify for exemption under the Securities Act, or to
register or qualify under state securities laws, any shares of Common Stock,
security or interest in a security paid or issued under, or created by, the
Plan, or to continue in effect any such registrations or qualifications if made.
The Company may issue certificates for shares with such legends and subject to
such restrictions on transfer and stop-transfer instructions as counsel for the
Company deems necessary or desirable for compliance by the Company with federal
and state securities laws.
Inability of the Company to obtain, from any regulatory body having
jurisdiction, the authority deemed by the Company's counsel to be necessary for
the lawful issuance and sale of any shares hereunder or the unavailability of an
exemption from registration for the issuance and sale of any shares hereunder
shall relieve the Company of any liability in respect of the nonissuance or sale
of such shares as to which such requisite authority shall not have been
obtained.
12.4 No Rights As A Shareholder.
No Option shall entitle the Holder to any cash dividend, voting or other
right of a shareholder unless and until the date of issuance under the Plan of
the shares that are the subject of such Option, free of all applicable
restrictions.
12.5 No Trust Or Fund.
The Plan is intended to constitute an "unfunded" plan. Nothing contained
herein shall require the Company to segregate any monies or other property, or
shares of Common Stock, or to create any trusts, or to make any special deposits
for any immediate or deferred amounts payable to any Participant, and no
Participant shall have any rights that are greater than those of a general
unsecured creditor of the Company.
12.6 Severability.
If any provision of the Plan or any Option is determined to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person, or would
disqualify the Plan or any Option under any law deemed applicable by the Plan
Administrator, such provision shall be construed or deemed amended to conform to
applicable laws, or, if it cannot be so construed or deemed amended without, in
the Plan Administrator's determination, materially altering the intent of the
Plan or the Option, such provision shall be stricken as to such jurisdiction,
person or Option, and the remainder of the Plan and any such Option shall remain
in full force and effect.
13. EFFECTIVE DATE
The Plan's effective date is the date on which it is adopted by the Board.
Original Plan adopted by the Board on October 20, 1999.
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PLAN ADOPTION AND AMENDMENTS/ADJUSTMENTS
Date of
Adoption/
Amendment/
Adjustment Section Effect of Amendment
- ---------- ------- -------------------
Adoption by Board -- -- ________, _____
on October 20, 1999