Exhibit 4.5
PHOTOWORKS, INC.
[FORM] QUALIFIED STOCK OPTION AGREEMENT
THIS NONQUALIFIED STOCK OPTION AGREEMENT (the "Agreement") is made and
entered into as of November 1, 2000 (the "Grant Date") between PhotoWorks, Inc.,
a Washington corporation (the "Company") and Howard Lee ("Holder").
THE PARTIES AGREE AS FOLLOWS:
1. Grant of Option; Grant Date. The Company hereby grants to Holder, the
right (the "Option") to purchase up to 500,000 shares of the Company's Common
Stock (the "Option Shares") at a price per share of $2.375 (the "Exercise
Price"), on the terms and conditions set forth in this Agreement. This Option is
not intended to qualify as an incentive stock option for purposes of Section 422
of the Internal Revenue Code of 1986, as amended. The number and kind of Option
Shares and the Exercise Price may be adjusted in certain circumstances in
accordance with the provisions of Section 5 below.
2. Definitions. For purposes of this Agreement, the following terms shall
be defined as set forth below:
2.1 Board. "Board" means the Board of Directors of the Company.
2.2 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 Board,
and its determination shall be conclusive and binding.
2.3 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.
2.4 Common Stock. "Common Stock" means the common stock, par value
$.01, of the Company.
2.5 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 twelve (12) months or more and which causes the Holder to be unable, in
the opinion of the Board on the basis of evidence acceptable to it, to
perform his or her duties for the Company.
2.6 Fair Market Value. "Fair Market Value" shall be as established in
good faith by the Board 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.
2.7 Securities Act. "Securities Act" means the Securities Act of 1933,
as amended.
2.8 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 Board, and any entity that may become a direct or indirect parent of
the Company.
3. Termination of Option. This Option shall terminate, to the extent not
previously exercised, upon the occurrence of the first of the following events:
(a) five years from the date of grant;
(b) the expiration of three months from the date Holder ceases to be an
employee, director, officer, consultant, agent, advisor or independent
contractor of the Company or a Subsidiary, for any reason other than death or
Disability;
(c) the expiration of one year from (i) the date of Holder's death; or (ii)
Holder's termination of employment by or service to the Company coincident with
Disability; or
(d) immediately upon Holder's termination of employment by or service to
the Company for Cause.
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4. Exercise of Option.
4.1 Exercise Schedule. This Option shall vest and become exercisable
with respect to 25% of the Option Shares on the one-year anniversary of the
Grant Date and with respect to the remaining Option Shares in a series of
twelve (12) successive equal quarterly installments following the one-year
anniversary of the Grant Date such that the Option shall be fully vested on
the fourth anniversary of the Grant Date. In no event shall the Option
continue to vest after Holder's termination of employment by or service to
the Company. The unvested portion of the Option, if any, shall terminate
immediately upon the Holder's termination of employment by or service to
the Company for any reason whatsoever. The vesting schedule for this Option
is subject to acceleration in accordance with the provisions of Section 5.2
below.
4.2 Manner of Exercise. Holder may exercise this Option by: (i) the
surrender of this Option Agreement to the Secretary of the Company at the
principal office of the Company, accompanied by an executed notice of
exercise in the form attached hereto as Exhibit 4.2 (or at the option of
the Company such other form of stock purchase agreement as shall then be
acceptable to the Company), (ii) paying in full the Exercise Price in the
manner provided in Section 4.3 below and (iii) paying his share of any
applicable withholding or employment taxes. This Option may not be
exercised as to less than 100 Shares at any one time (or the lesser number
of remaining shares covered by this Option). The date the Company receives
each of the above items will be considered the date this Option was
exercised.
4.3 Payment of the Exercise Price. The Exercise Price for Shares
purchased under this Option shall be paid in full to the Company by
delivery of consideration equal to the product of the Exercise Price and
the number of Shares purchased. Such consideration must be paid in cash or
check, except that the Board of Directors, in its sole discretion, may,
authorize payment in 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) delivery of a full-recourse promissory note in a form
satisfactory to the Board of Directors, evidencing a loan made by the
Company in its sole discretion, together with any other form of security
determined to be necessary by the Board of Directors; (c) 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 any withholding tax
obligations that may arise in connection with the exercise 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 (d) such other consideration as the Board of Directors
may permit. The proceeds of any payment shall constitute general funds of
the Company.
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4.4 Nonassignability of Option. This Option may not 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 this
Option may be exercised only by the Holder. Any attempt to assign, pledge,
transfer, hypothecate or otherwise dispose of this Option and any levy of
execution, attachment, or similar process on this Option, shall be null and
void.
5. Adjustments.
5.1 Adjustments 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 Board, in its
sole discretion, shall make such equitable adjustments as it shall deem
appropriate in the circumstances in the number and class of securities that
are subject to this Option and the per share price of such securities,
without any change in the aggregate price to be paid therefor. The
determination by Board as to the terms of any of the foregoing adjustments
shall be conclusive and binding.
5.2 Dissolution, Liquidation or Change in Control Transactions.
(a) In the event of the proposed dissolution or liquidation of the
Company, the Company shall notify the Holder at least fifteen (15) days
prior to such proposed action. To the extent not previously exercised, this
Option will terminate immediately prior to the consummation of such
proposed action.
(b) If, in connection with a Change in Control, this Option does not
remain outstanding and either this Option is not assumed by the surviving
entity or its parent, or the surviving entity or its parent does not
substitute an option with substantially the same terms for this Option,
this Option shall, unless the Board determines otherwise in its sole and
absolute discretion, become exercisable in full, whether or not the vesting
requirements set forth in this Option Agreement have been satisfied, for a
period prior to the effective date of such Change in Control of a duration
specified by the Board, and thereafter this Option shall terminate.
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(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 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.
5.3 Further Adjustment of Awards.
Subject to the preceding Section 5.2, the Board shall have the
discretion, exercisable at any time before a sale, merger, consolidation,
reorganization, dissolution, liquidation or Change in Control of the
Company to take such further action as it determines to be necessary or
advisable, and fair and equitable to Holder, with respect to this Option.
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, this Option so as to provide for earlier, later,
extended or additional time for exercise, payment or settlement or lifting
restrictions, differing methods for calculating payments or settlements,
alternate forms and amounts of payments and settlements and other
modifications.
5.4 Fractional Shares.
In the event of any adjustment in the number of shares covered by this
Option, any fractional shares resulting from such adjustment shall be
disregarded and this Option shall cover only the number of full shares
resulting from such adjustment.
6. Withholding Taxes
The Company may require the Holder to pay to the Company in cash the amount
of any withholding taxes that the Company is required to withhold with respect
to the exercise of this Option The Company shall have the right to withhold from
any shares of Common Stock issuable pursuant to this Option, an amount equal to
such taxes. The Company may also deduct from this Option any other amounts due
from the Holder to the Company or a Subsidiary.
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7. Restriction on Issuance of Shares.
7.1 Legality of Issuance. The Company shall not be obligated to sell
or issue any Option Shares pursuant to this Agreement if such sale or
issuance, in the judgment of the Company and the Company's counsel, might
constitute a violation by the Company of any provision of law, including
without limitation the provisions of the Securities Act.
7.2 Registration or Qualification of Securities. The Company shall be
under no obligation 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 Option Shares issued upon the exercise of this
Option 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.
8. Restriction on Transfer. Regardless of whether a sale of the Option
Shares has been registered under the Securities Act or has been registered or
qualified under the securities laws of any state, the Company may impose
restrictions upon the sale, pledge, or other transfer of Option Shares
(including the placement of appropriate legends on stock certificates) if, in
the judgment of the Company and the Company's counsel, such restrictions are
necessary or desirable in order to achieve compliance with the provisions of the
Securities Act, the securities laws of any state, or any other law, or if the
Company does not desire to have a trading market develop for its securities.
9. No Rights As A Shareholder.
This Option shall not entitle the Holder to any cash dividend, voting or
other right of a shareholder unless and until the date of issuance of the shares
that are the subject of this Option.
10. Professional Advice. The acceptance and exercise of the Option and the
sale of Option Shares has consequences under federal and state tax and
securities laws which may vary depending upon the individual circumstances of
the Holder. Accordingly, Holder acknowledges that he has been advised to consult
his personal legal and tax advisor in connection with this Agreement and his
dealings with respect to the Option and the Option Shares. Holder further
acknowledges that the Company has made no warranties or representations to
Holder with respect to the income tax consequences of the grant and exercise of
this Option or the sale of the Option Shares and Holder is in no manner relying
on the Company or its representatives for an assessment of such consequences.
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11. Assignment; Binding Effect. Subject to the limitations set forth in
this Agreement, this Agreement shall be binding upon and inure to the benefit of
the executors, administrators, heirs, legal representatives, and successors of
the parties hereto; provided, however, that Holder may not assign any of
Holder's rights under this Agreement.
12. Damages. Holder shall be liable to the Company for all costs and
damages, including incidental and consequential damages, resulting from a
disposition of Option Shares which is not in conformity with the provisions of
this Agreement.
13. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Washington excluding those laws that
direct the application of the laws of another jurisdiction.
14. Notices. All notices and other communications under this Agreement
shall be in writing. Unless and until Holder is notified in writing to the
contrary, all notices, communications, and documents directed to the Company and
related to the Agreement, if not delivered by hand, shall be mailed, addressed
as follows:
PhotoWorks, Inc.
1260 - 16th Avenue West
Seattle, Washington 98119
c/o Corporate Secretary
Unless and until the Company is notified in writing to the contrary, all
notices, communications, and documents intended for Holder and related to this
Agreement, if not delivered by hand, shall be mailed to Holder's last known
address as shown on the Company's books. Notices and communications shall be
mailed by first class mail, postage prepaid; documents shall be mailed by
registered mail, return receipt requested, postage prepaid. All mailings and
deliveries related to this Agreement shall be deemed received when actually
received, if by hand delivery, and two (2) business days after mailing, if by
mail.
15. Arbitration. Any and all disputes or controversies arising out of this
Agreement shall be finally settled by arbitration conducted in Seattle,
Washington, in accordance with the then existing rules of the American
Arbitration Association, and judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof; provided that nothing
in this Section 14 shall prevent a party from applying to a court of competent
jurisdiction to obtain temporary relief pending resolution
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of the dispute through arbitration. The parties hereby agree that service of any
notices in the course of such arbitration at their respective addresses as
provided for in Section 13 shall be valid and sufficient.
16. Rights of Holder. Neither this Option, the execution of this Agreement
nor the exercise of any portion of this Option shall confer upon Holder any
right to, or guarantee of, continued employment by, or service as a director or
consultant to, the Company, or in any way limit the right of the Company to
terminate Holder's relationship with the Company.
IN WITNESS WHEREOF, the parties have executed this Option Agreement as of
the Effective Date.
PHOTOWORKS, INC.
By: /s/ Gary Christophersen
Title: Chairman
Holder hereby accepts and agrees to be bound by all of the terms and conditions
of this Agreement.
/s/ Howard Lee
Holder
EXHIBIT 4.2
NOTICE OF EXERCISE
(To be signed only upon exercise of Option)
To: PhotoWorks, Inc.
1260 - 16th Avenue West
Seattle, Washington 98119
The undersigned, the holder of an option to purchase shares of common stock
of PhotoWorks, Inc. pursuant to an Option Agreement dated as of __________ __,
____ (the "Option Agreement") hereby irrevocably elects to exercise the purchase
right represented by the Option Agreement for, and to purchase under that Option
Agreement, __________ shares of Common Stock and herewith makes payment of
$_____________ for those shares and payment of $___________ for holder's share
of withholding and employment taxes resulting from such exercise. Holder hereby
confirms the representations, warranties and agreements set forth in the Option
Agreement.
DATED: __________________, ____.
HOLDER:
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