<PAGE>
As filed with the Securities and Exchange Commission on April 11, 1996
Registration No. 33-
------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-8
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
SEATTLE FILMWORKS, INC.
-----------------------
(exact name of issuer as specified in its charter)
Washington 91-0964899
---------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1260 16th Avenue West, Seattle, Washington 98119-3401
- ------------------------------------------ ----------
(address of principal executive offices) (Zip code)
Registrant's telephone number,
including area code: (206) 281-1390
--------------
SEATTLE FILMWORKS, INC. AMENDED AND RESTATED INCENTIVE STOCK OPTION PLAN
------------------------------------------------------------------------
SEATTLE FILMWORKS, INC. AMENDED AND RESTATED 1987 STOCK OPTION PLAN
-------------------------------------------------------------------
(Full title of the Plan)
Gary R. Christophersen
President and Chief Executive Officer
1260 16th Avenue West
Seattle, Washington 98119-3401
-------------------------------------
(206) 281-1390
--------------
(Telephone number, including area code, of agent for service)
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=========================================================================================
Proposed Maximum Proposed
Title of Offering Price Maximum Amount of
Securities Amount to be per Aggregate Registration
to be Registered Registered(1) Share (2) Offering Price (2) Fee (2)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 300,000
without par value shares $18.56 $5,566,718 $1,920
=========================================================================================
</TABLE>
(1) Reflects a 3-for-2 stock split effective March 15, 1996.
(2) The Proposed Maximum Offering Price Per Share, Proposed Maximum Aggregate
Offering Price and the Registration Fee were calculated in accordance with Rule
457(h) under the Securities Act of 1933 based upon (i) outstanding options to
purchase up to 51,349 shares exercisable at an average price of $17.61 per
share, and (ii) 248,651 shares represented by options not currently outstanding
having a deemed exercise price of $18.75 per share, representing the average of
the high and low prices for Seattle FilmWorks, Inc. common stock on April 10,
1996, as quoted by the National Association of Securities Dealers Automated
Quotation National Market System, which was $18.75 per share.
Page 1 of 35 pages
Exhibit Index is located on page II-5.
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Documents by Reference.
The following documents filed or to be filed with the Commission by the
Registrant are incorporated by reference in this registration statement.
(a) The Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 1995 and the Registrant's Quarterly Report on Form 10-Q
for the quarter ended December 30, 1995, filed with the Commission
pursuant to Section 13(a) of the Exchange Act of 1934, as amended (the
"Exchange Act").
(b) All other reports filed by the Registrant pursuant to Section
13(a) or 15(d) of the Exchange Act since the filing of the Form
10-K referred to in (a) above.
(c) The description of the Registrant's Common Stock contained in a
registration statement on Form 8-A filed pursuant to Section 12 of the
Exchange Act.
All documents filed by the Registrant pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date hereof and prior to the termination of
the offering of the common stock pursuant to the Plans described herein shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of filing of such documents.
Item 4. Description of Securities.
Not Applicable
Item 5. Interests of Named Experts and Counsel.
None
Item 6. Indemnification of Directors and Officers.
The Washington Business Corporation Act (Sections 23B.08.500 through 23B.08.600
of the Revised Code of Washington) authorizes a court to award, or a
corporation's Board of Directors to grant, indemnity to directors and officers
in terms sufficiently broad to permit such indemnification under certain
circumstances for liabilities arising under the Securities Act of 1933, as
amended. Article IX of the Registrant's Restated Bylaws provides for such
indemnification of its directors, officers, employees and other agents.
The Washington Business Corporation Act includes a provision (Section 23B.08.320
of the Revised Code of Washington) that permits a corporation to limit a
director's liability to the corporation or its shareholders for monetary damages
for his acts or omissions as a director, except for those acts or omissions
involving intentional misconduct or a knowing violation of law, certain unlawful
distributions or a transaction whereby the director received a personal benefit
to which he was not legally entitled. Article XIV of the Registrant's Restated
Articles of Incorporation contains provisions implementing, to the full extent,
the allowed limitations on a director's liabilities to the Registrant or its
shareholders.
II-1
<PAGE>
Item 7. Exemption from Registration Claimed.
Not Applicable
Item 8. Exhibits.
<TABLE>
<CAPTION>
Exhibit Number Exhibit
- -------------- -------
<S> <C>
5.1 Opinion of Heller, Ehrman, White & McAuliffe
10.1 Seattle FilmWorks, Inc. Incentive Stock Option
Plan, Amended and Restated as of April 1, 1996
10.2 Seattle FilmWorks, Inc. 1987 Stock Option Plan,
Amended and Restated as of April 1, 1996
23.1 Consent of Heller, Ehrman, White & McAuliffe (See
Exhibit 5.1)
23.2 Consent of Ernst & Young LLP, Independent Auditors
24 Power of Attorney (See page II-4 of this
Registration Statement)
</TABLE>
Item 9. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration statement;
and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by the
registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in this
registration statement.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-2
<PAGE>
(3) To remove from registration by means of a post effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934, (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of
the securities Exchange Act of 1934) that is incorporated by reference in
the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-8 and has duly caused
this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Redmond, State of Washington, on
April 10, 1996.
SEATTLE FILMWORKS, INC.
By: /s/ Gary R. Christophersen
--------------------------------------------
Gary R. Christophersen, President and Chief
Executive Officer
Power of Attorney
Each person whose signature appears below constitutes and appoints Gary R.
Christophersen and Case H. Kuehn, or either of them, his true and lawful
attorney-in-fact and agent, with the power of substitution and resubstitution,
for him in his name, place and stead, in any and all capacities, to sign any or
all amendments to this Registration Statement, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact and his agent or his substitutes may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/Gary R. Christophersen President and Chief Executive Officer April 10, 1996
- --------------------------- (Principal Executive Officer)
Gary R. Christophersen
/s/Case H. Kuehn Vice President-Finance and Treasurer April 10, 1996
- --------------------------- (Principal Financial Officer and Principal
Case H. Kuehn Accounting Officer)
/s/Sam Rubinstein Director April 10, 1996
- ---------------------------
Sam Rubinstein
/s/Douglas A. Swerland Director April 10, 1996
- ---------------------------
Douglas A. Swerland
/s/Craig E. Tall Director April 10, 1996
- ---------------------------
Craig E. Tall
/s/Peter H. Van Oppen Director April 10, 1996
- ---------------------------
Peter H. Van Oppen
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit Number Exhibit Sequential Page No.
- -------------- ------- -------------------
<S> <C> <C>
5.1 Opinion of Heller, Ehrman, 7
White & McAuliffe
10.1 Seattle FilmWorks, Inc. 9
Incentive Stock Option Plan,
Amended and Restated as of
April 1, 1996
10.2 Seattle FilmWorks, Inc. 1987 21
Stock Option Plan, Amended
and Restated as of April 1,
1996
23.1 Consent of Heller, Ehrman, 8
White & McAuliffe (See
Exhibit 5.1)
23.2 Consent of Ernst & Young LLP, 35
Independent Auditors
24 Power of Attorney (See page 5
II-4 of this Registration
Statement)
</TABLE>
II-5
<PAGE>
April 10, 1996
Seattle FilmWorks, Inc.
1260 16th Avenue West
Seattle, Washington 98119-3401
Re: Registration Statement on Form S-8
----------------------------------
Ladies and Gentlemen:
This opinion is furnished to Seattle FilmWorks, Inc. (the "Company") in
connection with the filing of a Registration Statement on Form S-8 (the
"Registration Statement") with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, relating to the proposed sale by the Company
of up to 300,000 shares of common stock, without par value (the "Shares"),
issuable by the Company upon the exercise of options (the "Options") granted
pursuant to the Company's 1987 Stock Option Plan and Incentive Stock Option Plan
(the "Plans").
We have based our opinion upon our review of the following records,
documents, instruments and certificates:
a. the Articles of Incorporation of the Company;
b. the Bylaws of the Company;
c. records certified to us by an officer of the Company as constituting
all records of proceedings and of actions of the Board of Directors
and shareholders relating to the adoption of the Plans and the
amendment thereto to increase by 300,000 the number of shares
available for issuance pursuant to the Plans;
d. the Plans; and
e. information provided by the Company's transfer agent as to the number
of shares of Common Stock outstanding as of March 31, 1996.
<PAGE>
Seattle FilmWorks, Inc.
April 10, 1996
Page 2
In connection with this opinion, we have, with your consent, assumed the
authenticity of all records, documents and instruments submitted to us as
originals, the genuineness of all signatures, the legal capacity of natural
persons and the authenticity and conformity to the originals of all records,
documents and instruments submitted to us as copies.
This opinion is limited to the laws of the State of Washington. We
disclaim any opinion as to any statute, rule, regulation, ordinance, order or
other promulgation of any other jurisdiction or any federal, regional or local
governmental body.
Based upon the foregoing and our examination of such questions of law as we
have deemed necessary or appropriate for the purpose of this opinion, and
subject to the assumptions and qualifications expressed herein, it is our
opinion that the reservation for issuance of the Shares upon the exercise of
Options has been duly authorized and upon payment of the purchase price for the
Shares and issuance and delivery of the Shares pursuant to the terms of the
Plans, the Shares will be validly issued, fully paid and non-assessable.
Our opinion is qualified to the extent that in the event of a stock split,
share dividend or other reclassification of the Common Stock effected subsequent
to the date hereof, the number of shares of Common Stock issuable upon the
exercise of Options may be adjusted automatically, as set forth in the terms of
the Plans, such that the number of such shares may exceed the number of
Company's remaining authorized, but unissued shares of Common Stock at the time
the Options are exercised.
We expressly disclaim any obligation to advise you of any developments in
areas covered by this opinion that occur after the date of this opinion.
We hereby authorize and consent to the use of this opinion as Exhibit 5.1
to the Registration Statement.
Very truly yours,
//s// Heller, Erhman, White & McAuliffe
<PAGE>
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
-------
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
--------------
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
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
1
<PAGE>
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 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,
2
<PAGE>
insofar as such provision may be applied to Non-Insiders and Options granted to
Non-Insiders.
3. ELIGIBILITY
-----------
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
-----
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
----------------
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
-------------------------------
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 in its discretion may deem advisable. All Options shall
also comply with the following requirements:
a. Number of Shares
----------------
Each Agreement shall state the number of shares to which it pertains
and whether the Option evidenced thereby is an Incentive
3
<PAGE>
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
-------------
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").
c. Option Price
------------
(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
4
<PAGE>
Code are incorporated herein by this reference and apply for purposes of
calculating the ten percent (10%) voting power limitation.
d. Termination of Employment
-------------------------
(1) Death: If Employee's employment with the Corporation is
-----
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
----------
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
-----------------
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. If
the employment of an Employee who is an officer or director of the corporation
is terminated, voluntarily or involuntarily, for any other reason, such officer
or director shall be entitled to exercise all Options which are vested on the
date of termination for a period of one hundred ninety (190) days 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
5
<PAGE>
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
-------------------
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
6
<PAGE>
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
-------------------------------
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
-----------------------
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
-------------------
Options shall not be transferred by the Optionee other than by will
or the laws of descent and distribution.
7
<PAGE>
j. Securities Regulation
---------------------
(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.
(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
------------------
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
8
<PAGE>
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 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
9
<PAGE>
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 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 Section
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.
6. TERM OF PLAN
------------
Options may be granted pursuant to this Plan from time to time until
December 31, 2005.
10
<PAGE>
7. NO OBLIGATION TO EXERCISE STOCK OPTIONS
---------------------------------------
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
--------------------
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
-------------------------------------
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 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
11
<PAGE>
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
Vice President, Treasurer and Chief
Financial Officer
12
<PAGE>
SEATTLE FILMWORKS, INC.
1987 STOCK OPTION PLAN
AMENDED AND RESTATED
AS OF APRIL 1, 1996
This 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").
1. PURPOSES
--------
The purposes of this Plan are to retain the services of valued key
employees and consultants of the Corporation and such other persons as the Plan
Administrator shall select in accordance with Section 3 below, to encourage such
employees to acquire a greater proprietary interest in the Corporation, thereby
strengthening their incentive to achieve the objectives of the shareholders, to
serve as an aid and inducement in the hiring of new key employees and to provide
an equity incentive to directors, consultants and other persons selected by the
Plan Administrator.
2. ADMINISTRATION
--------------
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
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
1
<PAGE>
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 the Plan, and with a view to effecting
its purpose, the Plan Administrator shall have sole authority, in its absolute
discretion, (a) to construe and interpret the Plan; (b) to define the terms used
herein; (c) to prescribe, amend, and rescind rules and regulations relating to
the Plan; (d) to correct any defect, supply any omission or reconcile any
inconsistency herein; (e) to determine the individuals to whom Options to
purchase shares of Common Stock shall be granted under the Plan; (f) to
determine the time or times at which Options shall be granted under the Plan;
(g) to determine the number of shares of Common Stock subject to each Option,
the Option Price, the duration of each Option granted under the Plan and the
times at which each Option shall become exercisable; (h) to determine all of the
other terms and conditions of Options granted under the Plan; and (i) to have
all other determinations necessary or advisable for the administration of the
Plan and do everything necessary or appropriate to administer the Plan. All
decisions, determinations, and interpretations made by the Plan Administrator
shall be binding and conclusive on all participants in the 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 determine: (a) the
number of shares of Common Stock subject to such Option; (b) the duration of the
Option; (c) the vesting schedule for determining the times at which such Option
shall become exercisable; and (d) 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(m) and 12 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
2
<PAGE>
such provision may be applied to Non-Insiders and Options granted to Non-
Insiders.
3. ELIGIBILITY
-----------
Options may be granted to any individual who, at the time the Option
is granted, is an employee, officer, consultant or independent contractor of the
Corporation or any "related corporation" (as defined below). Options may also
be granted to directors who are not employees of the Corporation, but solely
upon the terms and conditions set forth in Section 6 hereof. 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. 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."
As used in this Plan, the term "related corporation," when referring
to a subsidiary corporation, shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the Corporation
if, at the time of the granting of the Option, each of the corporations other
than the last corporation in the unbroken chain owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
of one of the other corporations in such chain. When referring to a parent
corporation, the term "Related Corporation" shall mean any corporation (other
than the Corporation) in an unbroken chain of corporations ending with the
Corporation if, at the time of granting of the Option, each of the corporations
other than the Corporation owns stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock of one of the other
corporations in such chain.
4. STOCK
-----
Options to acquire an aggregate of 4,603,125 shares of the
Corporation's authorized but unissued, or reacquired, Common Stock, subject to
adjustment as set forth in Section 5(m) hereof, may be granted pursuant to this
Plan and the Corporation's Amended and Restated Incentive Stock Option Plan
("Incentive Plan"). Of these 4,603,125 shares, 540,000 shares are available
exclusively for grant to certain directors of the Corporation under Section 6
hereof. In the event that any Option granted pursuant to either this Plan or
the Incentive Plan expires or is terminated for any reason, those shares of
Common Stock allocable
3
<PAGE>
to the unexercised portion of such terminated Option may again be subject to an
Option granted to the same or to a different Optionee under either this Plan or
the Incentive Plan; provided however, that any cancelled 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
-------------------------------
Each Option granted pursuant to this Plan shall be evidenced by a
written agreement approved by the Plan Administrator (the "Agreement").
Agreements may contain such additional provisions, not inconsistent herewith, as
the Plan Administrator, in its discretion, may deem advisable. All Options
shall also comply with the following requirements:
a. Number of Shares
----------------
Each Agreement shall state the number of shares of Common Stock to
which it pertains.
b. Date of Grant
-------------
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").
c. Option Price
------------
Each Agreement shall state the price per share of Common Stock at
which it is exercisable. The exercise price shall be fixed by the Plan
Administrator at whatever price the Plan Administrator may determine in the
exercise of its sole discretion, provided that the exercise price shall not be
less than 50% of the fair market value of the Common 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.
4
<PAGE>
d. Duration of Options
-------------------
At the time of the grant of the Option, the Plan Administrator shall
designate, subject to paragraph 5(g) below, the expiration date of the Option,
which shall not be later than eleven years from the Date of Grant. In the
absence of action to the contrary by the Plan Administrator in connection with
the grant of a particular Option, all Options granted hereunder shall expire ten
years and one day from the Date of Grant.
e. Vesting Schedule
----------------
In order to ensure that the corporation will receive the benefits
contemplated in exchange for the Options granted pursuant hereto, no Option
shall be exercisable until it has vested. The vesting schedule for each Option
shall be specified by the Plan Administrator at the time of the grant of the
Option and shall be set forth in the Agreement. If no vesting schedule is
specified by the Plan Administrator at the time of the grant of an Option
hereunder, the Option shall become exercisable in full on the date of completion
by the Optionee of five years of employment with the Corporation.
f. Acceleration of Vesting
-----------------------
The vesting of one or more outstanding Options may be accelerated by
the Plan Administrator at such time and in such amounts as it shall determine in
its sole discretion. The vesting of Options also shall be accelerated under the
circumstances described as follows and in Section 5(m) below.
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
5
<PAGE>
(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.
g. Term of Option
--------------
Each Option shall terminate, to the extent not previously exercised,
upon the occurrence or the first of the following events: (i) the expiration of
the duration of the Option, as designated by the Plan Administrator in
accordance with Section 5(d) above; (ii) the expiration of 95 days from the date
of the Optionee's termination of employment with the Corporation (190 days if
the Optionee is an officer or director of the Corporation) for any reason
whatsoever other than death or disability, or, in the case of Optionees who are
not employees of the Corporation, the expiration of 95 days from the date that
the Optionee ceases to provide services to or on behalf of the Corporation (190
days if the Optionee is an officer or director of the Corporation) unless the
exercise period is extended by the Plan Administrator to a date not later than
the expiration date of the Option; or (iii) the expiration of one year from (A)
the date of death of the Optionee or (b) cessation of employment or provision of
services by reason of disability.
For purposes of the Plan, unless otherwise defined in the Agreement,
"disability" shall mean any physical, mental or other health condition which
substantially impairs the Optionees ability to perform her or his assigned
duties for one hundred twenty (120) days or more in any two hundred forty (240)
day period or that can be expected to result in death. 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. Unless accelerated in accordance with Section 5(f)
above, unvested Options shall terminate immediately upon the termination of
employment of the Optionee by the Corporation for any reason whatsoever,
including death or disability.
6
<PAGE>
h. Exercise of Options
-------------------
Options shall be exercisable, either all or in part, at any time
after vesting. If less than all of the shares included in the vested portion of
any Option are purchased, the remainder may be purchased at any subsequent time
prior to the expiration of the Option term. No portion of any Option of less
than one hundred (100) shares (as adjusted pursuant to Section 5(m) hereof) may
be exercised, provided that if the vested portion of any Option is less than one
hundred (100) shares, it may be exercised with respect to all shares for which
it is vested. Only whole shares may be issued pursuant to an Option, and to the
extent than an Option covers a fraction of a share, it is unexercisable. Options
or portions thereof may be exercised by giving written notice to the
Corporation, which notice shall specify the number of shares to be purchased,
and be accompanied by payment in the amount of the aggregate Option exercise
price for the Common Stock so purchased, which payment shall be in the form
specified in Section 5(i) hereof. The corporation shall not be obligated to
issue, transfer, or deliver a certificate of Common Stock to any Optionee, or to
his personal representative, until the aggregate Option Price has been paid for
all shares for which the Option shall have been exercised and adequate provision
has been made by the Optionee for satisfaction of any tax withholding
obligations associated with such exercise. During the lifetime of an Optionee,
Options are exercisable only by the Optionee.
i. Payment upon Exercise of Option
-------------------------------
Upon exercise of any Option the aggregate Option exercise price shall
be paid to the Corporation in cash or by certified or cashier's check. In
addition, 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 (provided that at the time of any such exercise the Optionee then holds
shares of Stock with a market value of at least the exercise price), or by
complying with any other payment mechanism which the Plan Administrator may
approve from time to time. 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.
7
<PAGE>
j. Rights as a Shareholder
-----------------------
An Optionee 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 of whether he has given notice of exercise. Subject to the
provisions of Section 5(m) 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 Common Stock for which the record date is prior
to the date the Optionee becomes a record holder of the shares of Common Stock
covered by the Option, irrespective of whether the Optionee has given notice of
exercise.
k. Transfer of Option
------------------
Options granted under this Plan and the rights and privileges
conferred hereby may not be transferred, assigned, pledged, or hypothecated in
any manner (whether by operation of law or otherwise) other than by will or by
the applicable laws of descent and distribution, or pursuant to a qualified
domestic relations order, and shall not be subject to execution, attachment, or
similar process. Upon any attempt to transfer, assign, pledge, hypothecate or
otherwise dispose of any Option under this Plan or of any right or privilege
conferred hereby, contrary to the provisions hereof, or upon the sale, levy or
any attachment or similar process upon the rights and privileges conferred
hereby, such Option shall thereupon terminate and become null and void.
l. Securities Regulation and Tax Withholding
-----------------------------------------
(1) No Option shall be exercisable unless the Option and the
Common Stock to be issued pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, any applicable state
securities laws, the Securities Act of 1933, as amended, the Exchange Act, the
rules and regulations thereunder and the requirements of any stock exchange upon
which such shares may then be listed and such issuance shall be further subject
to the approval of counsel for the Corporation with respect to such compliance,
including the availability of an exemption from registration for the issuance
and sale of such shares. The inability of the corporation to obtain from any
regulatory body the authority deemed by the Corporation to be necessary for the
lawful issuance and sale of any shares under this Plan, or the unavailability of
an exemption from registration for the issuance and sale of any shares under
this Plan, shall relieve the Corporation of any liability with respect to the
non-issuance or sale of such shares.
8
<PAGE>
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.
(2) The Plan Administrator may take such measures as it deems
appropriate to ensure that the Corporation's obligations under the withholding
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and
other provisions of state and federal laws are satisfied in respect of the grant
or exercise of Options.
(3) 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.
m. 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 (including those shares which are reserved for Options
granted under Section 6 hereof) and the number of shares underlying Options
granted pursuant to Section 6(a) hereof 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.
In the event the presently authorized capital stock of the Corporation
is changed into the same number of shares with a
9
<PAGE>
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 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 or 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,
warranties, rights, Options or other securities of any surviving or resulting
corporation, with respect to the date or dates of exercise of such Options, and
any such distribution, payment, expiration or maturity dates and shall be
determined solely by the terms of the reorganization agreement. In the event of
any dissolution or liquidation of the Corporation, or of any reorganization in
which the Corporation is not the surviving or the resulting corporation, and in
connection with which no assumption of or substitution of new Options for
Options is made, each outstanding Option shall terminate as of the effective
date of such dissolution liquidation or reorganization. In lieu of assuming any
Option, any resulting or surviving corporation may substitute new Options
("Substitute Options") for Options and in such event each outstanding Option
shall terminate as of the date of effectiveness of the corresponding Substitute
Option. In the event of any such reorganization, surviving Options or Substitute
Options shall have the same vesting dates as the corresponding Options granted
hereunder.
The foregoing adjustments in the shares subject to Options shall be
made by the Plan Administrator, or by any successor
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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(m), 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.
6. NON-EMPLOYEE DIRECTORS
----------------------
Directors who are not also employees of the Corporation ("Non-Employee
Directors") shall be eligible to receive Options under the Plan only in
accordance with the terms and conditions of this Section 6.
a. Number of Shares and Date of Grant
----------------------------------
Each Non-Employee Director shall automatically receive an annual
Option to purchase up to 7,500 shares of Common Stock of the Corporation,
subject to adjustment as set forth in Section 5(m) hereof. The annual Date of
Grant shall be the first Wednesday of March for so long as shares are available
for grant pursuant to Section 4.
b. Option Price
------------
The exercise price shall be the fair market value of the Corporation's
Common 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
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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.
c. Duration of Options
-------------------
Each Option granted to a Non-Employee Directors shall expire, unless
otherwise terminated pursuant to Section 5(g), 5 years from its Date of Grant.
d. Vesting Schedule
----------------
In order to ensure that the Corporation will receive the benefits
contemplated in exchange for the Options granted pursuant hereto, no Option
shall be exercisable until it has vested. Each Option granted to a Non-Employee
Director pursuant to this Section 6 shall vest in full on the last day of the
Corporation's fiscal year in which the Option was granted, provided that the
Non-Employee Director continues to serve as a director on such day.
e. The provisions of this Section 6 shall not be amended more than
once every six (6) months, other than to comport with changes in the Code, the
Employee Retirement Income Security Act, or the rules thereunder.
f. Other Terms
-----------
Except as otherwise provided in this Section 6, all Options granted to
Non Employee Directors shall be subject to the provisions of the Plan.
7. EFFECTIVE DATE: TERM
--------------------
This Plan shall be effective as of January 1, 1987 and Options may be
granted by the Plan Administrator from time to time thereafter until December
31, 2005; provided, however, that termination of the Plan shall not terminate
any Option granted prior thereto. Options granted by the Board prior to the date
of the first meeting of the shareholders of the Corporation duly convened
following the effective date of this Plan shall be granted subject to
ratification of this Plan by the shareholders of the Corporation at such duly
convened meeting, and if shareholder ratification is not obtained at such
meeting, each and every Option granted under this Plan shall be null and void
and shall convey no rights to the holder thereof.
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8. NO OBLIGATION TO EXERCISE OPTION
--------------------------------
The granting of an Option shall impose no obligation upon the
Optionees to exercise such Option.
9. NO RIGHT TO OPTIONS OR EMPLOYMENT
---------------------------------
Except as provided in Section 6, whether or not any Options are to be
granted hereunder shall be exclusively with the discretion of the Plan
Administrator, and nothing contained herein shall be construed as giving any
Optionee any right to participate hereunder. 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 or contract
with an Optionee for any length of time.
10. APPLICATION OF FUNDS
--------------------
The proceeds received by the Corporation from the sale of Common
Stock, pursuant to Options granted hereunder, will be used for general corporate
purposes.
11. INDEMNIFICATION OF PLAN ADMINISTRATOR
-------------------------------------
In addition to all other rights of indemnification they may have as
members of the Board or of any Committee, members of the Plan Administrator
shall be indemnified by the Corporation for all reasonable expenses and
liabilities of any type or 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, the Plan or any Option granted
hereunder, and against all amounts paid by them in settlement thereof (provided
such settlement is approved by independent legal counsel selected by the
Corporation), except to the extent that such expenses relate to matters for
which it is adjudged that such Plan Administrator is liable for willful
misconduct; provided within fifteen (15) days after the institution of any such
action, suit or proceeding, the members of the Plan Administrator involved
therein shall, in writing, notify the Corporation of such action, suit or
proceeding, so that the Corporation may have the opportunity to make appropriate
arrangements to prosecute or defend the same.
12. AMENDMENT OF THE PLAN
---------------------
The Plan Administrators 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
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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
Vice President, Treasurer and
Chief Financial Officer
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CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8) pertaining to the Seattle FilmWorks, Inc. Amended and Restated Incentive
Stock Option Plan and the Seattle FilmWorks, Inc. Amended and Restated 1987
Stock Option Plan of our report dated November 8, 1995, with respect to the
financial statements and schedule of Seattle FilmWorks, Inc. included in its
Annual Report (Form 10-K) for the year ended September 30, 1995, filed with the
Securities and Exchange Commission.
Seattle, Washington //s// Ernst & Young LLP
April 10, 1996
