<PAGE>
================================================================================
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
[X] Definitive Proxy Statement Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Seattle FilmWorks Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Not Applicable
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
SEATTLE FILMWORKS, INC.
Notice of Annual Meeting of Shareholders
To be held on Tuesday, February 15, 2000
To the Shareholders of Seattle FilmWorks, Inc.:
Notice is hereby given that the Annual Meeting of Shareholders of Seattle
FilmWorks, Inc. (the "Company") will be held at 10:00 a.m. Pacific Standard
Time, on Tuesday, February 15, 2000, at The Four Seasons Hotel, Metropole Room,
411 University Street, Seattle, Washington 98101, for the following purposes:
1. To elect two (2) Directors to serve for three year terms.
2. To consider and act upon a proposal to adopt the Seattle FilmWorks
1999 Stock Incentive Compensation Plan and reserve 800,000 shares of
the Company's Common Stock for issuance under the plan.
3. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
Shareholders of record at the close of business on December 10, 1999 will be
entitled to notice of and to vote at the Annual Meeting and any adjournment or
postponement of the Annual Meeting.
By Order of the Board of Directors
/s/ Mich Kele Earl
Mich Kele Earl
Secretary
1260 - 16th Avenue West
Seattle, Washington 98119
December 31, 1999
_______________________________________________________________________________
YOUR VOTE IS IMPORTANT
======================
The Company invites all shareholders to attend the Annual Meeting in person.
Whether or not you plan to attend the meeting in person, please sign, date and
return the accompanying proxy in the enclosed stamped envelope. This will ensure
the presence of a quorum at the meeting. Promptly signing, dating and returning
the proxy will save the Company the expense of additional solicitations. Your
proxy is revocable at your request at any time before it is voted. Any
shareholder may attend the Annual Meeting and vote in person even if that
shareholder has returned a proxy card.
Your copy of the Company's Annual Report for the fiscal year ended
September 25, 1999 is enclosed.
________________________________________________________________________________
<PAGE>
Seattle FilmWorks, Inc.
1260 - 16th Avenue West
Seattle, Washington 98119
PROXY STATEMENT
General
The Company is furnishing this Proxy Statement and the enclosed proxy (which are
being mailed to shareholders on or about January 5, 2000) in connection with the
solicitation of proxies by the Board of Directors of Seattle FilmWorks, Inc.
(the "Company") for use at the Annual Meeting of Shareholders to be held on
Tuesday, February 15, 2000, at 10:00 a.m. local time at the Four Seasons Hotel,
Metropole Room, 411 University Street, Seattle, Washington 98101, and at any
adjournment thereof (the "Annual Meeting").
Record Date and Outstanding Shares
The Company has called the Annual Meeting for the purposes stated in the
accompanying Notice of Annual Meeting of Shareholders. All shareholders of
common stock of the Company ("Common Stock") as of the close of business on
December 10, 1999 (the "Record Date"), are entitled to vote at the meeting. As
of December 10, 1999, there were 16,327,640 shares of Common Stock outstanding.
The Company's Common Stock trades on The Nasdaq Stock Market under the symbol
FOTO. The last sale price for the Company's Common Stock as reported by The
Nasdaq Stock Market on December 10, 1999 was $2.938 per share.
Quorum
A quorum for the Annual Meeting will consist of a majority of the outstanding
shares of Common Stock entitled to vote at the Annual Meeting, present in person
or by proxy. Shareholders of record who are present at the meeting in person or
by proxy and who abstain, including brokers holding customers' shares of record
who cause abstentions to be recorded at the meeting, are considered shareholders
who are present and entitled to vote and count toward the quorum.
Voting
Each share of Common Stock outstanding on the Record Date is entitled to one
vote at the Annual Meeting. The shares represented by each proxy card received
by the Company which is properly signed and is not revoked will be voted at the
Annual Meeting by the proxy holder in accordance with the instructions of the
shareholder noted thereon. If no specific instructions are designated, the
shares will be voted for the nominees for director listed in this proxy
statement and on the proxy card and for approval of the 1999 Stock Incentive
Compensation Plan.
The Company is not aware, as of the date hereof, of any matters to be voted upon
at the Annual Meeting other than as stated in this proxy statement and the
accompanying Notice of Annual Meeting of Shareholders. If any other matters are
properly brought before the Annual Meeting, the enclosed proxy gives
discretionary authority to the persons named therein to vote the shares in their
discretion.
-2-
<PAGE>
Under Washington law and the Company's Amended and Restated Articles of
Incorporation and Bylaws, if a quorum exists at the meeting, (a) the two
nominees who receive the greatest number of votes cast for the election of
directors by the shares present in person or represented by proxy and entitled
to vote at the Annual Meeting shall be elected directors and (b) the proposal to
approve the 1999 Stock Incentive Compensation Plan will be approved if the
number of votes cast in favor of the proposal exceed the number of votes cast
against it. Abstentions and broker non-votes will have no impact on the
election of directors since they have not been cast in favor of any nominee.
Abstentions and broker non-votes will also not have an impact on the proposal to
approve the 1999 Stock Incentive Compensation Plan since approval of this
proposal is based solely on the number of votes actually cast. Brokers who hold
shares for the accounts of their clients have discretionary authority to vote
such shares with respect to both the election of directors and approval of the
1999 Stock Incentive Compensation Plan.
Revocability of Proxies
A proxy may be revoked at any time before it is voted at the meeting. Any
shareholder who attends the meeting and wishes to vote in person may revoke his
or her proxy at that time. Otherwise, to revoke a proxy a shareholder must
deliver a proxy revocation, or another duly executed proxy bearing a later date,
to the Corporate Secretary of the Company, at 1260 16th Avenue West, Seattle,
Washington 98119, before the Annual Meeting or at the Annual Meeting.
Attendance at the Annual Meeting will not revoke a shareholder's proxy unless
the shareholder votes in person at the meeting.
Solicitation of Proxies
The proxy accompanying this Proxy Statement is solicited by the Board of
Directors of the Company. Proxies may be solicited by officers, directors, and
regular supervisory and executive employees of the Company, none of whom will
receive any additional compensation for their services. In addition, the
Company may engage an outside proxy solicitation firm to render proxy
solicitation services and, if so, will pay a fee for such services. Proxies may
be solicited personally, or by mail, telephone, facsimile, e-mail or messenger.
If requested, the Company will pay persons holding shares of Common Stock in
their names or in the names of nominees, but not owning such shares
beneficially, such as brokerage houses, banks and other fiduciaries, for the
expense of forwarding materials to their principals. The Company will pay all
of the costs of solicitation of proxies. ChaseMellon Shareholder Services, an
independent business entity not affiliated with the Company, will receive and
tabulate the proxies.
-3-
<PAGE>
Voting Securities and Principal Holders
The following table sets forth information, as of November 30, 1999, with
respect to all shareholders known by the Company to beneficially own more than
5% of the Company's Common Stock. The information is this table is based solely
on statements filed with the Securities and Exchange Commission ("SEC") or other
reliable information. Except as noted below, each person or entity has sole
voting and investment power with respect to the shares shown.
Amount and Nature Percent of
Name and Address of Beneficial Ownership Class
- -------------------------------------------------------------------------------
FMR Corp. 1,635,000 (1) 10.1%
82 Devonshire Street
Boston, MA 02109
T. Rowe Price Associates, Inc. 1,200,600 (2) 7.3%
100 East Pratt Street
Baltimore, MD 21202
Gary R. Christophersen 887,590 (3) 5.4%
1260 16th Avenue West
Seattle, WA 98119
- ---------------------------------
(1) The number of shares held is based solely on an Amendment to Schedule
13G filed on March 10, 1999 by FMR Corp., the parent of Fidelity
Management & Research Company ("Fidelity Management"), Fidelity
Management, the Fidelity Low-Priced Stock Fund, Edward C. Johnson 3d
and Abigail Johnson, pursuant to Rule 13d-1(b) or 13d-2(b) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Schedule 13G Amendment indicates that all of these shares are held by
Fidelity Management as a result of Fidelity Management's role as
investment adviser to the Fidelity Low-Priced Stock Fund, a registered
investment company (the "Fund"). Through their ownership of common
stock of FMR Corp. and the execution of a shareholders' voting
agreement, the Johnsons may be deemed to form a controlling group of
FMR Corp. Edward C. Johnson 3d (Chairman of FMR Corp.), FMR Corp.
(through its control of Fidelity Management), and the Fund each has
sole power to dispose of the 1,635,000 shares owned by the Fund.
However, the sole power to vote or direct the voting of these shares
resides with the Funds' Boards of Trustees. Fidelity Management
carries out the voting of the shares under the written guidelines
established by the Fund's Boards of Trustees.
(2) The number of shares held is based solely on Amendment to Schedule 13G
filed on October 6, 1999 by T. Rowe Price Associates, Inc. ("Price
Associates") and the T. Rowe Price Small-Cap Fund, Inc. pursuant to
Rule 13d-1 under the Exchange Act. The Schedule 13G indicates that
these shares are held by Price Associates in its capacity as
investment advisor to various individual and institutional investors.
According to the Schedule 13G, Price Associates has sole dispositive
power with respect to all, and no voting power with respect to any, of
these shares, and T. Rowe Price Small-Cap Value Fund, Inc. has no
dispositive power with respect to any, and sole voting power with
respect to 1,200,000 of these shares.
(3) Includes options to purchase 17,187 shares of Common Stock granted
under the Company's 1987 Stock Option Plan which are currently
exercisable or exercisable within 60 days of November 30, 1999.
(4) Dimensional Fund Advisors Inc. ("Dimensional"), an investment advisor
registered under Section 203 of the Investment Advisors Act of 1940,
furnishes investment advice to four investment companies registered
under the Investment Company Act of 1940, and serves as investment
manager to certain other investment vehicles, including commingled
group trusts. (These investment companies and investment vehicles are
the "Portfolio".) In its role as investment advisor and investment
manager, Dimensional possesses both voting and investment power over
1, 191,787 shares of Seattle FilmWorks Inc. stock as of 9/30/99. The
Portfolios own all securities reported in this statement, and
Dimensional disclaims beneficial ownership of such securities.
-4-
<PAGE>
Proposal 1-Election of Directors
The Board of Directors of the Company currently consists of five directors
divided into three classes. Currently, the sole member of Class I is Douglas A.
Swerland, the Class II directors are Peter H. van Oppen and Craig E. Tall, and
the Class III directors are Gary R. Christophersen and Sam Rubinstein. At the
Annual Meeting, the shareholders will vote on the election of the two Class III
directors for a three-year term expiring at the Annual Meeting of Shareholders
in 2003. At present, the Class I director will hold office until the Company's
2001 Annual Meeting and the Class II directors will hold office until the
Company's 2002 Annual Meeting. All directors will hold office until the Annual
Meeting of shareholders at which their terms expire and the election and
qualification of their successors.
The Board of Directors has unanimously nominated Gary R. Christophersen and Sam
Rubinstein for re-election to the Board as the Class III directors. Each of
Messrs. Christophersen and Rubinstein has indicated that he is willing and able
to serve as a director of the Company. However, if either of the nominees
becomes unable or unwilling to serve, it is intended that proxies will be voted
for the election of a substitute nominee designated by the Board of Directors.
The two Class III nominees receiving the highest number of votes cast in the
election of directors shall be elected Class III directors.
The Board of Directors recommends a vote FOR the election of both nominees.
Unless otherwise instructed, it is the intention of the persons named in the
accompanying form of proxy to vote shares represented by properly executed
proxies for election of Messrs. Christophersen and Rubinstein.
The following chart indicates ownership of the Company's Common Stock as of
November 30, 1999 by each director of the Company, each executive officer named
in the compensation tables appearing later in this Proxy Statement, and by all
directors and executive officers as a group.
Amount and Nature
of Beneficial Percent of
Name Age Ownership Class
- -------------------------------------------------------------------------------
Directors:
- ----------
Gary R. Christophersen 53 887,590 (1) 5.4%
Sam Rubinstein 82 543,686 (2) 3.3%
Douglas A. Swerland 54 117,563 (3) *
Craig E. Tall 53 157,219 (4) 1.0%
Peter H. van Oppen 47 46,000 (5) *
Additional Named
Executive Officers:
- ---------------------
Michael F. Lass 45 363,505 (6) 2.2%
Gary T. Tashjian 46 17,213 (7) *
Annette F. Bailey 42 70,379 (8) *
Case H. Kuehn 47 77,272 (9) *
All current directors and
executive officers
as a group (9 persons) 2,280,427 (10) 13.5%
- ----------------------------
* Percent of class is less than 1%
-5-
<PAGE>
(1) Includes options to purchase 17,187 shares of Common Stock granted
under the Company's 1987 Stock Option Plan which are currently
exercisable or exercisable within 60 days. Does not 22,275 shares of
Common Stock held in trust for Mr. Christophersen's minor children,
beneficial ownership of which Mr. Christophersen disclaims.
(2) Includes options to purchase 166,500 shares of Common Stock which are
currently exercisable or exercisable within 60 days of November 30,
1999.
(3) Includes options to purchase 105,750 shares of Common Stock which are
currently exercisable or exercisable within 60 days of November 30,
1999.
(4) Includes options to purchase 126,000 shares of Common Stock which are
currently exercisable or exercisable within 60 days of November 30,
1999.
(5) Includes options to purchase 45,000 shares of Common Stock which are
currently exercisable or exercisable within 60 days of November 30,
1999.
(6) Includes options to purchase 16,874 shares of Common Stock which are
currently exercisable or exercisable within 60 days of November 30,
1999.
(7) Includes options to purchase 5,625 shares of Common Stock which are
currently exercisable or exercisable within 60 days of November 30,
1999.
(8) Includes options to purchase 32,062 shares of Common Stock which are
currently exercisable or exercisable within 60 days of November 30,
1999.
(9) Includes options to purchase 67,499 shares of Common Stock which are
currently exercisable or exercisable within 60 days of November 30,
1999.
(10) Includes options to purchase 582,497 shares of Common Stock which are
currently exercisable or exercisable with 60 days of November 30,
1999.
Gary R. Christophersen has been the Company's President and Chief Executive
Officer since August 1988. Mr. Christophersen joined the Company in January
1982 as Vice President-Operations and has served as a Director of the Company
since 1982. From May 1983 to August 1988, Mr. Christophersen was a Senior Vice
President of the Company and its General Manager.
Sam Rubinstein became a Director of the Company in March 1986. From June 1985
to May 1988, he was the Chairman of the Board and Chief Executive Officer of
Farwest Fisheries, Inc., a seafood processing and marketing firm. From 1974 to
December 1987, Mr. Rubinstein was the Chairman of the Board and Chief Executive
Officer of Bonanza Stores, Inc., an operator of variety stores and drugstores,
and, from February 1984 to January 1986, the Chairman of the Board and Chief
Executive Officer of Whitney-Fidalgo Seafoods, Inc., a seafood processor.
Douglas A. Swerland became a Director of the Company in October 1988. In
December 1993, Mr. Swerland founded and became the Chairman and Chief Executive
Officer of SAVI, Inc., a clothing superstore retailer specializing in men's and
women's apparel and accessories. Mr. Swerland had been employed by Jay Jacobs,
Inc., the operator of a chain of specialty retail apparel stores, in various
capacities beginning in 1969, most recently as President and a director from
1978 to November 1993.
Craig E. Tall became a Director of the Company in October 1988. In June 1999,
Mr. Tall was named Vice Chair of Washington Mutual, Inc. From September 1990
until June 1999, Mr. Tall was an Executive Vice President of Washington Mutual,
Inc., a bank holding company. In addition, since April 1987, Mr. Tall has been
an Executive Vice President of Washington Mutual Bank.
Peter H. van Oppen became a Director of the Company in October 1988. Since
February 1994, Mr. van Oppen has been Chairman and Chief Executive Officer of
Advanced Digital Information Corporation ("ADIC"), a developer and manufacturer
of network storage solutions. ADIC was a wholly-owned subsidiary of Interpoint
Corporation, a diversified publicly-traded manufacturer, until it was spun-off
as a separate public company in October 1996. Mr. van Oppen served as a
Director of Interpoint from 1984 to 1996, President and Chief Executive Officer
from 1989 to 1996 and Chairman and Chief Executive Officer from 1995 through
October 1996. Mr. van Oppen is also a Director of ADIC, Spacelabs Medical,
Inc., a provider of integrated healthcare information systems and medical
devices, and Key Technology, Inc., a manufacturer of automated inspection and
sorting systems.
-6-
<PAGE>
Board and Committee Meetings
The Board of Directors of the Company held a total of twelve meetings during the
fiscal year ended September 25, 1999. Each of the Directors attended at least
75% of the aggregate of the total number of meetings held by the Board of
Directors and by all committees of the Board of Directors on which they served.
The Board of Directors has an Audit Committee which consists of Messrs.
Rubinstein, Swerland, Tall, and van Oppen. The function of the Audit Committee
is to meet with the accounting staff of the Company and the independent
certified public accountants engaged by the Company to review (i) the scope and
findings of the annual audit, (ii) accounting policies and procedures and the
Company's financial reporting and (iii) internal controls employed by the
Company. The Committee's findings and recommendations are reported to
management and the Board of Directors for appropriate action. The Audit
Committee held one meeting during fiscal 1999.
The Board of Directors has a Compensation Committee which consists of Messrs.
Swerland, Tall, and van Oppen. The Compensation Committee is responsible for
establishing the policies which govern the compensation of executive officers of
the Company, setting compensation levels for the President and Chief Executive
Officer of the Company, and reviewing the compensation packages for other
executive officers recommended by the President and Chief Executive Officer.
The Compensation Committee has been appointed by the Board of Directors to
administer the Company's stock option and stock purchase plans. The
Compensation Committee held one meeting during fiscal 1999.
The Board of Directors does not have a standing nominating committee. The Board
of Directors will consider written proposals from shareholders for nominees for
directors which are submitted to the Secretary of the Company in accordance with
the procedures contained in this proxy statement under the caption, "Proposals
of Shareholders."
Directors' Compensation
Currently, Directors who are not employees of the Company are each paid $500
each quarter, $200 for each Board of Directors meeting attended in person and
$100 for each telephonic meeting of the Board attended. In addition, Directors
are entitled to reimbursement for reasonable travel expenses, including lodging,
incurred in connection with attendance at Board meetings. Pursuant to the terms
of the Company's 1987 Stock Option Plan, each Director who is not an employee of
the Company is automatically granted an option to purchase 11,250 shares of the
Company's Common Stock, annually on the first Wednesday of March. Such options
have an exercise price equal to the fair market value of the Common Stock on the
date of grant and become exercisable in full at the end of the fiscal year in
which they are granted.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires directors, certain officers and
greater-than-10% shareholders ("Reporting Persons") of all publicly-held
companies to file certain reports ("Section 16 Reports") with respect to
beneficial ownership of such companies' equity securities.
Based solely on its review of the Section 16 Reports furnished to the Company by
its Reporting Persons and, where applicable, any written representation by them
that no Form 5 was required, all Section 16(a) filing requirements applicable to
the Company's Reporting Persons during and with respect to fiscal 1999 have been
complied with on a timely basis.
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<PAGE>
Remuneration of Executive Officers
The following table sets forth certain information concerning the compensation
paid by the Company for services rendered during fiscal years 1999, 1998 and
1997 to (a) the Company's Chief Executive Officer during fiscal 1999, and (b)
the other executive officers of the Company, whose total salary and bonus
exceeded $100,000 in fiscal 1999 (the "Named Executive Officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
Annual Compensation ---------------------
Name and Fiscal --------------------- Securities Underlying All Other
Principal Position Year Salary Bonus Options Compensation (1)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gary R. Christophersen 1999 $179,856 $ 0 33,750(2) $ 8,884
President, Chief Executive 1998 150,483 30,588 33,750 8,989
Officer and Director 1997 150,000 70,315 33,750 11,842
Michael F. Lass 1999 $138,033 $22,849 11,250 $ 8,174
Vice President - Operations 1998 $132,390 14,737 11,250 8,747
1997 $125,765 25,611 11,250 11,819
Gary T. Tashjian 1999 $120,000 $14,454 30,000 $ 1,199
Vice President - Marketing 1998 41,538 1,739 22,500 367
1997 0 0 0 0
Annette F. Bailey 1999 $ 88,049 $17,739 16,250 $ 5,276
Vice President - Human 1998 78,817 9,500 11,250 5,432
Resources and Organizational 1997 75,025 19,093 11,250 7,596
Development
Case H. Kuehn (3) 1999 $123,733 $ 0 23,750 $ 1,162
Vice President - Finance, 1998 117,353 13,501 11,250 7,988
Chief Financial Officer and 1997 111,058 27,738 11,250 11,602
Treasurer
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</TABLE>
(1) These amounts represent Company contributions to the Seattle FilmWorks
401K Plan and payments for term life insurance, short-term disability
insurance and long-term disability insurance.
(2) Mr. Christophersen cancelled options to purchase 33,750 shares in
February, 1999 and options to purchase 15,000 shares in September,
1999.
(3) Mr. Kuehn resigned as Vice President - Finance/Chief Financial Officer
in August 1999.
-8-
<PAGE>
Option Grants in Last Fiscal Year
Options to purchase Common Stock are granted to officers and key employees of
the Company under the Company's stock option plans. The following table sets
forth information concerning the grant of stock options to the Named Executive
Officers of the Company during fiscal year 1999.
<TABLE>
<CAPTION>
Individual Options Granted
-------------------------------------------- Potential Realizable
Number of Percent of Total Value at Assumed
Securities Options Price Appreciation For
Underlying Granted to Exercise Option Term (3)
Options Employees in Price Per Expiration ----------------------
Granted(1) Fiscal Year Share (2) Date 5% 10%
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gary R. Christophersen 33,750 8.12% $3.875 2/09/2004 $36,132 $79,843
Michael F. Lass 11,250 2.71% $3.875 2/09/2004 $12,044 $26,614
Gary T. Tashjian 25,000 6.02% $3.875 2/09/2004 $26,765 $59,143
5,000 1.20% $2.500 8/05/2004 $ 3,454 $ 7,631
Annette F. Bailey 11,250 2.71% $3.875 2/09/2004 $12,044 $26,614
5,000 1.20% $3.125 8/31/2004 $4,317 $9,539
Case H. Kuehn 23,750 5.72% $3.875 3/04/2000 $ 4,602 $ 9,203
- ----------------------------
</TABLE>
(1) The Company's stock option plans are administered by the Compensation
Committee of the Board of Directors, which determines to whom options
are granted, the number of shares subject to each option, the vesting
schedule and the exercise price. The options granted in fiscal year
1999 vest in equal annual installments over four years. All options
granted to officers of the Company may be exercised for a period of
190 days following termination of employment.
(2) All options are granted with an exercise price equal to the fair
market value of the Company's Common Stock on the date of grant. The
exercise price may be paid by delivery of shares already owned by the
option holder with a market value equal to the aggregate exercise
price. With the permission of the Compensation Committee, the exercise
price may also be paid by withholding shares that would otherwise be
received by the option holder upon exercise.
(3) Potential realizable value is based on the assumption that the stock
price of the Common Stock appreciates at the annual rate shown
(compounded annually) from the date of grant until the end of the five
year option term. These values are calculated based upon requirements
of the SEC and do not reflect the Company's estimate or projection of
future stock price performance. The actual value realized may be
greater or less than the realizable value set forth in this table.
The vesting of options may be accelerated at the discretion of the Compensation
Committee. Also, outstanding options will become immediately vested and fully
exercisable on the day before the first to occur of the following events, unless
a majority of the Board of Directors in office on the date such an event occurs
shall approve a resolution providing otherwise within three business days of the
event:
(i) the acquisition by any person (with certain exceptions) of 30% or
more of any class of the Company's voting equity securities;
(ii) the purchase of 30% or more of any class of the Company's Common
Stock pursuant to any tender or exchange offer, other than one made
by the Company; or
-9-
<PAGE>
(iii) approval of any merger, consolidation, reorganization or other
transaction providing for the conversion or exchange of more than
50% of the outstanding shares of the Company's Common Stock into
securities of a third-party, or cash, or property, or a combination
of any of the foregoing.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
No options were exercised by the Named Executive Officers in Fiscal 1999. The
following table sets forth the number of unexercised options held by Named
Executive Officers as of September 25, 1999. Based on the closing price of the
Common Stock reported on the Nasdaq National Market System on September 25,
1999, none of the unexercised options held by Named Executive Officers as of
September 25, 1999 were in-the-money.
Number of Securities
Underlying Unexercised Options
at September 25, 1999 (*)
--------------------------------------
Exercisable/ Unexercisable
- ----------------------------------------------------------------------------
Gary R. Christophersen 25,312 60,938
Michael F. Lass 16,874 28,126
Gary T. Tashjian 5,625 46,875
Annette F. Bailey 29,530 36,220
Case H. Kuehn 67,499 0
- ----------------------------
(*) Future exercisability is subject to vesting and the optionholder
remaining employed by the Company.
-10-
<PAGE>
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors (the "Committee") for
fiscal year 1999 consisted of three members of the Board who are all non-
employee directors of the Company. The Committee is responsible for
establishing the policies which govern the compensation of executive officers of
the Company, setting compensation levels for the President and Chief Executive
Officer of the Company and reviewing the compensation packages for other
executive officers recommended by the President and Chief Executive Officer.
The goal of the Committee in administering executive compensation is to create a
compensation plan which (i) rewards individual performance, (ii) aligns the
interests of the executive with the immediate and long-term interests of the
shareholders of the Company, (iii) ties a significant portion of compensation to
improvements in the Company's financial performance and (iv) assists the Company
in attracting and retaining key executives critical to the long-term success of
the Company.
The compensation package provided to executive officers consists primarily of
base salary, incentive bonus and long-term incentive in the form of stock
options.
Base Salary. The Committee bases the combination of base salary and
incentive bonus paid to the Chief Executive Officer on the approximate range of
cash remuneration paid to executives performing similar duties for companies of
comparable size in the Pacific Northwest. Although generally available data on
the compensation of chief executive officers in the Pacific Northwest is
considered, the experience of the members of the Committee and their knowledge
of the community and industry practice have been the primary bases for this
determination. The Committee estimates that the total compensation paid to the
Chief Executive Officer does not exceed this range. During fiscal year, 1999
the Chief Executive Officer's base compensation was increased 20% to $180,000.
The Chief Executive Officer's base salary is not based on the Company's
performance.
Base salaries for executive officers other than the CEO are determined
annually by the President and reviewed by the Committee. In determining salary
adjustments for executive officers, the CEO considers the individual officer's
historical performance against his or her job responsibilities and personal
compensation packages provided to executives performing similar duties for
companies of comparable size in the Pacific Northwest, the rate of inflation,
salary adjustments to be awarded to other executive officers of the Company and
other subjective factors.
Incentive Bonus. The Company has an annual incentive compensation plan
pursuant to which executive officers and other managers, supervisory and
professional personnel (approximately 103 persons during fiscal 1999) are
eligible to receive cash bonuses based on the Company's and their personal
performance during the year (the "Incentive Plan"). The factors used in
determining payments under the Incentive Plan are a specified percentage of each
participant's base salary ("eligible base salary"), his or her performance
against personal performance goals, and a Company "Performance Percentage"
comprised of target goals for the Company. The Incentive Plan sets eligible
base salary percentages for the CEO at 60 percent and all other executive
officers at 30 percent. The portion of each participant's eligible base salary
which will be multiplied by the Company's Performance Percentage for the year is
determined based on points awarded for each participant's actual performance
against his or her personal performance goals. Performance goals for each
executive officer are determined by the CEO at the beginning of the fiscal year
and reviewed by the Committee. Examples of individual performance goals for
fiscal 1999 included net revenue targets, product releases, shareholder value,
marketing goals, technology goals, labor costs, gross margin percentage and
administrative and overhead expenses. Incentive bonuses declined in fiscal 1999
based on the Company's Performance Percentage. Subjective assessments of
performance may result in adjustments in individual awards.
-11-
<PAGE>
Stock Option Plans. The Committee administers the Company's stock option
plans under which options to purchase the Company's Common Stock may be granted
in an effort to align the interests of management with those of shareholders and
provide a reward for long-term performance. Historically, options granted by
the Company have been granted with an exercise price equal to the market price
of the Company's stock on the date of grant. Accordingly, options will have
value to the holder only if the Company's stock price increases. Outstanding
options generally become exercisable at a rate of 25% per year. All grants are
subject to possible acceleration of vesting in connection with certain events
leading to a change in control of the Company. Options are granted from time to
time to executive officers and other management and supervisory personnel based
on recommendations of the CEO, with the size of grants generally falling within
predetermined ranges tied to job grade. In administering the Company's stock
option plans, the Committee generally has sought to limit outstanding options to
approximately ten percent of outstanding shares. At the end of fiscal 1999,
outstanding options as a percent of outstanding shares of common stock was 6.5%.
Under the Omnibus Budget Reconciliation Act of 1993, the federal income tax
deduction for certain types of compensation paid to the chief executive officer
and four other most highly compensated executive officers of publicly held
companies is limited to $1 million per officer per fiscal year unless such
compensation meets certain requirements. The Committee is aware of this
limitation and believes that none of such persons were paid compensation during
fiscal 1999 in excess of the $1 million limitation.
COMPENSATION COMMITTEE
Peter H. van Oppen, Chairman
Douglas A. Swerland
Craig E. Tall
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended September 25, 1999, the Compensation Committee of
the Board of Directors consisted of Messrs. Swerland, Tall and van Oppen. None
of these individuals has served at any time as an officer or employee of the
Company or as a member of the board of directors or compensation committee of
any entity that has had one or more executive officers which served as a member
of the Company's Board of Directors or Compensation Committee.
-12-
<PAGE>
Stock Price Performance Graph
Shown on this page is a line-graph comparing cumulative total shareholder return
on Seattle FilmWorks, Inc. Common Stock for each of the last five fiscal years
to the cumulative total return for the Nasdaq Composite Index and the Nasdaq
Retail Index. This cumulative return includes the reinvestment of cash
dividends.
COMPARISON OF 5-YEAR CUMULATIVE RETURN
Among Seattle FilmWorks, Inc.
Nasdaq Composite Index and Nasdaq Retail Index
Assumes $100 Invested in Company's Common Stock, NASDAQ Composite Index and
NASDAQ Retail Index on September 24, 1994
<TABLE>
<CAPTION>
MEASUREMENT PERIOD SEATTLE NASDAQ NASDAQ
(FISCAL YEAR COVERED) FILMWORKS, INC. COMPOSITE INDEX RETAIL INDEX
<S> <C> <C> <C>
1994 $100 $100 $100
1995 181 138 110
1996 259 164 132
1997 216 225 151
1998 71 229 130
1999 75 372 158
</TABLE>
-13-
<PAGE>
Proposal 2 - Approval of the 1999 Stock Incentive Compensation Plan
The Board has approved, subject to shareholder approval, the adoption of
the 1999 Seattle FilmWorks, Inc. Stock Incentive Compensation Plan (the
"Incentive Plan") which will provide for the issuance of up to 800,000 shares of
Common Stock pursuant to options, restricted stock grants, stock appreciation
rights, or other stock awards. A copy of the Incentive Plan is attached to this
proxy statement. The following description of the Incentive Plan is a summary
and so is qualified by reference to the complete text of the Incentive Plan.
Summary Description of the Incentive Plan. The Incentive Plan is intended
to strengthen the Company by providing selected employees, directors,
consultants, agents, advisors and independent contractors to the Company an
opportunity to participate in the Company's future growth and success by
offering them an opportunity to acquire stock in the Company so as to retain,
attract and motivate them. The Incentive Plan may be administered either by the
Board or a Committee of the Board (in either case, the "Committee"). The
Committee will have broad discretion to determine the amount and type of awards
and terms and conditions of the awards. Individual grants will generally be
based on a person's present and potential contribution to the Company.
As of November 20, 1999, the Company had approximately 100 employees, 4
non-employee directors and 3 consultants, agents, advisors and independent
contractors who would be eligible to participate in the Incentive Plan. Since
the grant of awards is based upon a determination made by the Committee after a
consideration of various factors, the Company currently cannot determine the
nature and amount of any awards that will be granted in the future to any
eligible individual or group of individuals. However, the maximum number of
shares that can be granted under the Incentive Plan during any calendar year to
any executive officer whose compensation is required to be disclosed pursuant to
the rules and regulations under the Exchange Act (generally, the chief executive
officer and the four other most highly compensated executive officers) is
375,000, except that the Company may make additional one-time grants to newly
hired participants of up to 375,000 shares per such participant. In addition,
the maximum number of shares that can be granted to a non-employee director of
the Company during any calendar year is limited to 50,000. The Company believes
that with these limitations and other provisions of the Incentive Plan, options
granted under the Incentive Plan will generate "qualified performance-based
compensation" within the meaning of section 162(m) of the Internal Revenue Code
and will therefore not be subject to the $1,000,000 cap on deductibility for
federal income tax purposes of certain compensation payments in excess of
$1,000,000. See "Certain Federal Income Tax Consequences" below.
Awards may be granted in the form of incentive stock options ("ISOs")
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended ("the "Code"), nonqualified stock options ("NQOs") (each ISO or NQO, an
"Option," and collectively, "Options"), stock appreciation rights, stock awards
in the form of restricted stock ("Restricted Stock"), or other arrangements
determined by the Committee. Any award may be granted either alone or in tandem
with other awards granted under the Incentive Plan. The option price of ISOs
must be equal to or greater than the fair market value of the Common Stock on
the date of grant (or 110% of the fair market value in the case of employees who
own more than 10% of the Common Stock). The option price of NQOs may not be less
than the fair market value of the Common Stock on the date of grant. The
Committee may condition the grant of the award upon the attainment of specified
performance goals or other criteria, which need not be the same for all
participants. No ISOs may be granted under the Incentive Plan on or after
December 15, 2009, but ISOs outstanding under the Incentive Plan may extend
beyond that date.
The Board expects to adopt a standing policy which provides for an
automatic annual grant to each non-employee director of an option to purchase
shares of Common Stock at an exercise price equal to the market price of the
Common Stock on the annual grant date. This grant would replace the annual
grants under the Company's 1987 Stock Option Plan. See "Director Compensation"
at page 7 above. Although the amount of the annual grant has not been
determined, it is likely to be similar to the annual grant under the 1987 Stock
Option Plan.
-14-
<PAGE>
Options. Options granted under the Incentive Plan may be ISOs or NQOs. The
exercise price of ISOs may not be less than the fair market value of the shares
subject to the ISO on the date of grant. The term of any ISO granted under the
Incentive Plan may not exceed ten years. In addition, ISOs are subject to
certain other limitations in order to take advantage of the favorable U.S. tax
treatment that may be available for ISOs.
Restricted Stock. Restricted Stock awards consist of non-transferable
shares of Common Stock of the Company which may be subject to a right of
purchase by the Company. The Committee may provide for the lapse of the transfer
restrictions over a period of time, or may accelerate or waive such
restrictions, in whole or in part, based on service, performance or other
criteria determined by the Committee.
Stock Appreciation Rights. A stock appreciation right will give the holder
the right to receive an appreciation distribution in an amount equal to the
excess of the fair market value of the number of shares of Common Stock covered
by the right over the exercise price per share subject to the right. Stock
appreciation rights may be granted separately or in tandem with a related
Option. Payment may be made in a combination of shares of Common Stock or in
cash, as determined by the Committee.
The consideration payable upon issuance or exercise of an award and any
taxes related to an award must generally be paid in cash or check. However, the
Committee, in its sole discretion, may authorize payment by the tender of Common
Stock already owned by the participant, or by delivery of other property,
including securities of the Company. In addition, for officers and directors of
the Company, the Committee may, in its sole discretion, assist in the payment of
the exercise price by extending a loan, allowing payment in installments, or
guaranteeing a loan from a third party. The Company generally will not receive
any consideration upon the grant of any awards. Awards generally may be
exercised at any time within three months after termination of a participant's
employment by, or consulting relationship with, the Company (but, only to the
extent exercisable or payable at the time of termination). However, if
termination is due to the participant's death or disability, the award generally
may be exercised for one year. Except as authorized by the Committee, no award
shall be assignable or otherwise transferable by a participant other than by
will or by the laws of descent and distribution.
The Committee may adjust the performance goals and measurements applicable
to awards. The Committee also may waive in whole or in part any or all
restrictions, conditions, vesting or forfeiture with respect to any award
granted under the Incentive Plan. The Board may amend, alter or discontinue the
Incentive Plan or any award at any time, except that the consent of a
participant is required if the participant's rights under an outstanding award
would be impaired. In addition, the shareholders of the Company must approve any
amendment, alteration or discontinuance of the Incentive Plan that would (i)
increase the total number of shares reserved under the Incentive Plan, (ii) with
respect to provisions solely as they relate to ISOs, to the extent required for
the Incentive Plan to comply with Section 422 of the Code, (iii) to the extent
required by other applicable laws, rules or regulations or (iv) to the extent
that the Board otherwise concludes that shareholder approval is advisable.
The Incentive Plan constitutes an unfunded plan for incentive and deferred
compensation. The Company is not required to create trusts or arrangements to
meet its obligations under the Incentive Plan to deliver stock or make payments.
In the event of a "change in control" of the Company, as defined in the
Incentive Plan, in which the outstanding options do not remain outstanding or
are not assumed by the surviving entity or replaced with a comparable options,
the vesting of outstanding awards under the Incentive Plan will, unless the
applicable agreement with respect to the award or the Committee determines
otherwise, subject to certain limitations, be accelerated. A "change in control"
is defined to include (i) a merger or consolidation of the Company in which more
than 50% of the voting power of the Company's outstanding stock outstanding
after the transaction is owned by persons who were not shareholders immediately
prior to such transaction, and (ii) the sale or transfer of all or substantially
all of the Company's assets.
-15-
<PAGE>
Certain Federal Income Tax Consequences
THE FOLLOWING SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES IS BASED UPON
EXISTING STATUTES, REGULATIONS AND INTERPRETATIONS THEREOF. THE APPLICABLE RULES
ARE COMPLEX, AND INCOME TAX CONSEQUENCES MAY VARY DEPENDING UPON THE PARTICULAR
CIRCUMSTANCES OF EACH PLAN PARTICIPANT. THIS PROXY STATEMENT DESCRIBES FEDERAL
INCOME TAX CONSEQUENCES OF GENERAL APPLICABILITY, BUT DOES NOT PURPORT TO
DESCRIBE PARTICULAR CONSEQUENCES TO EACH INDIVIDUAL PLAN PARTICIPANT, OR
FOREIGN, STATE OR LOCAL INCOME TAX CONSEQUENCES, WHICH MAY DIFFER FROM THE
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.
Incentive Stock Options
Awards and Exercise of Options. ISOs are intended to constitute "incentive
stock options" within the meaning of Section 422 of the Internal Revenue Code of
1986, amended (the "Code"). ISOs may be granted only to employees of the Company
(including directors who are also employees). The recipient of an Option (the
"Optionee") does not recognize taxable income upon either the grant or exercise
of an ISO. However, the excess of the fair market value of the shares purchased
upon exercise over the Option exercise price (the "Option Spread") is includable
in the Optionee's "alternative minimum taxable income" ("AMTI") for purposes of
the alternative minimum tax ("AMT"). The Option Spread is generally measured on
the date of exercise and is includable in AMTI in the year of exercise. Special
rules regarding the time of AMTI inclusion may apply for shares subject to a
"substantial risk of forfeiture" (including, in the case of each person subject
to the reporting requirements of Section 16 of the Exchange Act, any limitations
on resale of shares imposed under Section 16(b) of the Exchange Act). In
addition, when stock is acquired subject to a "substantial risk of forfeiture",
an Optionee's holding period for purposes of determining whether any capital
gain or loss on sale is long-term will generally not begin until the restriction
lapses or the Optionee files an election under Section 83(b) of the Code (a
"Section 83(b) Election").
Sale of Option Shares. If an Optionee holds the shares purchased under an
ISO for at least two years from the date the ISO was granted and for at least
one year from the date such shares were transferred to the Optionee, any gain
from a sale of the shares other than to the Company should be taxable as capital
gain. Under these circumstances, the Company would not be entitled to a tax
deduction at the time the ISO was exercised or at the time the stock was sold.
If an Optionee were to dispose of stock acquired pursuant to an ISO before the
end of the required holding periods (a "Disqualifying Disposition"), the amount
by which the market value of the stock at the time the ISO was exercised
exceeded the exercise price (or, if less, the amount of gain realized on the
sale) would be taxable as ordinary income, and the Company would be entitled to
a corresponding tax deduction. Such income is subject to information reporting
requirements and may become subject to withholding. Gain from a Disqualifying
Disposition in excess of the amount required to be recognized as ordinary income
is capital gain. Optionees are required to notify the Company promptly after
making a Disqualifying Disposition. If stock is sold to the Company rather than
to a third party, the sale may not produce capital gain or loss. A sale of
shares to the Company will constitute a redemption of such shares, which could
be taxable as a dividend unless the redemption is "not essentially equivalent to
a dividend" within the meaning of the Code.
Exercise With Stock. If an Optionee pays for ISO shares with shares of the
Company acquired under an ISO or a qualified employee stock purchase plan
("statutory option stock"), the tender of shares is a Disqualifying Disposition
of the statutory option stock if the above described (or other applicable)
holding periods respecting those shares have not been satisfied. If the holding
periods with respect to the statutory option stock are satisfied, or the shares
were not acquired under a statutory stock option of the Company, then any
appreciation in value of the surrendered shares is not taxable upon surrender.
Special basis and holding period rules apply where previously- owned stock is
used to exercise an ISO.
-16-
<PAGE>
Nonqualified Stock Options
Award; Exercise. An Optionee is not taxable upon the award of a NQO.
Federal income tax consequences upon exercise will depend upon whether the
shares thereby acquired are subject to a "substantial risk of forfeiture." If
the shares are not subject to a substantial risk of forfeiture, or if they are
so restricted and the Optionee files a Section 83(b) Election with respect to
the shares, the Optionee will have ordinary income at the time of exercise
measured by the Option Spread on the exercise date. The Optionee's tax basis in
the shares will be their fair market value on the date of exercise, and the
holding period for purposes of determining whether capital gain or loss upon
sale is long- or short-term also will begin on that date. If the shares are
subject to a substantial risk of forfeiture and no Section 83(b) Election is
filed, the Optionee will not be taxable upon exercise, but instead will have
ordinary income, on the date stock is no longer subject to a substantial risk of
forfeiture, in an amount equal to the difference between the amount paid for the
shares under the Option and their fair market value as of the date of lapse; in
addition, the Optionee's holding period will begin on the date of lapse.
Whether or not the shares are subject to a substantial risk of forfeiture, the
amount of ordinary income taxable to an Optionee who was an employee at the time
of grant constitutes "supplemental wages" subject to withholding of income and
employment taxes by the Company, and the Company receives a corresponding income
tax deduction.
Sale of Option Shares. Upon sale, other than to the Company, of shares
acquired under a NQO, an Optionee generally will recognize capital gain or loss
to the extent of the difference between the sale price and the Optionee's tax
basis in the shares, which will be long-term gain or loss if the employee's
holding period in the shares is more than one year. If stock is sold to the
Company rather than to a third party, the sale may not produce capital gain or
loss. A sale of shares to the Company will constitute a redemption of such
shares, which could be taxable as a dividend unless the redemption is "not
essentially equivalent to a dividend" within the meaning of the Code.
Exercise with Stock. If an Optionee tenders Common Stock (other than
statutory option stock -- see above) to pay all or part of the exercise price of
a NQO, the Optionee will not have a taxable gain or deductible loss on the
surrendered shares. Instead, shares acquired upon exercise that are equal in
value to the fair market value of the shares surrendered in payment are treated
as if they had been substituted for the surrendered shares, taking as their
basis and holding period the basis and holding period that the Optionee had in
the surrendered shares. The additional shares are treated as newly acquired with
a zero basis.
If the surrendered shares are statutory option stock as described above
under "Incentive Stock Options", with respect to which the applicable holding
period requirements for favorable income tax treatment have not expired, then
the newly acquired shares substituted for the statutory option shares should
remain subject to the federal income tax rules governing the surrendered shares,
but the surrender should not constitute a "disqualifying disposition" of the
surrendered stock.
Section 162(m) Limitations
Section 162(m) of the Code limits to $1,000,000 per person the amount that
the Company may deduct for compensation paid to any of its most highly
compensation executive officers in any year after 1993. Under current
regulations, compensation received through the exercise of an option will not be
subject to the $1,000,000 limit if the option and the plan meet certain
requirements. One such requirement is that the plan must state the maximum
number of shares with respect to which option may be granted to any employee
during a specified period. Accordingly, the Incentive Plan provides the no
participant, with certain exceptions, may granted options to acquire more than
375,000 shares in any year.
-17-
<PAGE>
Shareholders are being asked to approve the adoption of the Incentive Plan.
The affirmative vote of the holders of a majority of the outstanding shares of
the Common Stock of the Company represented and voting at the Annual Meeting is
required to adopt the Incentive Plan.
The Board recommends a vote "for" approval of this proposal.
Independent Auditors
The Company has selected Ernst & Young LLP to continue as its independent
auditors for the current year. Representatives of Ernst & Young LLP are
expected to be present at the Annual Meeting and have the opportunity to make a
statement if they so desire and respond to appropriate questions.
Other Business
As of the date of this Proxy Statement, management knows of no other business
which will be presented for action at the meeting. If any other business
requiring a vote of the shareholders should come before the meeting, the persons
designated as your proxies will vote or refrain from voting in accordance with
their best judgment.
Proposals of Shareholders
The Company's Bylaws provide that advance notice of nominations for the election
of directors at a meeting of shareholders must be delivered to or mailed and
received by the Company ninety (90) days prior to the date which is one year
from the date of the immediately preceding annual meeting of shareholders or, in
the case of a special meeting of shareholders to elect directors, the close of
business on the 10th day following the date on which notice of such meeting is
first given to shareholders. The Bylaws also provide that advance notice of
proposals to be brought before an annual meeting by a shareholder must be
submitted in writing and delivered to or mailed and received by the Company not
later than ninety (90) days prior to the date which is one year from the date of
the immediately preceding annual meeting of shareholders.
Each notice of a nomination or proposal of business must contain, among other
things, (i) the name and address of the shareholder who intends to make the
nomination or proposal; (ii) a representation that the shareholder is a holder
of record of stock of the Company entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice or to vote at the meeting for the proposal; (iii) a
description of all arrangements or understandings between the shareholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
shareholder and any material interest of such shareholder in any proposal to be
submitted to the meeting; (iv) such other information regarding each nominee or
proposals as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the SEC; and (v) with respect to any nominations,
the consent of each nominee to serve as a director of the Company if elected.
A copy of the full text of the provisions of the Company's Bylaws dealing with
shareholder nominations and proposals is available to shareholders from the
Secretary of the Company upon written request.
Shareholders who intend to have a proposal considered for inclusion in the
Company's proxy materials for presentation at the 2001 Annual Meeting must
submit the proposal to the Company no later than September 7, 2000.
Shareholders who intend to present a proposal at the 2001 Annual Meeting without
inclusion of such proposal in the Company's proxy materials are required to
provide notice of such proposal to the Company no later than November 17, 2000.
The Company reserves the right to reject, rule out of order, or take appropriate
action with respect to any proposal that does not comply with these and other
applicable requirements.
By Order of the Board of Directors
/s/ Mich Kele Earl
Mich Kele Earl, Secretary
December 31, 1999, Seattle, Washington
-18-
<PAGE>
SEATTLE FILMWORKS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF THE SHAREHOLDERS TO BE HELD FEBRUARY 15, 2000.
The undersigned hereby appoints Gary R. Christophersen and Loran Cashmore Bond,
and each of them, as Proxies, with full power of substitution, and hereby
authorizes them to represent and vote, as directed below, all the shares of
Common Stock of SEATTLE FILMWORKS, INC. held of record by the undersigned on
December 10, 1999, at the Annual Meeting of Shareholders to be held February 15,
2000, or any adjournment or postponement thereof.
(Continued, and to be signed on the other side)
. FOLD AND DETACH HERE .
<PAGE>
Please mark
your votes as
indicated in X
this example -----
NOTE: Please sign exactly as your name appears on your stock certificate. When
shares are held jointly, each person should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such. An
authorized person should sign on behalf of corporations, partnerships, and
associations and give his or her title.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1 AND 2.
1. ELECTION OF DIRECTORS: Election of the following nominees to serve a three
year term or until their respective successor is elected and qualified.
For Withhold
Nominees: Gary R. Christophersen ----- -----
Sam Rubinstein ----- -----
FOR all nominees listed (except as marked to the contrary) WITHHOLD AUTHORITY
to vote for all nominees listed INSTRUCTION: To withhold authority to vote for
any individual nominee, write that nominee's name on the space provided below:
- ---------------------------------------------------------
2. To adopt the Seattle FilmWorks 1999 Stock Incentive Compensation Plan and
reserve 800,000 shares of the Company's Common Stock for issuance under the
plan.
FOR AGAINST ABSTAIN
----- ----- -----
"Please Mark Inside Boxes so that Data Processing Equipment will Record Your
Vote."
In their discretion, the Proxies are authorized to vote upon such other business
as may properly come before the meeting or any adjournment or postponement
thereof. This Proxy, when properly executed, will be voted in the manner
directed herein by the undersigned. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" ITEMS 1 AND 2.
Signature(s) Dated 2000
-------------------------------------- -----------
Please Mark, Sign, Date and Return This Proxy Card Promptly.
. FOLD AND DETACH HERE .
<PAGE>
EXHIBIT 99.1
ATTACHMENT 1
SEATTLE FILMWORKS, INC.
1999 STOCK INCENTIVE COMPENSATION PLAN
1. PURPOSES
1.1 The purpose of the Seattle Filmworks, Inc. 1999 Stock Incentive
Compensation Plan (the "Plan") is to enhance the long-term shareholder value of
Seattle Filmworks, Inc., a Washington corporation (the "Company"), by offering
opportunities to employees, persons to whom offers of employment have been
extended, directors, officers, consultants, agents, advisors and independent
contractors of the Company and its Subsidiaries (as defined in Section 2) to
participate in the Company's growth and success, and to encourage them to remain
in the service of the Company and its Subsidiaries and to acquire and maintain
stock ownership in the Company.
2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below:
2.1 Acquired Entities.
-----------------
"Acquired Entities" has the meaning given in Section 6.2.
2.2 Acquisition Transaction.
-----------------------
"Acquisition Transaction" has the meaning given in Section 6.2.
2.3 Award.
-----
"Award" means a grant made to a Participant pursuant to the Plan,
including, without limitation, grants of Options, Stock Appreciation Rights,
Stock Awards, Other Stock-Based Awards or any combination of the foregoing.
2.4 Board.
-----
"Board" means the Board of Directors of the Company.
2.5 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
<PAGE>
abuse of alcohol or a controlled substance, in each case as determined by the
Plan Administrator, and its determination shall be conclusive and binding.
2.6 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.
2.7 Code.
----
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
2.8 Common Stock.
------------
"Common Stock" means the common stock, par value $.01, of the Company.
2.9 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 Plan
Administrator on the basis of evidence acceptable to it, to perform his or her
duties for the Company and, in the case of a determination of Disability for
purposes of determining the exercise period for an Incentive Stock Option, to be
engaged in any substantial gainful activity. Upon making a determination of
Disability, the Plan Administrator shall, for purposes of the Plan, determine
the date of the Holder's termination of employment, service or contractual
relationship.
2.10 Exchange Act.
------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.11 Fair Market Value.
-----------------
2
<PAGE>
"Fair Market Value" shall be as established in good faith by the Plan
Administrator or (a) if the Common Stock is listed on the Nasdaq National
Market, the closing sales price for the Common Stock as reported by the Nasdaq
National Market for a single trading day or (b) if the Common Stock is listed on
the New York Stock Exchange or the American Stock Exchange, the closing sales
price for the Common Stock as such price is officially quoted in the composite
tape of transactions on such exchange for a single trading day. If there is no
such reported price for the Common Stock for the date in question, then such
price on the last preceding date for which such price exists shall be
determinative of Fair Market Value.
2.12 Grant Date.
----------
"Grant Date" means the date the Plan Administrator adopted the granting
resolution or a later date designated in a resolution of the Plan Administrator
as the date an Award is to be granted.
2.13 Holder.
------
"Holder" means the Participant to whom an Award is granted or the personal
representative of a Holder who has died.
2.14 Incentive Stock Option.
----------------------
"Incentive Stock Option" means an Option to purchase Common Stock granted
under Section 7 with the intention that it qualify as an "incentive stock
option" as that term is defined in Section 422 of the Code.
2.15 Involuntary Termination.
-----------------------
"Involuntary Termination" means termination of the Holder's service to the
Company (or the parent or subsidiary company employing such Holder) or the other
party to the transaction constituting a Change in Control by reason of (i) the
involuntary discharge of such Holder by the Company (or the parent or subsidiary
company employing such Holder) or the other party to the transaction
constituting a Change in Control for reasons other than Cause or (ii) the
voluntary resignation of the Holder following (A) a change in such Holder's
position with the Company (or its successor or the parent or subsidiary company
that employs such Holder) or the other party to the transaction constituting a
Change in Control that materially reduces such Holder's level of authority or
responsibility or (B) a reduction in such Holder's compensation (including base
salary, fringe benefits and participation in bonus or incentive programs based
on corporate performance) by more than 20%.
3
<PAGE>
2.16 Nonqualified Stock Option.
-------------------------
"Nonqualified Stock Option" means an Option to purchase Common Stock
granted under Section 7 other than an Incentive Stock Option.
2.17 Option.
------
"Option" means the right to purchase Common Stock granted under Section 7.
2.18 Option Shares.
-------------
"Option Shares" means the shares of Common Stock issuable upon a Holder's
exercise of an Option granted under the Plan.
2.19 Other Stock-Based Award.
-----------------------
"Other Stock-Based Award" means an Award granted under Section 11.
2.20 Participant.
-----------
"Participant" means an individual who is a Holder of an Award or, as the
context may require, any employee, director (including directors who are not
employees), officer, consultant, agent, advisor or independent contractor of the
Company or a Subsidiary who has been designated by the Plan Administrator as
eligible to participate in the Plan.
2.21 Plan Administrator.
------------------
"Plan Administrator" means the Board or any committee designated to
administer the Plan under Section 3.1.
2.22 Restricted Stock.
----------------
"Restricted Stock" means shares of Common Stock granted pursuant to a Stock
Award under Section 10, the rights of ownership of which are subject to
restrictions prescribed by the Plan Administrator.
2.23 Right of Repurchase
-------------------
"Right of Repurchase" has the meaning given in Section 7.4.
2.24 Securities Act.
--------------
"Securities Act" means the Securities Act of 1933, as amended.
2.25 Stock Appreciation Right.
------------------------
4
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"Stock Appreciation Right" means an Award granted under Section 9.
2.26 Stock Award.
-----------
"Stock Award" means an Award granted under Section 10.
2.27 Subsidiary.
----------
"Subsidiary," except as expressly provided otherwise, means any entity that
is directly or indirectly controlled by the Company or in which the Company has
a significant ownership interest, as determined by the Plan Administrator, and
any entity that may become a direct or indirect parent of the Company.
3. ADMINISTRATION
3.1 Plan Administrator.
------------------
The Plan shall be administered by the Board or a committee or committees
(which term includes subcommittees) appointed by, and consisting of two or more
members of, the Board. Any such committee shall have the powers and authority
vested in the Board hereunder (including the power and authority to interpret
any provision of the Plan or of any Award). The Board, or any committee thereof
appointed to administer the Plan, is referred to herein as the "Plan
Administrator." If and so long as the Common Stock is registered under Section
12(b) or 12(g) of the Exchange Act, the Board shall consider in selecting the
Plan Administrator and the membership of any committee acting as Plan
Administrator for any persons subject or likely to become subject to Section 16
under the Exchange Act the provisions regarding (a) "outside directors" as
contemplated by Section 162(m) of the Code and (b) "Non-Employee Directors" as
contemplated by Rule 16b-3 under the Exchange Act. The Board or Plan
Administrator may delegate the responsibility for administering the Plan with
respect to designated classes of eligible Participants to one or more senior
executive officers or committees thereof, the members of which need not be
members of the Board, subject to such limitations as the Board deems
appropriate. Committee members shall serve for such term as the Board may
determine, subject to removal by the Board at any time.
3.2 Administration and Interpretation by the Plan Administrator.
-----------------------------------------------------------
Except for the terms, conditions and limitations explicitly set forth in
the Plan, the Plan Administrator shall have exclusive authority, in its absolute
discretion, to determine all matters relating to Awards under the Plan,
including the selection of individuals to be granted Awards, the type of Awards,
the number of shares of Common Stock subject to an Award, all terms, conditions,
restrictions and limitations, if any, of an Award and the terms of any
instrument that evidences the Award. The Plan Administrator shall also
5
<PAGE>
have exclusive authority to interpret the Plan and may from time to time adopt,
change and rescind rules and regulations of general application for the Plan's
administration. This authority shall include the sole authority to correct any
defect, supply any omission or reconcile any inconsistency in this Plan and make
all other determinations necessary or advisable for the administration of the
Plan and do everything necessary or appropriate to administer the Plan. The Plan
Administrator's interpretation of the Plan and its rules and regulations, and
all actions taken and determinations made by the Plan Administrator pursuant to
the Plan, shall be conclusive and binding on all parties involved or affected.
The Plan Administrator may delegate administrative duties to such of the
Company's officers as it so determines.
4. STOCK SUBJECT TO THE PLAN
4.1 Authorized Number of Shares.
---------------------------
Subject to adjustment from time to time as provided in Section 14.1, a
maximum of 800,000 shares of Common Stock shall be available for issuance under
the Plan. Shares issued under the Plan shall be drawn from authorized and
unissued shares.
4.2 Limitations.
-----------
(a) Subject to adjustment from time to time as provided in Section
14.1, not more than 375,000 shares of Common Stock may be made subject to Awards
under the Plan to any individual Participant in the aggregate in any one (1)
calendar year, except that the Company may make additional one-time grants to
newly hired Participants of up to 375,000 shares per such Participant; such
limitation shall be applied in a manner consistent with the requirements of, and
only to the extent required for compliance with, the exclusion from the
limitation on deductibility of compensation under Section 162(m) of the Code.
(b) Subject to adjustment from time to time as provided in Section
14.1, not more than 50,000 shares of Common Stock may be made subject to Awards
to any non-employee director in the aggregate in any one calendar year.
4.3 Reuse of Shares.
---------------
Any shares of Common Stock that have been made subject to an Award that
cease to be subject to the Award (other than by reason of exercise or payment of
the Award to the extent it is exercised for or settled in shares) and any shares
repurchased by the Company from a Holder upon exercise of a right of repurchase
shall again be available for issuance in connection with future grants of Awards
under the Plan; provided, however, that any such shares shall be counted in
accordance with the requirements of Section 162(m) of the Code if and to the
extent applicable. Shares that are subject to
6
<PAGE>
tandem Awards shall be counted only once. Also, upon a stock-for-stock exercise
only the net number of shares will be deemed to have been used under this Plan.
5. ELIGIBILITY
Awards may be granted under the Plan to those officers, directors and key
employees of the Company and its Subsidiaries as the Plan Administrator from
time to time selects. Awards may also be made to consultants, agents, advisors
and independent contractors who provide services to the Company and its
Subsidiaries.
6. AWARDS
6.1 Form and Grant of Awards.
------------------------
The Plan Administrator shall have the authority, in its sole discretion, to
determine the type or types of Awards to be made under the Plan. Such Awards
may include, but are not limited to, Incentive Stock Options, Nonqualified Stock
Options, Stock Appreciation Rights, Stock Awards and Other Stock-Based Awards.
Awards may be granted singly, in combination or in tandem so that the settlement
or payment of one automatically reduces or cancels the other. Awards may also
be made in combination or in tandem with, in replacement of, as alternatives to,
or as the payment form for, grants or rights under any other employee or
compensation plan of the Company.
6.2 Acquired Company Awards.
-----------------------
Notwithstanding anything in the Plan to the contrary, the Plan
Administrator may grant Awards under the Plan in substitution for awards issued
under other plans, or assume under the Plan awards issued under other plans, if
the other plans are or were plans of other acquired entities ("Acquired
Entities") (or the parent of the Acquired Entity) and the new Award is
substituted, or the old Award is assumed, by reason of a merger, consolidation,
acquisition of property or of stock, reorganization or liquidation (an
"Acquisition Transaction"). If a written agreement pursuant to which an
Acquisition Transaction is completed is approved by the Board and said agreement
sets forth the terms and conditions of the substitution for or assumption of
outstanding awards of the Acquired Entity, said terms and conditions shall be
deemed to be the action of the Plan Administrator without any further action by
the Plan Administrator, except as may be required for compliance with Rule 16b-3
under the Exchange Act, and the persons holding such Awards shall be deemed to
be Participants and Holders.
7
<PAGE>
7. AWARDS OF OPTIONS
7.1 Grant of Options.
----------------
The Plan Administrator is authorized under the Plan, in its sole
discretion, to issue Options as Incentive Stock Options or as Nonqualified Stock
Options, which shall be appropriately designated.
7.2 Option Exercise Price.
---------------------
The exercise price for shares purchased under an Option shall be as
determined by the Plan Administrator, but shall not be less than 100% of the
Fair Market Value of the Common Stock on the Grant Date with respect to
Incentive Stock Options.
7.3 Term of Options.
---------------
The term of each Option shall be as established by the Plan Administrator
or, if not so established, shall be five (5) years from the Grant Date.
7.4 Exercise of Options.
-------------------
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option the time at which or the installments in which the
Option shall become exercisable, which provisions may be waived or modified by
the Plan Administrator at any time. If not so established in the instrument
evidencing the Option or otherwise set at the time of grant, the Option will be
subject to the following: (a) 25% of the Option shall vest and become
exercisable one year after the Grant Date; (b) the balance of the Option shall
vest and become exercisable in a series of twelve (12) successive quarterly
installments for each additional quarter thereafter; (c) in no event shall any
additional Option Shares vest after termination of Holder's employment by or
service to the Company; and (d) the Plan Administrator may waive or modify the
foregoing schedule at any time.
To the extent that the right to purchase shares has accrued thereunder, an
Option may be exercised from time to time by written notice to the Company, in
accordance with procedures established by the Plan Administrator, setting forth
the number of shares with respect to which the Option is being exercised and
accompanied by payment in full as described in Section 7.5. An Option may not
be exercised as to less than 100 shares at any one time (or the lesser number of
remaining shares covered by the Option).
7.5 Payment of Exercise Price.
-------------------------
The exercise price for shares purchased under an Option shall be paid in
full to the Company by delivery of consideration equal to the product of the
Option exercise price
8
<PAGE>
and the number of shares purchased. Such consideration must be paid in cash or
check (unless, at the time of exercise, the Plan Administrator determines not to
accept a personal check), except that the Plan Administrator, in its sole
discretion, may, either at the time the Option is granted or at any time before
it is exercised and subject to such limitations as the Plan Administrator may
determine, authorize payment in cash and/or one or more of the following
alternative forms: (a) tendering (either actually or, if and so long as the
Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act, by
attestation) Common Stock already owned by the Holder for at least six months
(or any shorter period necessary to avoid a charge to the Company's earnings for
financial reporting purposes) having a Fair Market Value on the day prior to the
exercise date equal to the aggregate Option exercise price; (b) a promissory
note delivered pursuant to Section 12; (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 Plan
Administrator may permit.
7.6 Post-Termination Exercises.
--------------------------
The Plan Administrator may establish and set forth in each instrument that
evidences an Option whether the Option will continue to be exercisable, and the
terms and conditions of such exercise, if a Holder ceases to be employed by, or
to provide services to, the Company or its Subsidiaries, which provisions may be
waived or modified by the Plan Administrator at any time.
If not so established in the instrument evidencing the Option, the Option
will be exercisable according to the following terms and conditions, which may
be waived or modified by the Plan Administrator at any time.
In case of termination of the Holder's employment or services other than by
reason of death or Cause, the Option shall be exercisable, to the extent of the
number of shares purchasable by the Holder at the date of such termination, only
(a) within one (1) year if the termination of the Holder's employment or
services are coincident with Disability or (b) within three (3) months after the
date the Holder ceases to be an employee, director, officer, consultant, agent,
advisor or independent contractor of the Company or a Subsidiary if termination
of the Holder's employment or services is for any reason other than death or
Disability, but in no event later than the remaining term of the Option. Any
9
<PAGE>
Option exercisable at the time of the Holder's death may be exercised, to the
extent of the number of shares purchasable by the Holder at the date of the
Holder's death, by the personal representative of the Holder's estate entitled
thereto at any time or from time to time within one (1) year after the date of
death, but in no event later than the remaining term of the Option. In case of
termination of the Holder's employment or services for Cause, the Option shall
automatically terminate upon first discovery by the Company of any reason for
such termination and the Holder shall have no right to purchase any Shares
pursuant to such Option, unless the Plan Administrator determines otherwise. If
a Holder's employment or services with the Company are suspended pending an
investigation of whether the Holder shall be terminated for Cause, all the
Holder's rights under any Option likewise shall be suspended during the period
of investigation.
A transfer of employment or services between or among the Company and its
Subsidiaries shall not be considered a termination of employment or services.
The effect of a Company-approved leave of absence or short-term break in service
on the terms and conditions of an Option shall be determined by the Plan
Administrator, in its sole discretion.
8. INCENTIVE STOCK OPTION LIMITATIONS
To the extent required by Section 422 of the Code, Incentive Stock Options
shall be subject to the following additional terms and conditions:
8.1 Dollar Limitation.
-----------------
To the extent the aggregate Fair Market Value (determined as of the Grant
Date) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time during any calendar year (under the Plan and all
other stock option plans of the Company) exceeds $100,000, such portion in
excess of $100,000 shall be treated as a Nonqualified Stock Option. In the
event the Participant holds two (2) or more such Options that become exercisable
for the first time in the same calendar year, such limitation shall be applied
on the basis of the order in which such Options were granted.
8.2 10% Shareholders.
----------------
If a Participant owns more than 10% of the total voting power of all
classes of the Company's stock, then the exercise price per share of an
Incentive Stock Option shall not be less than 110% of the Fair Market Value of
the Common Stock on the Grant Date and the Option term shall not exceed five (5)
years. The determination of 10% ownership shall be made in accordance with
Section 422 of the Code.
8.3 Eligible Employees.
------------------
10
<PAGE>
Individuals who are not employees of the Company or one of its parent
corporations or subsidiary corporations may not be granted Incentive Stock
Options. For purposes of this Section 8.3, "parent corporation" and "subsidiary
corporation" shall have the meanings attributed to those terms for purposes of
Section 422 of the Code.
8.4 Term.
----
The term of an Incentive Stock Option shall not exceed ten (10) years.
8.5 Exercisability.
--------------
To qualify for Incentive Stock Option tax treatment, an Option designated
as an Incentive Stock Option must be exercised within three (3) months after
termination of employment for reasons other than death, except that, in the case
of termination of employment due to total Disability, such Option must be
exercised within one (1) year after such termination. Employment shall not be
deemed to continue beyond the first 90 days of a leave of absence unless the
Participant's reemployment rights are guaranteed by statute or contract.
8.6 Taxation of Incentive Stock Options.
-----------------------------------
In order to obtain certain tax benefits afforded to Incentive Stock Options
under Section 422 of the Code, the Participant must hold the shares issued upon
the exercise of an Incentive Stock Option for two (2) years after the Grant Date
of the Incentive Stock Option and one (1) year from the date the shares are
transferred to the Participant. A Participant may be subject to the alternative
minimum tax at the time of exercise of an Incentive Stock Option. The
Participant shall give the Company prompt notice of any disposition of shares
acquired by the exercise of an Incentive Stock Option prior to the expiration of
such holding periods.
8.7 Promissory Notes.
----------------
The amount of any promissory note delivered pursuant to Section 12 in
connection with an Incentive Stock Option shall bear interest at a rate
specified by the Plan Administrator but in no case less than the rate required
to avoid imputation of interest (taking into account any exceptions to the
imputed interest rules) for federal income tax purposes.
8.8 Incorporation of Other Provisions.
---------------------------------
With respect to Incentive Stock Options, if this Plan does not contain any
provision required to be included herein under Section 422 of the Code, such
provision shall be deemed to be incorporated herein with the same force and
effect as if such
11
<PAGE>
provision had been set out in full herein; provided, however, that to the extent
any Option that is intended to qualify as an Incentive Stock Option cannot so
qualify, the Option, to that extent, shall be deemed to be a Nonqualified Stock
Option for all purposes of this Plan.
9. STOCK APPRECIATION RIGHTS
9.1 Grant of Stock Appreciation Rights.
----------------------------------
The Plan Administrator may grant a Stock Appreciation Right separately or
in tandem with a related Option.
9.2 Tandem Stock Appreciation Rights.
--------------------------------
A Stock Appreciation Right granted in tandem with a related Option will
give the Holder the right to surrender to the Company all or a portion of the
related Option and to receive an appreciation distribution (in shares of Common
Stock or cash or any combination of shares and cash, as the Plan Administrator,
in its sole discretion, shall determine at any time) in an amount equal to the
excess of the Fair Market Value for the date the Stock Appreciation Right is
exercised over the exercise price per share of the right, which shall be the
same as the exercise price of the related Option. A tandem Stock Appreciation
Right will have the same other terms and provisions as the related Option. Upon
and to the extent a tandem Stock Appreciation Right is exercised, the related
Option will terminate.
9.3 Stand-Alone Stock Appreciation Rights.
-------------------------------------
A Stock Appreciation Right granted separately and not in tandem with an
Option will give the Holder the right to receive an appreciation distribution in
an amount equal to the excess of the Fair Market Value for the date the Stock
Appreciation Right is exercised over the exercise price per share of the right.
A stand-alone Stock Appreciation Right will have such terms as the Plan
Administrator may determine, except that the term of the right, if not otherwise
established by the Plan Administrator, shall be ten (10) years from the Grant
Date.
9.4 Exercise of Stock Appreciation Rights.
-------------------------------------
Unless otherwise provided by the Plan Administrator in the instrument that
evidences the Stock Appreciation Right, the provisions of Section 7.6 relating
to the termination of a Holder's employment or services shall apply equally, to
the extent applicable, to the Holder of a Stock Appreciation Right.
10. STOCK AWARDS
12
<PAGE>
10.1 Grant of Stock Awards.
---------------------
The Plan Administrator is authorized to make Awards of Common Stock or of
rights to receive shares of Common Stock to Participants on such terms and
conditions and subject to such restrictions, if any (which may be based on
continuous service with the Company or the achievement of performance goals
related to (i) sales, gross margin, operating profits or profits, (ii) growth in
sales, gross margin, operating profits or profits, (iii) return ratios related
to sales, gross margin, operating profits or profits, (iv) cash flow, (v) asset
management (including inventory management), or (vi) total shareholder return,
where such goals may be stated in absolute terms or relative to comparison
companies), as the Plan Administrator shall determine, in its sole discretion,
which terms, conditions and restrictions shall be set forth in the instrument
evidencing the Award. The terms, conditions and restrictions that the Plan
Administrator shall have the power to determine shall include, without
limitation, the manner in which shares subject to Stock Awards are held during
the periods they are subject to restrictions and the circumstances under which
forfeiture of Restricted Stock shall occur by reason of termination of the
Holder's services or upon the occurrence of other events.
10.2 Issuance of Shares.
------------------
Upon the satisfaction of any terms, conditions and restrictions prescribed
with respect to a Stock Award, or upon the Holder's release from any terms,
conditions and restrictions of a Stock Award, as determined by the Plan
Administrator, the Company shall transfer, as soon as practicable, to the Holder
or, in the case of the Holder's death, to the personal representative of the
Holder's estate or as the appropriate court directs, the appropriate number of
shares of Common Stock covered by the Award.
10.3 Waiver of Restrictions.
----------------------
Notwithstanding any other provisions of the Plan, the Plan Administrator
may, in its sole discretion, waive the forfeiture period and any other terms,
conditions or restrictions on any Restricted Stock under such circumstances and
subject to such terms and conditions as the Plan Administrator shall deem
appropriate.
11. OTHER STOCK-BASED AWARDS
The Plan Administrator may grant other Awards under the Plan pursuant to
which shares of Common Stock (which may, but need not, be shares of Restricted
Stock pursuant to Section 10) are or may in the future be acquired, or Awards
denominated in stock units, including ones valued using measures other than
market value. Such Other Stock-Based Awards may be granted alone or in addition
to or in tandem with any Award of any type granted under the Plan and must be
consistent with the Plan's purpose.
13
<PAGE>
12. LOANS, INSTALLMENT PAYMENTS AND LOAN GUARANTEES
To assist a Holder (including a Holder who is an officer or director of the
Company) in acquiring shares of Common Stock pursuant to an Award granted under
the Plan, the Plan Administrator, in its sole discretion, may authorize, either
at the Grant Date or at any time before the acquisition of Common Stock pursuant
to the Award, (a) the extension of a loan to the Holder by the Company, (b) the
payment by the Holder of the purchase price, if any, of the Common Stock in
installments, or (c) the guarantee by the Company of a loan obtained by the
grantee from a third party. The terms of any loans, installment payments or
loan guarantees, including the interest rate and terms of and security for
repayment, will be subject to the Plan Administrator's discretion; provided,
however, that repayment of any Company loan to the Holder shall be secured by
delivery of a full-recourse promissory note for the loan amount executed by the
Holder, together with any other form of security determined by the Plan
Administrator. The maximum credit available is the purchase price, if any, of
the Common Stock acquired, plus the maximum federal and state income and
employment tax liability that may be incurred in connection with the
acquisition.
13. ASSIGNABILITY
Except as otherwise specified or approved by the Plan Administrator at the
time of grant of an Award or any time prior to its exercise, no Award granted
under the Plan may be assigned, pledged or transferred by the Holder other than
by will or by the laws of descent and distribution, and during the Holder's
lifetime, such Awards may be exercised only by the Holder. Notwithstanding the
foregoing, and to the extent permitted by Section 422 of the Code, the Plan
Administrator, in its sole discretion, may permit such assignment, transfer and
exercisability and may permit a Holder of such Awards to designate a beneficiary
who may exercise the Award or receive compensation under the Award after the
Holder's death; provided, however, that (i) any Award so assigned or transferred
shall be subject to all the same terms and conditions contained in the
instrument evidencing the Award, (ii) the original Holder shall remain subject
to withholding taxes upon exercise, (iii) any subsequent transfer of an Award
shall be prohibited and (iv) the events of termination of employment or
contractual relationship set forth in subsection 7.6 shall continue to apply
with respect to the original transferor-Holder.
14. ADJUSTMENTS
14.1 Adjustment of Shares.
--------------------
In the event that, at any time or from time to time, a stock dividend,
stock split, spin-off, combination or exchange of shares, recapitalization,
merger, consolidation, distribution to shareholders other than a normal cash
dividend, or other change in the
14
<PAGE>
Company's corporate or capital structure results in (a) the outstanding shares,
or any securities exchanged therefor or received in their place, being exchanged
for a different number or class of securities of the Company or of any other
corporation or (b) new, different or additional securities of the Company or of
any other corporation being received by the holders of shares of Common Stock of
the Company, then the Plan Administrator, in its sole discretion, shall make
such equitable adjustments as it shall deem appropriate in the circumstances in
(i) the maximum number and class of securities subject to the Plan as set forth
in Section 4.1, (ii) the maximum number and class of securities that may be made
subject to Awards to any individual Participant as set forth in Section 4.2, and
(iii) the number and class of securities that are subject to any outstanding
Award and the per share price of such securities, without any change in the
aggregate price to be paid therefor. The determination by the Plan Administrator
as to the terms of any of the foregoing adjustments shall be conclusive and
binding.
14.2 Dissolution, Liquidation or Change in Control Transactions.
----------------------------------------------------------
(a) In the event of the proposed dissolution or liquidation of the
Company, the Company shall notify each Holder at least fifteen (15) days prior
to such proposed action. To the extent not previously exercised, all Awards will
terminate immediately prior to the consummation of such proposed action.
(b) If, in connection with a Change in Control, an Option does not
remain outstanding and either such Option is not assumed by the surviving entity
or its parent, or the surviving entity or its parent does not substitute options
with substantially the same terms for such Option, such Option shall, unless the
applicable agreement representing an Option provides otherwise, or unless the
Plan Administrator determines otherwise in its sole and absolute discretion,
become exercisable in full, whether or not the vesting requirements set forth in
the Option Agreement have been satisfied, for a period prior to the effective
date of such Change in Control of a duration specified by the Plan
Administrator, and thereafter the Option shall terminate.
(c) Unless the applicable agreement representing an Award provides
otherwise, or unless the Plan Administrator determines otherwise in its sole and
absolute discretion in connection with any Change in Control, the vesting of
Shares shall be accelerated, and the Company's repurchase right with respect to
such shares shall lapse, in connection with a Change in Control which becomes
effective before such Holder's service to the Company terminates as follows:
(i) If Options were outstanding at the effective time of the
Change in Control and they are accelerated in full pursuant to Subsection (b)
above or otherwise, the vesting of all Shares shall be accelerated in full, and
the Company's
15
<PAGE>
repurchase right with respect to all such shares shall lapse in full, whether or
not the vesting requirements set forth in the applicable Award agreement have
been satisfied.
(d) Notwithstanding Subsections (b) and (c) 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 Subsections (b) and (c) above, then the acceleration of
exercisability or the lapse of the Company's right to repurchase 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.
14.3 Further Adjustment of Awards.
----------------------------
Subject to the preceding Section 14.2, the Plan Administrator shall have
the discretion, exercisable at any time before a sale, merger, consolidation,
reorganization, dissolution, liquidation or Change in Control of the Company, as
defined by the Plan Administrator, to take such further action as it determines
to be necessary or advisable, and fair and equitable to Participants, with
respect to Awards. 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, Awards 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, and the Plan
Administrator may take such actions with respect to all Participants, to certain
categories of Participants or only to individual Participants. The Plan
Administrator may take such actions before or after granting Awards to which the
action relates and before or after any public announcement with respect to such
sale, merger, consolidation, reorganization, dissolution, liquidation or Change
in Control that is the reason for such action. Without limiting the generality
of the foregoing, if the Company is a party to a merger or consolidation,
outstanding Awards shall be subject to the agreement of merger or consolidation.
Such agreement, without the Holder's consent, may provide for:
(a) the continuation of such outstanding Award by the Company (if the
Company is the surviving corporation);
(b) the assumption of the Plan and some or all outstanding Awards by
the surviving corporation or its parent;
16
<PAGE>
(c) the substitution by the surviving corporation or its parent of
Awards with substantially the same terms for such outstanding Awards; or
(d) the cancellation of such outstanding Awards with or without
payment of any consideration.
14.4 Limitations.
-----------
The grant of Awards will in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
14.5 Fractional Shares.
-----------------
In the event of any adjustment in the number of shares covered by any
Option, any fractional shares resulting from such adjustment shall be
disregarded and each such Option shall cover only the number of full shares
resulting from such adjustment.
15. WITHHOLDING
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 grant, exercise, payment or settlement of any Award. The Company shall
have the right to withhold from any Award or any shares of Common Stock issuable
pursuant to an Award or from any cash amounts otherwise due or to become due
from the Company to the Participant an amount equal to such taxes. The Company
may also deduct from any Award any other amounts due from the Participant to the
Company or a Subsidiary.
16. AMENDMENT AND TERMINATION OF PLAN
16.1 Amendment of Plan.
-----------------
The Plan may be amended by the Board in such respects as it shall deem
advisable including, without limitation, such modifications or amendments as are
necessary to maintain compliance with applicable statutes, rules or regulations;
however, to the extent required for compliance with Section 422 of the Code or
any applicable law or regulation, shareholder approval will be required for any
amendment that will increase the aggregate number of shares as to which
Incentive Stock Options may be granted or change the class of persons eligible
to participate. Amendments made to the Plan which would constitute
"modifications" to Incentive Stock Options outstanding on the date of such
Amendments shall not be applicable to such outstanding Incentive Stock Options
but shall have prospective effect only. The Board may condition the
effectiveness of any amendment on the receipt of shareholder approval at such
time and in such manner as the Board may
17
<PAGE>
consider necessary for the Company to comply with or to avail the Company, the
Holders or both of the benefits of any securities, tax, market listing or other
administrative or regulatory requirement which the Board determines to be
desirable. Whenever shareholder approval is sought, and unless required
otherwise by applicable law or exchange requirements, the proposed action shall
require the affirmative vote of holders of a majority of the shares present,
entitled to vote and voting on the matter without including abstentions or
broker non-votes in the denominator.
16.2 Termination Of Plan.
-------------------
The Company's shareholders or the Board may suspend or terminate the Plan
at any time. The Plan will have no fixed expiration date; provided, however,
that no Incentive Stock Options may be granted more than ten (10) years after
the earlier of the Plan's adoption by the Board or approval by the shareholders.
17. GENERAL
17.1 Award Agreements.
----------------
Awards granted under the Plan shall be evidenced by a written agreement
which shall contain such terms, conditions, limitations and restrictions as the
Plan Administrator shall deem advisable and which are not inconsistent with the
Plan.
17.2 Continued Employment or Services; Rights In Awards.
--------------------------------------------------
None of the Plan, participation in the Plan as a Participant or any action
of the Plan Administrator taken under the Plan shall be construed as giving any
Participant or employee of the Company any right to be retained in the employ of
the Company or limit the Company's right to terminate the employment or services
of the Participant.
17.3 Registration; Certificates For Shares.
-------------------------------------
The Company shall be under no obligation to any Participant to register for
offering or resale or to qualify for exemption under the Securities Act, or to
register or qualify under state securities laws, any shares of Common Stock,
security or interest in a security paid or issued under, or created by, the
Plan, or to continue in effect any such registrations or qualifications if made.
The Company may issue certificates for shares with such legends and subject to
such restrictions on transfer and stop-transfer instructions as counsel for the
Company deems necessary or desirable for compliance by the Company with federal
and state securities laws.
Inability of the Company to obtain, from any regulatory body having
jurisdiction, the authority deemed by the Company's counsel to be necessary for
the lawful issuance
18
<PAGE>
and sale of any shares hereunder or the unavailability of an exemption from
registration for the issuance and sale of any shares hereunder shall relieve the
Company of any liability in respect of the nonissuance or sale of such shares as
to which such requisite authority shall not have been obtained.
17.4 No Rights As A Shareholder.
--------------------------
No Option, Stock Appreciation Right or Other Stock-Based Award shall
entitle the Holder to any cash dividend, voting or other right of a shareholder
unless and until the date of issuance under the Plan of the shares that are the
subject of such Award, free of all applicable restrictions.
17.5 Compliance With Laws And Regulations.
------------------------------------
In interpreting and applying the provisions of the Plan, any Option granted
as an Incentive Stock Option pursuant to the Plan shall, to the extent permitted
by law, be construed as an "incentive stock option" within the meaning of
Section 422 of the Code.
17.6 No Trust Or Fund.
----------------
The Plan is intended to constitute an "unfunded" plan. Nothing contained
herein shall require the Company to segregate any monies or other property, or
shares of Common Stock, or to create any trusts, or to make any special deposits
for any immediate or deferred amounts payable to any Participant, and no
Participant shall have any rights that are greater than those of a general
unsecured creditor of the Company.
17.7 Severability.
------------
If any provision of the Plan or any Award is determined to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person, or would
disqualify the Plan or any Award under any law deemed applicable by the Plan
Administrator, such provision shall be construed or deemed amended to conform to
applicable laws, or, if it cannot be so construed or deemed amended without, in
the Plan Administrator's determination, materially altering the intent of the
Plan or the Award, such provision shall be stricken as to such jurisdiction,
person or Award, and the remainder of the Plan and any such Award shall remain
in full force and effect.
18. EFFECTIVE DATE
The Plan's effective date is the date on which it is adopted by the Board,
so long as it is approved by the Company's shareholders at any time within
twelve (12) months of such adoption.
19
<PAGE>
Original Plan adopted by the Board on ________, 1999 and approved by the
Company's shareholders on ________, 1999.
20
<PAGE>
PLAN ADOPTION AND AMENDMENTS/ADJUSTMENTS
----------------------------------------
<TABLE>
<CAPTION>
Date of
Adoption/ Date of Shareholder
Amendment/ Approval
Adjustment Section Effect of Amendment (if applicable)
- --------------------- ---------------------- ------------------------- --------------------
<S> <C> <C> <C>
Adoption by Board on -- -- ______, ____
________, 1999
</TABLE>
21
<PAGE>
ATTACHMENT 2
SEATTLE FILMWORKS, INC.
1999 STOCK INCENTIVE COMPENSATION PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
(A) Name of Holder: _________________________
(B) Grant Date: _____________________________
(C) Number of Shares: _______________________
(D) Exercise Price: _________________________
(E) Expiration Date: ________________________
(F) Vesting Commencement Date: _________________
THIS NONQUALIFIED STOCK OPTION AGREEMENT (the "Agreement") is made and
entered into as of the date set forth in Item (B) above (the "Grant Date")
between Seattle FilmWorks, Inc., a Washington corporation (the "Company") and
the person named in Item A above ("Holder").
THE PARTIES AGREE AS FOLLOWS:
1. Grant of Option; Grant Date. The Company hereby grants to Holder
pursuant to the Company's 1999 Stock Incentive Compensation Plan, as amended
from time to time (the "Plan"), a copy of which is available from the Company on
request, the right (the "Option") to purchase up to the number of shares of the
Company's Common Stock listed in Item (C) above (the "Option Shares") at the
price per share set forth in Item (D) above (the "Exercise Price"), on the terms
and conditions set forth in this Agreement and in the Plan, the terms and
conditions of the Plan being incorporated into this Agreement by reference.
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 14 of the
Plan.
2. Termination of Option. A vested 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;
<PAGE>
(b) the expiration of three months from the date of Holder's
termination of employment by or services to the Company for any reason other
than death or disability (as defined in the Plan);
(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 (as defined in the Plan); or
(d) immediately upon Holder's termination of employment by or service
to the Company for Cause (as defined in the Plan).
3. Exercise of Options.
3.1 Exercise Schedule. This Option shall vest and be exercisable
according to the following schedule: (a) 25% on the date one year after the
Vesting Commencement Date; and (b) the balance in a series of twelve (12)
successive equal quarterly installments for each quarter thereafter. 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 the Option is subject to acceleration in
accordance with the provisions of Section 14.2 of the Plan.
3.2 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 3.2 (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 3.4 below and (iii) paying his or her 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.
3.3 Payment. Payment is required to be made for Option Shares
purchased at the time written notice of exercise of the Option is given to the
Company as provided in Section 7.5 of the Plan. The proceeds of any payment
shall constitute general funds of the Company.
4. Nonassignability of Option. This Option is not assignable or
transferable by Holder except in accordance with Section 13 of the Plan. Any
attempt to assign, pledge, transfer, hypothecate or otherwise dispose of this
Option in a manner not herein permitted, and any levy of execution, attachment,
or similar process on this Option, shall be null and void.
2
<PAGE>
5. Restriction on Issuance of Shares.
5.1 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 of 1933, as amended (the "Securities Act").
5.2 Registration or Qualification of Securities. The Company may,
but shall not be required to, register or qualify the sale of any Option Shares
under the Securities Act or any other applicable law. The Company shall not be
obligated to take any affirmative action in order to cause the grant or exercise
of this Option or the issuance or sale of any Option Shares pursuant thereto to
comply with any law.
6. 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.
7. 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.
8. 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.
3
<PAGE>
9. 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.
10. 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.
11. 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:
Seattle FilmWorks, 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.
12. 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 12 shall prevent a party from applying to a court of competent
jurisdiction to obtain temporary relief pending resolution 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 11 shall be valid and sufficient.
13. 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
4
<PAGE>
Company, or in any way limit the right of the Company to terminate Holder's
relationship with the Company.
Agreement Subject to Plan. This Option and this Agreement evidencing and
confirming the same are subject to the terms and conditions set forth in the
Plan and in any amendments to the Plan existing now or in the future, which
terms and conditions are incorporated herein by reference. A copy of the Plan
will be made available to Holder upon request. Should any conflict exist
between the provisions of the Plan and those of this Agreement, those of this
Agreement shall govern and control. This Agreement and the Plan set forth the
entire and exclusive understanding between the Company and Holder with respect
to the Option and shall be deemed to integrate, replace and supersede all
previous communications, representations or agreements between the parties,
whether written or oral, regarding the grant of stock options or the purchase by
or issuances of shares to Holder. Neither this Agreement nor any term hereof
may be changed, waived, discharged or terminated except by an instrument in
writing signed by the Company and the Holder.
IN WITNESS WHEREOF, the parties have executed this Option Agreement as of
the Effective Date.
SEATTLE FILMWORKS, INC.
By _______________________________________________
Title ____________________________________________
Holder hereby accepts and agrees to be bound by all of the terms and conditions
of this Agreement and the Plan.
Holder ___________________________________________
5
<PAGE>
EXHIBIT 3.2
NOTICE OF EXERCISE
(To be signed only upon exercise of Option)
To: Seattle FilmWorks, Inc.
____________________________
The undersigned, the holder of an option to purchase shares of common stock
of Seattle FilmWorks, 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:
__________________________________________________
By:_______________________________________________
Title:____________________________________________
ADDRESS:
__________________________________________________
__________________________________________________
__________________________________________________
<PAGE>
ATTACHMENT 3
SEATTLE FILMWORKS, INC.
1999 STOCK INCENTIVE COMPENSATION PLAN
INCENTIVE STOCK OPTION AGREEMENT
(A) Name of Holder: _________________________
(B) Grant Date: _____________________________
(C) Number of Shares: _______________________
(D) Exercise Price: _________________________
(E) Expiration Date: ________________________
(F) Vesting Commencement Date: _________________
THIS INCENTIVE STOCK OPTION AGREEMENT (the "Agreement") is made and entered
into as of the date set forth in Item (B) above (the "Grant Date") between
Seattle FilmWorks, Inc., a Washington corporation (the "Company") and the person
named in Item A above ("Holder").
THE PARTIES AGREE AS FOLLOWS:
1. Grant of Option; Grant Date. The Company hereby grants to Holder
pursuant to the Company's 1999 Stock Incentive Compensation Plan, as amended
from time to time (the "Plan"), a copy of which is available from the Company on
request, the right (the "Option") to purchase up to the number of shares of the
Company's Common Stock listed in Item (C) above (the "Option Shares") at the
price per share set forth in Item (D) above (the "Exercise Price"), on the terms
and conditions set forth in this Agreement and in the Plan, the terms and
conditions of the Plan being incorporated into this Agreement by reference.
This Option is 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 14 of the Plan.
2. Termination of Option. A vested 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;
<PAGE>
(b) the expiration of three months from the date of Holder's
termination of employment by or services to the Company for any reason other
than death or disability (as defined in the Plan);
(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 (as defined in the Plan); or
(d) immediately upon Holder's termination of employment by or service
to the Company for Cause (as defined in the Plan).
3. Exercise of Options.
3.1 Exercise Schedule. This Option shall vest and be exercisable
according to the following schedule: (a) 25% on the date one year after the
Vesting Commencement Date; and (b) the balance in a series of twelve (12)
successive equal quarterly installments for each quarter thereafter. 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 the Option is subject to acceleration in
accordance with the provisions of Section 14.2 of the Plan.
3.2 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 3.2 (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 3.4 below and (iii) paying his or her 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.
3.3 Payment. Payment is required to be made for Option Shares
purchased at the time written notice of exercise of the Option is given to the
Company as provided in Section 7.5 of the Plan. The proceeds of any payment
shall constitute general funds of the Company.
4. Nonassignability of Option. This Option is not assignable or
transferable by Holder except in accordance with Section 13 of the Plan. Any
attempt to assign, pledge, transfer, hypothecate or otherwise dispose of this
Option in a manner not herein permitted, and any levy of execution, attachment,
or similar process on this Option, shall be null and void.
2
<PAGE>
5. Restriction on Issuance of Shares.
5.1 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 of 1933, as amended (the "Securities Act").
5.2 Registration or Qualification of Securities. The Company may,
but shall not be required to, register or qualify the sale of any Option Shares
under the Securities Act or any other applicable law. The Company shall not be
obligated to take any affirmative action in order to cause the grant or exercise
of this Option or the issuance or sale of any Option Shares pursuant thereto to
comply with any law.
6. 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.
7. 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.
8. 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.
3
<PAGE>
9. 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.
10. 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.
11. 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:
Seattle FilmWorks, 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.
12. 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 12 shall prevent a party from applying to a court of competent
jurisdiction to obtain temporary relief pending resolution 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 11 shall be valid and sufficient.
13. 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
4
<PAGE>
Company, or in any way limit the right of the Company to terminate Holder's
relationship with the Company.
Agreement Subject to Plan. This Option and this Agreement evidencing and
confirming the same are subject to the terms and conditions set forth in the
Plan and in any amendments to the Plan existing now or in the future, which
terms and conditions are incorporated herein by reference. A copy of the Plan
will be made available to Holder upon request. Should any conflict exist
between the provisions of the Plan and those of this Agreement, those of this
Agreement shall govern and control. This Agreement and the Plan set forth the
entire and exclusive understanding between the Company and Holder with respect
to the Option and shall be deemed to integrate, replace and supersede all
previous communications, representations or agreements between the parties,
whether written or oral, regarding the grant of stock options or the purchase by
or issuances of shares to Holder. Neither this Agreement nor any term hereof
may be changed, waived, discharged or terminated except by an instrument in
writing signed by the Company and the Holder.
IN WITNESS WHEREOF, the parties have executed this Option Agreement as of
the Effective Date.
SEATTLE FILMWORKS, INC.
By _______________________________________________
Title ____________________________________________
Holder hereby accepts and agrees to be bound by all of the terms and conditions
of this Agreement and the Plan.
__________________________________________________
Holder
5
<PAGE>
EXHIBIT 3.2
NOTICE OF EXERCISE
(To be signed only upon exercise of Option)
To: Seattle FilmWorks, Inc.
____________________________
The undersigned, the holder of an option to purchase shares of common stock
of Seattle FilmWorks, 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:
__________________________________________________
By:_______________________________________________
Title:____________________________________________
ADDRESS:
__________________________________________________
__________________________________________________
__________________________________________________
