Exhibit 10.28
PHOTOWORKS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
THIS NONQUALIFIED STOCK OPTION AGREEMENT (the "Agreement") is made and
entered into as of October 17, 2003 between PhotoWorks, Inc., a Washington
corporation (the "Company") and Xxxxxxxx Xxxxxxx ("Holder").
THE PARTIES AGREE AS FOLLOWS:
1. Grant of Option. The Company hereby grants to Holder, the right (the
"Option") to purchase up to 750,000 shares of the Company's Common Stock (the
"Option Shares") at a price per share of $.55 (the "Exercise Price"), on the
terms and conditions set forth in this Agreement. This Option is not intended to
qualify as an incentive stock option for purposes of Section 422 of the Internal
Revenue Code of 1986, as amended. The number and kind of Option Shares and the
Exercise Price may be adjusted in certain circumstances in accordance with the
provisions of Section 4 below.
2. Definitions. For purposes of this Agreement, the following terms shall
be defined as set forth below:
2.1 Board. "Board" means the Board of Directors of the Company.
2.2 Cause. "Cause" means: (i) a clear refusal to carry out any
material lawful duties of the Executive or any reasonable directions of the
Board, provided the Executive has been given reasonable notice and opportunity
to correct any such failure; (ii) violation by the Executive of a state or
federal criminal law involving the commission of a crime against the Company or
any of its subsidiaries; (iii) deception, fraud, misrepresentation or dishonesty
by the Executive, or any incident or conduct materially compromising the
Executive's reputation or ability to represent the Company with investors,
customers or the public; (iv) unauthorized use or disclosure of confidential
information or trade secrets; or (v) Executive's inability to perform the duties
of his job due to physical or mental disability for a period in excess of 60
days consecutively or 90 days cumulatively during any twelve month period.
2.3 Change in Control. "Change in Control" means (i) the
consummation of a merger or consolidation of the Company with or into another
entity or any other corporate reorganization or transaction, 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
or transaction is owned by persons who were not shareholders of the Company
immediately prior to such merger, consolidation or other reorganization or
transaction, or (ii) the sale, transfer or other disposition of all or
substantially all of the Company's assets. A transaction shall not constitute a
Change in Control if its sole purpose is to change the state of the Company's
incorporation or to create a holding company that will be owned in substantially
the same proportions by the persons who held the Company's securities
immediately before such transaction.
2.4 Common Stock. "Common Stock" means the common stock, par value
$.01, of the Company.
2.5 Disability. "Disability" means a medically determinable mental
or physical impairment or condition of the Holder which is expected to result in
death or which has lasted or is expected to last for a continuous period of
twelve (12) months or more and which causes the Holder to be unable, in the
opinion of the Board on the basis of evidence acceptable to it, to perform his
duties for the Company.
2.6 Fair Market Value. "Fair Market Value" shall be as established
in good faith by the Board or (a) if the Common Stock is listed on the Nasdaq
National Market, the closing sales price for the Common Stock as reported by the
Nasdaq National Market for a single trading day; (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; or
(c) if the Common Stock is listed on the Over the Counter Bulletin Board, the
closing sales price for the Company Stock as reported by the OTCBB for a single
trading day. If there is no such reported price for the Common Stock for the
date in question, then such price on the last preceding date for which such
price exists shall be determinative of Fair Market Value.
2.7 Grant Date. The Grant Date of this Option is October 17, 2003.
2.8 Securities Act. "Securities Act" means the Securities Act of
1933, as amended.
2.9 Subsidiary. "Subsidiary," except as expressly provided
otherwise, means any entity that is directly or indirectly controlled by the
Company or in which the Company has a significant ownership interest, as
determined by the Board, and any entity that may become a direct or indirect
parent of the Company.
Termination of Option. This Option shall terminate, to the extent not
previously exercised, upon the occurrence of the first of the following events:
(a) seven years from the Grant Date;
(b) the expiration of three months from the date Holder ceases to be
an employee, director, officer, consultant, agent, advisor or independent
contractor of the Company or a Subsidiary, for any reason other than death or
Disability;
(c) the expiration of one year from (i) the date of Holder's death;
or (ii) Holder's termination of employment by or service to the Company
coincident with Disability; or
(d) immediately upon Holder's termination of employment by or
service to the Company for Cause.
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3. Exercise of Option.
3.1 Exercise Schedule. This Option shall vest and become exercisable
with respect to 187,500 of the Option Shares on the one-year anniversary of the
Grant Date, and with respect to the remaining Option Shares, 46,875 Option
Shares on each successive three month anniversary following the one-year
anniversary of the Grant Date such that the Option shall be fully vested on the
fourth anniversary of the Grant Date. In no event shall the Option continue to
vest after Holder's termination of employment by or service to the Company. The
unvested portion of the Option, if any, shall terminate immediately upon the
Holder's termination of employment by or service to the Company for any reason
whatsoever. The vesting schedule for this Option is subject to acceleration in
accordance with the provisions of Section 4.2 below
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 4.2 (or at the option of the Company such
other form of stock purchase agreement as shall then be acceptable to the
Company), (ii) paying in full the Exercise Price in the manner provided in
Section 3.3 below and (iii) paying his share of any applicable withholding or
employment taxes. This Option may not be exercised as to less than 100 Shares at
any one time (or the lesser number of remaining shares covered by this Option).
The date the Company receives each of the above items will be considered the
date this Option was exercised.
3.3 Payment of the Exercise Price. The Exercise Price for Shares
purchased under this Option shall be paid in full to the Company by delivery of
consideration equal to the product of the Exercise Price and the number of
Shares purchased. Such consideration must be paid in cash or check, except that
the Board of Directors, in its sole discretion, may, authorize payment in one or
more of the following alternative forms: (a) tendering (either actually or, if
and so long as the Common Stock is registered under Section 12(b) or 12(g) of
the Exchange Act, by attestation) Common Stock already owned by the Holder for
at least six months (or any shorter period necessary to avoid a charge to the
Company's earnings for financial reporting purposes) having a Fair Market Value
on the day prior to the exercise date equal to the aggregate Option Exercise
Price; (b) 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 acceptable to the
Company to deliver promptly to the Company the aggregate amount of 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 (c) such other consideration
(other than a promissory note or other form of indebtedness from Holder to the
Company) as the Board of Directors may permit. The proceeds of any payment shall
constitute general funds of the Company.
3.4 Nonassignability of Option. This Option may not be assigned,
pledged or transferred by the Holder other than by will or by the laws of
descent and distribution, and during the Holder's lifetime, such this Option may
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be exercised only by the Holder. Any attempt to assign, pledge, transfer,
hypothecate or otherwise dispose of this Option and any levy of execution,
attachment, or similar process on this Option, shall be null and void.
4. Adjustments.
4.1 Adjustments of Shares. In the event that, at any time or from
time to time, a stock dividend, stock split, spin-off, combination or exchange
of shares, recapitalization, merger, consolidation, distribution to shareholders
other than a normal cash dividend, or other change in the Company's corporate or
capital structure results in (a) the outstanding shares, or any securities
exchanged therefor or received in their place, being exchanged for a different
number or class of securities of the Company or of any other corporation or (b)
new, different or additional securities of the Company or of any other
corporation being received by the holders of shares of Common Stock of the
Company, then the Board, in its sole discretion, shall make such equitable
adjustments as it shall deem appropriate in the circumstances in the number and
class of securities that are subject to this Option and the per share price of
such securities, without any change in the aggregate price to be paid therefor.
The determination by Board as to the terms of any of the foregoing adjustments
shall be conclusive and binding.
4.2 Change in Control Transactions.
In the event of a Change in Control, all unvested Option Shares at the
date of the Change of Control will automatically vest and become exercisable.
4.3 Further Adjustment of Awards.
Subject to the preceding Section 4.2, the Board shall have the discretion,
exercisable at any time before a sale, merger, consolidation, reorganization,
dissolution, liquidation or Change in Control of the Company to take such
further action as it determines to be necessary or advisable, and fair and
equitable to Holder, with respect to this Option. Such authorized action may
include (but shall not be limited to) establishing, amending or waiving the
type, terms, conditions or duration of, or restrictions on, this Option so as to
provide for earlier, later, extended or additional time for exercise, payment or
settlement or lifting restrictions, differing methods for calculating payments
or settlements, alternate forms and amounts of payments and settlements and
other modifications.
4.4 Fractional Shares.
In the event of any adjustment in the number of shares covered by this
Option, any fractional shares resulting from such adjustment shall be
disregarded and this Option shall cover only the number of full shares resulting
from such adjustment.
5. Withholding Taxes
The Company may require the Holder to pay to the Company in cash the
amount of any withholding taxes that the Company is required to withhold with
respect to the exercise of this Option. The Company shall have the right to
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withhold from any shares of Common Stock issuable pursuant to this Option, a
number of shares of Common Stock, the Fair Market Value of which is equal to the
amount of such taxes. The Company may also deduct from this Option any other
amounts due from the Holder to the Company or a Subsidiary.
6. Restriction on Issuance of Shares.
The Company shall not be obligated to sell or issue any Option Shares
pursuant to this Agreement if such sale or issuance, in the judgment of the
Company and the Company's counsel, might constitute a violation by the Company
of any provision of law, including without limitation the provisions of the
Securities Act.
7. 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.
8. No Rights As A Shareholder.
This Option shall not entitle the Holder to any cash dividend, voting or
other right of a shareholder unless and until the date of issuance of the shares
that are the subject of this Option.
9. 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.
10. 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.
11. 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 not in conformity with the provisions of this
Agreement.
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12. 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.
13. Notices. All notices and other communications under this Agreement
shall be in writing. Unless and until Holder is notified in writing to the
contrary, all notices, communications, and documents directed to the Company and
related to the Agreement, if not delivered by hand, shall be mailed, addressed
as follows:
PhotoWorks, Inc.
0000 - 00xx Xxxxxx Xxxx
Xxxxxxx, Xxxxxxxxxx 00000
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.
14. Arbitration. Any and all disputes or controversies arising out of this
Agreement shall be finally settled by arbitration conducted in Seattle,
Washington, in accordance with the then existing rules of the American
Arbitration Association, and judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof; provided that nothing
in this Section 14 shall prevent a party from applying to a court of competent
jurisdiction to obtain temporary relief pending resolution of the dispute
through arbitration. The parties hereby agree that service of any notices in the
course of such arbitration at their respective addresses as provided for in
Section 13 shall be valid and sufficient.
15. Rights of Holder. Neither this Option, the execution of this Agreement
nor the exercise of any portion of this Option shall confer upon Holder any
right to, or guarantee of, continued employment by, or service as a director or
consultant to, the Company, or in any way limit the right of the Company to
terminate Holder's relationship with the Company.
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IN WITNESS WHEREOF, the parties have executed this Option Agreement as of
the Effective Date.
PHOTOWORKS, INC.
By /s/ Xxxxx Xxxxxxxx Bond
Title Vice President Administration
Holder hereby accepts and agrees to be bound by all of the terms and conditions
of this Agreement.
/s/ Xxxxxxxx Xxxxxxx
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Holder
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EXHIBIT 4.2
NOTICE OF EXERCISE
(To be signed only upon exercise of Option)
To: PhotoWorks, Inc.
0000 - 00xx Xxxxxx Xxxx
Xxxxxxx, Xxxxxxxxxx 00000
The undersigned, the holder of an option to purchase shares of common
stock of PhotoWorks, Inc. pursuant to an Option Agreement dated as of __________
__, ____ (the "Option Agreement") hereby irrevocably elects to exercise the
purchase right represented by the Option Agreement for, and to purchase under
that Option Agreement, __________ shares of Common Stock and herewith makes
payment of $_____________ for those shares and payment of $___________ for
holder's share of withholding and employment taxes resulting from such exercise.
Holder hereby confirms the representations, warranties and agreements set forth
in the Option Agreement.
DATED: __________________, ____.
HOLDER:
________________________________________
By: ____________________________________
Title: _________________________________
ADDRESS:
________________________________________
________________________________________
________________________________________
