PHOTOWORKS, INC.

SHARE EXCHANGE AGREEMENT

This Share Exchange Agreement (this Agreement) is made as of February 16, 2005, by and between PhotoWorks, Inc., a Washington corporation (the Company), and the undersigned holders of the Companys Series A Preferred Stock listed on Exhibit A attached hereto (collectively, Holders and each individually, a Holder).

RECITALS

A.        The Holders hold the number of shares of the Companys Series A Preferred Stock set forth opposite their name on Exhibit A (the Series A Shares).

B.         Pursuant to this Agreement, the Series A Shares will be canceled and, in exchange therefor, the Holders will be issued shares of the Companys Common Stock at the rate of 1,383.1259 shares of Common Stock for each Series A Share, for an aggregate of 20,746,885 shares of Common Stock (the Exchange Shares), subject to adjustment as set forth herein.

C.         The parties intend that the exchange of the Holders Series A Shares for the Exchange Shares be subject to the terms and conditions of this Agreement.

AGREEMENT

For good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1.          Exchange. Subject to the terms and conditions of this Agreement, the Company will issue to each Holder on the Exchange Date (as defined below), and each Holder will receive from the Company, that number of Exchange Shares as indicated on Exhibit A. Each Holder hereby acknowledges that each of the Series A Shares he/she/it holds shall be canceled in exchange for the Exchange Shares (the Exchange). The term Exchange Shares shall also include all securities received in replacement of or in connection with the Exchange Shares pursuant to stock dividends or splits, combinations, all securities received in replacement of the Exchange Shares in a recapitalization, merger, reorganization, exchange or the like, and all new, substituted or additional securities or other properties to which a Holder is entitled by reason of such Holders ownership of the Exchange Shares.

If the outstanding shares of Common Stock shall be increased by stock dividend payable in Common Stock, stock split, subdivision, or other similar transaction occurring after the date of this Agreement into a greater number of shares of Common Stock, concurrently with the effectiveness of such event, the number of Exchange Shares to be issued for each Series A Share shall proportionately be increased in proportion to the increase in the outstanding number of shares. If the outstanding shares of Common Stock shall be decreased by reverse stock split,

SE 2098995 v1