<PAGE>

                                                                    Exhibit 10.1

                      THIRD AMENDMENT TO CREDIT AGREEMENT

     THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered into
as of April 10, 2000, by and between PHOTOWORKS, INC. formally known as Seattle
FilmWorks, Inc., a Washington corporation, OPTICOLOR, INC., a Washington
corporation and SEATTLE FILMWORKS MANUFACURING COMPANY, a Washington corporation
(collectively, "Borrowers", and each individually, a "Borrower"), and WELLS
FARGO BANK, NATIONAL ASSOCIATION ("Bank").

                                   RECITALS
                                   --------

     WHEREAS, Borrower is currently indebted to Bank pursuant to the terms and
conditions of that certain Credit Agreement between Borrower and Bank dated as
of March 1, 1997, as amended by that certain First Amendment to Credit Agreement
dated as of February 24, 1998, extended by that certain letter extension dated
as of April 1, 1999, and as amended by that certain Second Amendment to Credit
Agreement dated as of June 30, 1999 and as the same may be further amended from
time to time ("Credit Agreement").

     WHEREAS, Bank and Borrower have agreed to certain changes in the terms and
conditions set forth in the Credit Agreement and have agreed to amend the Credit
Agreement to reflect said changes.

     NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree that the Credit
Agreement shall be amended as follows:

     1.  Section 1.1.(b) is hereby deleted in its entirety, and the following
substituted therefor:

               "(b)  Letter of Credit Subfeature. As a subfeature under the Line
                     ---------------------------
          of Credit, Bank agrees from time to time during the term thereof to
          issue standby and sight commercial letters of credit for the account
          of PhotoWorks, Inc. to finance general working capital purposes and
          media costs (each, a "Letter of Credit" and collectively, "Letters of
          Credit"); provided however, that the form and substance of each Letter
          of Credit shall be subject to approval by Bank, in its sole
          discretion; and provided further, that the aggregate undrawn amount of
          all outstanding Letters of Credit shall not at any time exceed Six
          Million Dollars ($6,000,000.00) for sight commercial letters of credit
          and Five Million Dollars ($5,000,000.00) for standby letters of
          credit. Each Letter of Credit shall be issued for a term not to exceed
          one hundred eighty (180) days, as designated by PhotoWorks, Inc.;
          provided however, that no sight commercial Letter of Credit shall have
          an expiration date subsequent to the maturity date of the Line of
          Credit and that no standby Letter of Credit shall have an expiration
          dated more than ninety (90) days beyond the maturity date of the Line
          of Credit. The undrawn amount of all Letters of Credit shall be
          reserved under the Line of Credit and shall not be available for
          borrowings thereunder. Each Letter of Credit shall be subject to the
          additional terms and conditions of the Letter of Credit

                                      -1-
<PAGE>

          Agreement and related documents, if any, required by Bank in
          connection with the issuance thereof (each, a "Letter of Credit
          Agreement" and collectively, "Letter of Credit Agreements"). Each
          draft paid by Bank under a Letter of Credit shall be deemed an advance
          under the Line of Credit and shall be repaid by PhotoWorks, Inc. in
          accordance with the terms and conditions of this Agreement applicable
          to such advances; provided however, that if advances under the Line of
          Credit are not available, for any reason, at the time any draft is
          paid by Bank, then PhotoWorks, Inc. shall immediately pay to Bank the
          full amount of such draft, together with interest thereon from the
          date such amount is paid by Bank to the date such amount is fully
          repaid by PhotoWorks, Inc., at the rate of interest applicable to
          advances under the Line of Credit. In such event PhotoWorks, Inc.
          agrees that Bank, in its sole discretion, may debit any demand deposit
          account maintained by Borrower with Bank for the amount of any such
          draft."

     2. Sections 1.2. (d) and (e) are hereby deleted in their entirety, and the
following substituted therefor:

               "(d)  Commercial Letter of Credit Fees. Borrower shall pay to
                     --------------------------------
          Bank fees upon the issuance of each commercial Letter of Credit, upon
          the payment or negotiation by Bank of each draft under any commercial
          Letter of Credit and upon the occurrence of any other activity with
          respect to any commercial Letter of Credit (including without
          limitation, the transfer, amendment or cancellation of any commercial
          Letter of Credit) determined in accordance with Bank's standard fees
          and charges then in effect for such activity.

               (e)   Standby Letter of Credit Fees. Borrower shall pay to Bank
                     -----------------------------
          (i) fees upon the issuance of each standby Letter of Credit equal to
          three-quarters percent (0.75%) per annum (computed on the basis of a
          360-day year, actual days elapsed) of the face amount thereof, and
          (ii) fees upon the payment or negotiation by Bank of each draft under
          any standby Letter of Credit and fees upon the occurrence of any other
          activity with respect to any standby Letter of Credit (including
          without limitation, the transfer, amendment or cancellation of any
          standby Letter of Credit) determined in accordance with Bank's
          standard fees and charges then in effect for such activity."

     3. Section 1.3. is hereby deleted in their entirety, and the following
substituted therefor:

               SECTION 1.3.  COLLATERAL.

               As security for all indebtedness of Borrower to Bank subject
          hereto, PhotoWorks, Inc. hereby grants to Bank security interests of
          first priority in all PhotoWorks, Inc.'s Safekeeping Account No. held
          with Norwest Investment Services, Inc.

               All of the foregoing shall be evidenced by and subject to the
          terms of such security agreements, financing statements, deeds of
          trust and other documents as Bank shall reasonably require, all in
          form and substance satisfactory to Bank. Borrower shall reimburse Bank
          immediately upon demand for all costs and expenses incurred by Bank in
          connection with any of the foregoing security,

                                      -2-
<PAGE>

          including without limitation, filing and recording fees and costs of
          appraisals, audits and title insurance."

     4. Section 4.11. is hereby deleted in its entirety, without substitution.

     5. Except as specifically provided herein, all terms and conditions of the
Credit Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Credit Agreement shall have the same
meaning when used in this Amendment. This Amendment and the Credit Agreement
shall be read together, as one document.

     6. Borrower hereby remakes all representations and warranties contained in
the Credit Agreement and reaffirms all covenants set forth therein. Borrower
further certifies that as of the date of this Amendment there exists no Event of
Default as defined in the Credit Agreement, nor any condition, act or event
which with the giving of notice or the passage of time or both would constitute
any such Event of Default.

ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR
ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.


                                             WELLS FARGO BANK,
PHOTOWORKS, INC., formally                   NATIONAL ASSOCIATION
known as Seattle FilmWorks, Inc.

By: /s/ L. Cashmore Bond                     By: /s/ Donald Ralston
    Loran Cashmore Bond                          Donald Ralston
    Chief Accounting Officer/Treasurer           Vice President

OPTICOLOR, INC.

By: /s/ L. Cashmore Bond
    Loran Cashmore Bond
    Chief Accounting Officer/Treasurer

SEATTLE FILMWORKS MANUFACTURING COMPANY

By: /s/ L. Cashmore Bond
    Loran Cashmore Bond
    Chief Accounting Officer/Treasurer

                                      -3-
<PAGE>

                                                  THIRD PARTY SECURITY AGREEMENT
WELLS FARGO BANK                                              SECURITIES ACCOUNT
--------------------------------------------------------------------------------

     1. GRANT OF SECURITY INTEREST. In consideration of any credit or other
financial accommodation heretofore, now or hereafter extended or made to
PHOTOWORKS, INC., OPTICOLOR, INC. and SEATTLE FILMWORKS MANUFACTURING COMPANY
("Borrowers"), or any of them, by WELLS FARGO BANK, NATIONAL ASSOCIATION
("Bank"), and for other valuable consideration, as security for the payment of
all Indebtedness of Borrowers to Bank, the undersigned PHOTOWORKS, INC.
("Owner") hereby grants and transfers to Bank a security interest in (a) Owner's
Safekeeping Account No. (whether held in Owner's name or as a Bank collateral
account for the benefit of Owner), and all replacements or substitutions
therefor, including any account resulting from a renumbering or other
administrative re-identification thereof (collectively, the "Securities
Account") maintained with NORWEST INVESTMENT SERVICES, ("Intermediary"), (b) all
financial assets credited to the Securities Account, (c) all security
entitlements with respect to the financial assets credited to the Securities
Account, and (d) any and all other investment property or assets maintained or
recorded in the Securities Account (with all the foregoing defined as
"Collateral"), together with whatever is receivable or received when any of the
Collateral or proceeds thereof are sold, collected, exchanged or otherwise
disposed of, whether such disposition is voluntary or involuntary, including
without limitation, (i) all rights to payment, including returned premiums, with
respect to any insurance relating to any of the foregoing, (ii) all rights to
payment with respect to any cause of action affecting or relating to any of the
foregoing, and (iii) all stock rights, rights to subscribe, stock splits,
liquidating dividends, cash dividends, dividends paid in stock, new securities
or other property of any kind which Owner is or may hereafter be entitled to
receive on account of any securities pledged hereunder, including without
limitation, stock received by Owner due to stock splits or dividends paid in
stock or sums paid upon or in respect of any securities pledged hereunder upon
the liquidation or dissolution of the issuer thereof (hereinafter called
"Proceeds"). Except as otherwise expressly permitted herein, in the event Owner
receives any such Proceeds, Owner will hold the same in trust on behalf of and
for the benefit of Bank and will immediately deliver all such Proceeds to Bank
in the exact form received, with the endorsement of Owner if necessary and/or
appropriate undated stock powers duly executed in blank, to be held by Bank as
part of the Collateral, subject to all terms hereof. As used herein, the terms
"security entitlement," "financial asset" and "investment property" shall have
the respective meanings set forth in the Washington Uniform Commerical Code. The
word "Indebtedness" is used herein in its most comprehensive sense and includes
any and all advances, debts, obligations and liabilities of Borrowers, or any of
them, heretofore, now or hereafter made, incurred or created, whether voluntary
or involuntary and however arising, whether due or not due, absolute or
contingent, liquidated or unliquidated, determined or undetermined, and whether
Borrowers may be liable individually or jointly with others, or whether recovery
upon such Indebtedness may be or hereafter becomes unenforceable.

     2.   CONTINUING AGREEMENT; REVOCATION; OBLIGATION UNDER OTHER AGREEMENTS.
This is a continuing agreement and all rights, powers and remedies hereunder
shall apply to all past, present and future Indebtedness of each of the
Borrowers to Bank, including that arising under successive transactions which
shall either continue the Indebtedness, increase or decrease it, or from time to
time create new Indebtedness after all or any prior Indebtedness has been
satisfied, and notwithstanding the death, incapacity, dissolution, liquidation
or bankruptcy of any of the Borrowers or Owner or any other event or proceeding
affecting any of the Borrowers or Owner. This Agreement shall not apply to any
new indebtedness created after actual receipt by Bank of written notice of its
revocation as to such new Indebtedness; provided however, that loans or advances
made by Bank to any of the Borrowers after revocation under commitments existing
prior to receipt by Bank of such revocation, and extensions, renewals or
modifications, of any kind, of Indebtedness incurred by any of the Borrowers or
committed by Bank prior to receipt by Bank of such revocation, shall not be
considered new Indebtedness. Any such notice must be sent to Bank by registered
U.S. mail, postage prepaid, addressed to its office at Puget Sound RCBO, 999
Third Avenue 11th Fl, Seattle, WA 98104, or at such other address as Bank shall
from time to time designate. The obligations of Owner hereunder shall be in
addition to any obligations of Owner under any other grants or pledges of
security for any liabilities or obligations of any of the Borrowers or any other
persons heretofore or hereafter given to Bank unless said other grants or
pledges of security are expressly modified or revoked in writing; and this
Agreement shall not unless expressly herein provided, affect or invalidate any
such other grants or pledges of security.

                                                                          Page 1
<PAGE>

     3.   OBLIGATIONS JOINT AND SEVERAL; SEPARATE ACTIONS; WAIVER OF STATUTE OF
LIMITATIONS; REINSTATEMENT OF LIABILITY. The obligations hereunder are joint and
several and independent of the obligations of Borrowers, and a separate action
or actions may be brought and prosecuted against Owner whether action is brought
against any of the Borrowers or any other person, or whether any of the
Borrowers or any other person is joined in any such action or actions. Owner
acknowledges that this Agreement is absolute and unconditional, there are no
conditions precedent to the effectiveness of this Agreement, and this Agreement
is in full force and effect and is binding on Owner as of the date written
below, regardless of whether Bank obtains collateral or any guaranties from
others or takes any other action contemplated by Owner. Owner waives the benefit
of any statute of limitations affecting Owner's liability hereunder or the
enforcement thereof, and Owner agrees that any payment of any Indebtedness or
other act which shall toll any statute of limitations applicable thereto shall
similarly operate to toll such statute of limitations applicable to Owner's
liability hereunder. The liability of Owner hereunder shall be reinstated and
revived and the rights of Bank shall continue if and to the extent that for any
reason any amount at any time paid on account of any Indebtedness secured hereby
is rescinded or must otherwise be restored by Bank, whether as a result of any
proceedings in bankruptcy or reorganization or otherwise, all as though such
amount had not been paid. The determination as to whether any amount so paid
must be rescinded or restored shall be made by Bank in its sole discretion;
provided however, that if Bank chooses to contest any such matter at the request
of Owner, Owner agrees to indemnify and hold Bank harmless from and against all
costs and expenses, including reasonable attorneys' fees, expended or incurred
by Bank in connection therewith, including without limitation, in any litigation
with respect thereto.

     4.   OBLIGATIONS OF BANK. Bank shall have no duty to take any steps
necessary to preserve the rights of Owner against prior parties, or to initiate
any action to protect against the possibility of a decline in the market value
of the Collateral or Proceeds. Bank shall not be obligated to take any actions
with respect to the Collateral or Proceeds requested by Owner unless such
request is made in writing and Bank determines, in its sole discretion, that the
requested action would not unreasonably jeopardize the value of the Collateral
and Proceeds as security for the Indebtedness.

     5.   REPRESENTATIONS AND WARRANTIES. (a) Owner represents and warrants to
Bank that: (i) Owner is the sole owner of the Collateral and Proceeds; (ii)
Owner has the right to grant a security interest in the Collateral and Proceeds;
(iii) all Collateral and Proceeds are genuine, free from liens, adverse claims,
setoffs, default, prepayment, defenses and conditions precedent of any kind or
character, except the lien created hereby or as otherwise agreed to by Bank, or
heretofore disclosed by Owner to Bank, in writing; (iv) all statements contained
herein and, where applicable, in the Collateral are true and complete in all
material respects; (V) no financing statement or control agreement covering any
of the Collateral or Proceeds, and naming any secured party other than Bank,
exists or is on file in any public office or remains in effect; (vi) no person
or entity, other than Owner, Bank and Intermediary, has any interest in or
control over the Collateral; and (vii) specifically with respect to Collateral
and Proceeds consisting of investment securities, instruments, chattel paper,
documents, contracts, insurance policies or any like property, all persons
appearing to be obligated thereon have authority and capacity to contract and
are bound as they appear to be, and the same comply with applicable laws
concerning form, content and manner of preparation and execution.

     (b)  Owner further represents and warrants to Bank that: (i) the Collateral
pledged hereunder is so pledged at Borrowers' request; (ii) Bank has made no
representation to Owner as to the creditworthiness of any of the Borrowers; and
(iii) Owner has established adequate means of obtaining from each of the
Borrowers on a continuing basis financial and other information pertaining to
Borrowers' financial condition. Owner agrees to keep adequately informed from
such means of any facts, events or circumstances which might in any way affect
Owner's risks hereunder, and Owner further agrees that Bank shall have no
obligation to disclose to Owner any information or material about any of the
Borrowers which is acquired by Bank in any manner.

     6.   COVENANTS OF OWNER.

     (a)  Owner agrees in general: (i) to indemnify Bank against all losses,
claims, demands, liabilities and expenses of every kind caused by property
subject hereto; (ii) to pay all costs and expenses, including reasonable
attorneys' fees, incurred by Bank in the perfection and preservation of the
Collateral or Bank's interest therein and/or the realization, enforcement and
exercise of Bank's rights, powers and remedies hereunder; (iii) to permit Bank
to exercise its powers; (iv) to execute and deliver such documents as Bank

                                                                          Page 2
<PAGE>

deems necessary to create, perfect and continue the security interests
contemplated hereby; and (v) not to change Owner's chief place of business (or
personal residence, if applicable) or the places where Owner keeps any of the
Collateral or Owner's records concerning the Collateral and Proceeds without
first giving Bank written notice of the address to which Owner is moving same.

     (b)  Owner agrees with regard to the Collateral and Proceeds, unless Bank
agrees otherwise in writing: (i) not to permit any security interest in or lien
on the Collateral or Proceeds, except in favor of Bank and except liens in favor
of Intermediary to the extent expressly permitted by Bank in writing; (ii) not
to hypothecate or permit the transfer by operation of law of any of the
Collateral or Proceeds or any interest therein; (iii) to keep, in accordance
with generally accepted accounting principles, complete and accurate records
regarding all Collateral and Proceeds, and to permit Bank to inspect the same
and make copies thereof at any reasonable time; (iv) if requested by Bank, to
receive and use reasonable diligence to collect Proceeds, in trust and as the
property of Bank, and to immediately endorse as appropriate and deliver such
Proceeds to Bank daily in the exact form in which they are received together
with a collection report in form satisfactory to Bank; (v) in the event Bank
elects to receive payments of Proceeds hereunder, to pay all expenses incurred
by Bank in connection therewith, including expenses of accounting,
correspondence, collection efforts, reporting to account or contract debtors,
filing, recording, record keeping and expenses incidental thereto: (vi) to
provide any service and do any other acts which may be necessary to keep all
Collateral and Proceeds free and clear of all defenses, rights of offset and
counterclaims: and (vii) if the Collateral or Proceeds consists of securities
and so long as no Event of Default exists, to vote said securities and to give
consents, waivers and ratifications with respect thereto, provided that no vote
shall be cast or consent, waiver or ratification given or action taken which
would impair Bank's interest in the Collateral and Proceeds or be inconsistent
with or violate any provisions of this Agreement. Owner further agrees that any
party now or at any time hereafter authorized by Owner to advise or otherwise
act with respect to the Securities Account shall be subject to all terms and
conditions contained herein and in any control, custodial or other similar
agreement at any time in effect among Bank, Owner and Intermediary relating to
the Collateral.

     7.   POWERS OF BANK. Owner appoints Bank its true attorney in fact to
perform any of the following powers, which are coupled with an interest, are
irrevocable until termination of this Agreement and may be exercised from time
to time by Bank's officers and employees, or any of them, whether or not any of
the Borrowers or Owner is in default: (a) to perform any obligation of Owner
hereunder in Owner's name or otherwise; (b) to notify any person obligated on
any security, instrument or other document subject to this Agreement of Bank's
rights hereunder; (c) to collect by legal proceedings or otherwise all
dividends, interest, principal or other sums now or hereafter payable upon or on
account of the Collateral or Proceeds; (d) to enter into any extension,
reorganization, deposit, merger or consolidation agreement, or any other
agreement relating to or affecting the Collateral or Proceeds, and in connection
therewith to deposit or surrender control of the Collateral and Proceeds, to
accept other property in exchange for the Collateral and Proceeds, and to do and
perform such acts and things as Bank may deem proper, with any money or property
received in exchange for the Collateral or Proceeds, at Bank's option, to be
applied to the Indebtedness or held by Bank under this Agreement; (e) to make
any compromise or settlement Bank deems desirable or proper in respect of the
Collateral and Proceeds; (f) to insure, process and preserve the Collateral and
Proceeds; (g) to exercise all rights, powers and remedies which Owner would
have, but for this Agreement, with respect to all Collateral and Proceeds
subject hereto; and (h) to do all acts and things and execute all documents in
the name of Owner or otherwise, deemed by Bank as necessary, proper and
convenient in connection with the preservation, perfection or enforcement of its
rights hereunder. To effect the purposes of this Agreement or otherwise upon
instructions of Owner, Bank may cause any Collateral and/or Proceeds to be
transferred to Bank's name or the name of Bank's nominee. If an Event of Default
has occurred and is continuing, any or all Collateral and/or Proceeds consisting
of securities may be registered, without notice, in the name of Bank or its
nominee, and thereafter Bank or its nominee may exercise, without notice, all
voting and corporate rights at any meeting of the shareholders of the issuer
thereof, any and all rights of conversion, exchange or subscription, or any
other rights, privileges or options pertaining to such Collateral and/or
Proceeds, all as if it were the absolute owner thereof. The foregoing shall
include, without limitation, the right of Bank or its nominee to exchange, at
its discretion, any and all Collateral and/or Proceeds upon the merger,
consolidation, reorganization, recapitalization or other readjustment of the
issuer thereof, or upon the exercise by the issuer thereof or Bank of any right,
privilege or option pertaining to any shares of the Collateral and/or Proceeds,
and in connection therewith; the right to deposit and deliver any and all of
the Collateral and/or Proceeds with any

                                                                          Page 3
<PAGE>

committee, depository, transfer agent, registrar or other designated agency upon
such terms and conditions as Bank may determine. All of the foregoing rights,
privileges or options may be exercised without liability on the part of Bank or
its nominee except to account for property actually received by Bank. Bank shall
have no duty to exercise any of the foregoing, or any other rights, privileges
or options with respect to the Collateral or Proceeds and shall not be
responsible for any failure to do so or delay in so doing.

     8.   OWNER'S WAIVERS.

     (a)  Owner waives any right to require Bank to: (i) proceed against any of
the Borrowers or any other person; (ii) marshal assets or proceed against or
exhaust any security held from any of the Borrowers or any other person; (iii)
give notice of the terms, time and place of any public or private sale of
personal property security held from any of the Borrowers or any other person,
or otherwise comply with the provisions of Section 9504 of the Washington
Uniform Commercial Code; (iv) take any action or pursue any other remedy in
Bank's power; or (v) make any presentment or demand for performance, or give any
notice of nonperformance, protest, notice of protest or notice of dishonor
hereunder or in connection with any obligations or evidences of indebtedness
held by Bank as security for or which constitute in whole or in part the
Indebtedness secured hereunder, or in connection with the creation of new or
additional Indebtedness.

     (b)  Owner waives any defense to its obligations hereunder based upon or
arising by reason of: (i) any disability or other defense of any of the
Borrowers or any other person; (ii) the cessation or limitation, from any cause
whatsoever, other than payment in full, of the Indebtedness of any of the
Borrowers or any other person; (iii) any lack of authority of any officer,
director, partner, agent or any other person acting or purporting to act on
behalf of any of the Borrowers which is a corporation, partnership or other type
of entity, or any defect in the formation of any of such Borrower; (iv) the
application by any of the Borrowers of the proceeds of any Indebtedness for
purposes other than the purposes represented by Borrowers to, or intended or
understood by, Bank or Owner; (v) any act or omission by Bank which directly or
indirectly results in or aids the discharge of any of the Borrowers or any
portion of the Indebtedness by operation of law or otherwise, or which in any
way impairs or suspends any rights or remedies of Bank against any of the
Borrowers; (vi) any impairment of the value of any interest in any security for
the Indebtedness or any portion thereof, including without limitation, the
failure to obtain or maintain perfection or recordation of any interest in any
such security, the release of any such security without substitution, and/or the
failure to preserve the value of, or to comply with applicable law in disposing
of, any such security; or (vii) any modification of the Indebtedness, in any
form whatsoever, including any modification made after revocation hereof to any
Indebtedness incurred prior to such revocation, and including without limitation
the renewal, extension, acceleration or other change in time for payment of, or
other change in the terms of, the Indebtedness or any portion thereof, including
increase or decrease of the rate of interest thereon. Until all Indebtedness
shall have been paid in full, Owner shall have no right of subrogation, and
Owner waives any right to enforce any remedy which Bank now has or may hereafter
have against any of the Borrowers or any other person, and waives any benefit
of, or any right to participate in, any security now or hereafter held by Bank.
Owner further waives, all rights and defenses Owner may have arising out of (A)
any election of remedies by Bank, even though that election of remedies, such as
a non-judical foreclosure with respect to any security for any portion of the
Indebtedness, destroys Owner's rights of subrogation or Owner's rights to
proceed against any of the Borrowers for reimbursement, or (B) any loss of
rights Owner may suffer by reason of any rights, powers or remedies of any of
the Borrowers in connection with any anti-deficiency laws or any other laws
limiting, qualifying or discharging Borrowers' Indebtedness, whether by
operation of law or otherwise, including any rights Owner may have to a fair
market value hearing to determine the size of a deficiency following any
trustee's foreclosure sale or other disposition of any real property security
for any portion of the Indebtedness.

     9.   AUTHORIZATIONS TO BANK. Owner authorizes Bank either before or after
revocation hereof, without notice to or demand on Owner, and without affecting
Owner's liability hereunder, from time to time to: (a) alter, compromise, renew,
extend, accelerate or otherwise change the time for payment of, or otherwise
change the terms of, the Indebtedness or any portion thereof, including increase
or decrease of the rate of interest thereon; (b) take and hold security, other
than the Collateral and Proceeds, for the payment of the Indebtedness or any
portion thereof, and exchange, enforce, waive, subordinate or release the
Collateral and Proceeds, or any part thereof, or any such other security; (c)
apply the Collateral and Proceeds or such other security and direct the order or
manner of sale thereof, including without limitation, a non-judicial sale

                                                                          Page 4
<PAGE>

permitted by the terms of the controlling security agreement, mortgage or deed
of trust, as Bank in its discretion may determine; (d) release or substitute any
one or more of the endorsers or guarantors of the Indebtedness, or any portion
thereof, or any other party thereto; and (e) apply payments received by Bank
from any of the Borrowers to any Indebtedness of any of the Borrowers to Bank,
in such order as Bank shall determine in its sole discretion, whether or not
such Indebtedness is covered by this Agreement, and Owner hereby waives any
provision of law regarding application of payments which specifies otherwise.
Bank may without notice assign this Agreement in whole or in part.

  10. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS. Owner agrees
to pay, prior to delinquency, all insurance premiums, taxes, charges, liens and
assessments against the Collateral and Proceeds, and upon the failure of Owner
to do so, Bank at its option may pay any of them and shall be the sole judge of
the legality or validity thereof and the amount necessary to discharge the same.
Any such payments made by Bank shall be obligations of Owner to Bank, due and
payable immediately upon demand, together with interest at a rate determined in
accordance with the provisions of Section 15 hereof, and shall be secured by the
Collateral and Proceeds, subject to all terms and conditions of this Agreement.

  11. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute
an "Event of Default" under this Agreement: (a) any default in the payment or
performance of any obligation, or any defined event of default, under (i) any
contract or instrument evidencing any Indebtedness, (ii) any other agreement
between any of the Borrowers and Bank, including without limitation any loan
agreement, relating to or executed in connection with any Indebtedness, or (iii)
any control, custodial or other similar agreement in effect among Bank, Owner
and Intermediary relating to the Collateral; (b) any representation or warranty
made by Owner herein shall prove to be incorrect in any material respect when
made; (c) Owner shall fail to observe or perform any obligation or agreement
contained herein; (d) any attachment or like levy on any property of Owner; and
(e) Bank, in good faith, believes any or all of the Collateral and/or Proceeds
to be in danger of misuse, dissipation, commingling, loss, theft, damage or
destruction, or otherwise in jeopardy or unsatisfactory in character or value.

  12. REMEDIES. Upon the occurrence of any Event of Default, Bank shall have and
may exercise without demand any and all rights, powers, privileges and remedies
granted to a secured party upon default under the Washington Uniform Commerical
Code or otherwise provided by law, including without limitation, the right to
contact all persons obligated to Owner on any Collateral or Proceeds and to
instruct such persons to deliver all Collateral and/or Proceeds directly to
Bank. All rights, powers, privileges and remedies of Bank shall be cumulative.
No delay, failure or discontinuance of Bank in exercising any right, power,
privilege or remedy hereunder shall affect or operate as a waiver of such right,
power, privilege or remedy; nor shall any single or partial exercise of any such
right, power, privilege or remedy preclude, waive or otherwise affect any other
or further exercise thereof or the exercise of any other right, power, privilege
or remedy. Any waiver, permit, consent or approval of any kind by Bank of any
default hereunder, or any such waiver of any provisions or conditions hereof,
must be in writing and shall be effective only to the extent set forth in
writing. It is agreed that public or private sales, for cash or on credit, to a
wholesaler or retailer or investor, or user of property of the types subject to
this Agreement, or public auction, are all commercially reasonable since
differences in the sales prices generally realized in the different kinds of
sales are ordinarily offset by the differences in the costs and credit risks of
such sales. While an Event of Default exists: (a) Owner will not dispose of any
of the Collateral or Proceeds except on terms approved by Bank; (b) Bank may
appropriate the Collateral and apply all Proceeds toward repayment of the
Indebtedness in such order as Bank may from time to time elect; (c) Bank may
take any action with respect to the Collateral contemplated by any control,
custodial or other similar agreement then in effect among Bank, Owner and
Intermediary; and (d) at Bank's request, Owner will assemble and deliver all
books and records pertaining to the Collateral to Bank at a reasonably
convenient place designated by Bank. For any Collateral or Proceeds consisting
of securities, Bank shall be under no obligation to delay a sale of any portion
thereof for the period of time necessary to permit the issuer thereof to
register such securities for public sale under any applicable state or federal
law, even if the issuer thereof would agree to do so.

  13. DISPOSITION OF COLLATERAL AND PROCEEDS. Upon the transfer of all or any
part of the Indebtedness, Bank may transfer all or any part of the Collateral or
Proceeds and shall be fully discharged thereafter from all liability and
responsibility with respect to any of the foregoing so transferred, and the

                                                                          Page 5
<PAGE>

transferee shall be vested with all rights and powers of Bank hereunder with
respect to any of the foregoing so transferred; but with respect to any
Collateral or Proceeds not so transferred, Bank shall retain all rights, powers,
privileges and remedies herein given. Any proceeds of any disposition of any of
the Callateral or Proceeds, or any part thereof, may be applied by Bank to the
payment of expenses incurred by Bank in connection with the foregoing, including
reasonable attorneys' fees, and the balance of such proceeds may be applied by
Bank toward the payment of the Indebtedness in such order of application as Bank
may from time to time elect.

  14. NOTICES. All notices, requests and demands required under this Agreement
must be in writing, addressed to Bank at the address specified in Section 2
hereof and to Owner at the address of its chief executive office (or personal
residence, if applicable) specified below or to such other address as any party
may designate by written notice to each other party, and shall be deemed to have
been given or made as follows: (a) if personally delivered, upon delivery; (b)
if sent by mail, upon the earlier of the date of receipt or 3 days after deposit
in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.

  15. COSTS, EXPENSES AND ATTORNEYS' FEES. Owner shall pay to Bank immediately
upon demand the full amount of all payments, advances, charges, costs and
expenses, including reasonable attorneys' fees (to include outside counsel fees
and all allocated costs of Bank's in-house counsel), expended or incurred by
Bank in exercising any right, power, privilege or remedy conferred by this
Agreement or in the enforcement thereof, whether incurred at the trial or
appellate level, in an arbitration proceeding or otherwise, and including any of
the foregoing incurred in connection with any bankruptcy proceeding (including
without limitation, any adversary proceeding, contested matter or motion brought
by Bank or any other person) relating to Owner or in any way affecting any of
the Collateral or Bank's ability to exercise any of its rights or remedies with
respect thereto. All of the foregoing shall be paid by Owner with interest from
the date of demand until paid in full at a rate per annum equal to the greater
of ten percent (10%) or Bank's Prime Rate in effect from time to time.

  16. SUCCESSORS; ASSIGNMENT. This Agreement shall be binding upon and inure to
the benefit of the heirs, executors, administrators, legal representatives,
successors and assigns of the parties; provided however, that Owner may not
assign or transfer any of its interests or rights hereunder without Bank's
prior written consent. Owner acknowledges that Bank has the right to sell,
assign, transfer, negotiate or grant participations in all or any part of, or
any interest in, any Indebtedness of Borrowers to Bank and any obligations with
respect thereto, including this Agreement. In connection therewith, Bank may
disclose all documents and information which Bank now has or hereafter acquires
relating to Owner and/or this Agreement, whether furnished by Borrowers, Owner
or otherwise. Owner further agrees that Bank may disclose such documents and
information to Borrowers.

  17. AMENDMENT. This Agreement may be amended or modified only in writing
signed by Bank and Owner.

  18. APPLICATION OF SINGULAR AND PLURAL. In all cases where there is but a
single Borrower, then all words used herein in the plural shall be deemed to
have been used in the singular where the context and construction so require;
and when there is more than one Borrower named herein, or when this Agreement is
executed by more than one Owner, the word "Borrowers" and the word "Owner"
respectively shall mean all or any one or more of them as the context requires.

  19. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be
held to be prohibited by or invalid under applicable law, such provision shall
be ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or any remaining provisions of this
Agreement.

  20. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington.

  21. ADDENDUM. Additional terms and conditions relating to the Securities
Account are set forth in an Addendum attached hereto and incorporated herein by
this reference.

                                                                          Page 6
<PAGE>

  22. ARBITRATION.

  (a) Arbitration. Upon the demand of any party, any Dispute shall be resolved
      -----------
by binding arbitration (except as set forth in (e) below) in accordance with the
terms of this Agreement. A "Dispute" shall mean any action, dispute, claim or
controversy of any kind, whether in contract or tort, statutory or common law,
legal or equitable, now existing or hereafter arising under or in connection
with, or in any way pertaining to, this Guaranty and each other document,
contract and instrument required hereby or now or hereafter delivered to Bank in
connection herewith (collectively, the "Documents"), or any past, present or
future extensions of credit and other activities, transactions or obligations of
any kind related directly or indirectly to any of the Documents, including
without limitation, any of the foregoing arising in connection with the exercise
of any self-help, ancillary or other remedies pursuant to any of the Documents.
Any party may by summary proceedings bring an action in court to compel
arbitration of a Dispute. Any party who fails or refuses to submit to
arbitration following a lawful demand by any other party shall bear all costs
and expenses incurred by such other party in compelling arbitration of any
Dispute.

  (b) Governing Rules. Arbitration proceedings shall be administered by the
      ---------------
American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Documents.
The arbitration shall be conducted at a location in Washington selected by the
AAA or other administrator. If there is any inconsistency between the terms
hereof and any such rules, the terms and procedures set forth herein shall
control. All statutes of limitation applicable to any Dispute shall apply to any
arbitration proceeding. All discovery activities shall be expressly limited to
matters directly relevant to the Dispute being arbitrated. Judgment upon any
award rendered in an arbitration may be entered in any court having
jurisdiction; provided however, that nothing contained herein shall be deemed to
be a waiver by any party that is a bank of the protections afforded to it under
12 U.S.C. (S)91 or any similar applicable state law.

  (c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No provision
      ----------------------------------------------------------
hereof shall limit the right of any party to exercise self-help remedies such as
setoff, foreclosure against or sale of any real or personal property collateral
or security, or to obtain provisional or ancillary remedies, including without
limitation injunctive relief, sequestration, attachment, garnishment or the
appointment of a receiver, from a court of competent jurisdiction before, after
or during the pendency of any arbitration or other proceeding. The exercise of
any such remedy shall not waive the right of any party to compel arbitration
hereunder.

  (d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be active
      --------------------------------------------
members of the Washington State Bar or retired judges of the state or federal
judiciary of Washington, with expertise in the substantive law applicable to the
subject matter of the Dispute. Arbitrators are empowered to resolve Disputes by
summary rulings in response to motions filed prior to the final arbitration
hearing. Arbitrators (i) shall resolve all Disputes in accordance with the
substantive law of the State of Washington, (ii) may grant any remedy or relief
that a court of the State of Washington could order or grant within the scope
hereof and such ancillary relief as is necessary to make effective any award,
and (iii) shall have the power to award recovery of all costs and fees, to
impose sanctions and to take such other actions as they deem necessary to the
same extent a judge could pursuant to the Federal Rules of Civil Procedure, the
Washington Rules of Civil Procedure or other applicable law. Any Dispute in
which the amount in controversy is $5,000,000 or less shall be decided by a
single arbitrator who shall not render an award of greater than $5,000,000
(including damages, costs, fees and expenses). By submission to a single
arbitrator, each party expressly waives any right or claim to recover more than
$5,000,000. Any Dispute in which the amount in controversy exceeds $5,000,000
shall be decided by majority vote of a panel of three arbitrators; provided
however, that all three arbitrators must actively participate in all hearings
and deliberations.

  (e) Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators
      -------------
and the parties shall take all action required to conclude any arbitration
proceeding within 180 days of the filing of the Dispute with the AAA. No
arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the

                                                                          Page 7
<PAGE>

arbitration provision most directly related to the Documents or the subject
matter of the Dispute shall control. This arbitration provision shall survive
termination, amendment or expiration of any of the Documents or any relationship
between the parties.

  Owner warrants that its chief executive office (or personal residence, if
applicable) is located at the following address: 1260 16TH AVENUE, W, SEATTLE,
WA 98119

ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR
ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.

  IN WITNESS WHEREOF, this Agreement has been duly executed as of April 10,
200O.

PHOTOWORKS, INC.

By: /s/ L. Cashmore Bond
   --------------------------
   Loran Cashmore Bond,  Chief Accounting
   Officer/Treasurer

                                                                          Page 8
<PAGE>

        ADDENDUM TO THIRD PARTY SECURITY AGREEMENT: SECURITIES ACCOUNT

     THIS ADDENDUM is attached to and made a part of that certain Third Party
Security Agreement: Securities Account executed by PHOTOWORKS, INC. ("Owner") in
favor of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"), dated as of April 10,
2000 (the "Agreement").

     The following provisions are hereby incorporated into the Agreement:

     1.   Securities Account Activity. So long as no Event of Default exists,
          ---------------------------
Owner, or any party authorized by Owner to act with respect to the Securities
Account, may (a) receive payments of interest and/or cash dividends earned on
financial assets maintained in the Securities Account, and (b) trade financial
assets maintained in the Securities Account. Without Banks prior written
consent, except as permitted by the preceding sentence, neither Owner nor any
party other than Bank may withdraw or receive any distribution of any of the
Collateral from the Securities Account. The Collateral Value of the Securities
Account shall at all times be equal to or greater than $8,500,000.00. In the
event the Collateral Value, for any reason and at any time, is be less than the
required amount, Borrowers shall promptly make a principal reduction on the
Indebtedness or cause Owner to deposit additional assets of a nature
satisfactory to Bank into the Securities Account, in either case in amounts or
with values sufficient to achieve the required Collateral Value.

     2.   "Collateral Value" means the percentage set forth below for each type
           ----------------
of investment property held in the Securities Account at the time of
computation:

          (a) 100% of the face amount of cash and cash equivalents;

          (b) 90% of the market value of obligations of the United States of
              America, but not to exceed the face amount;

          (c) 90% of the market value of commercial paper rated at least Al by
              a nationally recognized rating agency, but not to exceed the face
              amount;

          (d) 85% of the market value of corporate and municipal bonds
              (excluding convertible bonds) rated at least AA by a nationally
              recognized rating agency, but not to exceed the face amount;

          (e) 75% of the market value of corporate and municipal bonds
              (excluding convertible bonds and those described in (d) above)
              rated at least BBB by a nationally recognized rating agency, but
              not to exceed the face amount;

          (f) 70% of the market value of mutual funds;

          (9) 70% of the market value of stock traded on the New York Stock
              Exchange;

          (h) 70% of the market value of stock traded on the American Stock
              Exchange;

          (i) 50% of the market value of stock traded "over-the-counter";

                                      -1-
<PAGE>

with market value, in all instances, determined by Bank in its sole discretion,
and excluding from such computation all Common Trust Funds.

     3.  Exclusion from Collateral. Notwithstanding anything herein to the
         -------------------------
contrary, the terms "Collateral" and "Proceeds" do not include, and Bank
disclaims a security interest in all Common Trust Funds now or hereafter
maintained in the Securities Account.

     4.  "Common Trust Funds" means common trust funds as described in 12 CFR
          ------------------
9.18 and includes, without limitation, common trust funds maintained by Bank for
the exclusive use of its fiduciary clients.

     IN WITNESS WHEREOF, this Addendum has been executed as of the same date as
the Agreement.

PHOTOWORKS, INC.                        WELLS FARGO BANK,
                                         NATIONAL ASSOCIATION

By: /s/ L. Cashmore Bond                By: /s/ Donald Ralston
   ------------------------                -----------------------
   Loran Cashmore Bond                          Donald Ralston
   Chief Accounting Officer/Treasurer           Vice President

     The undersigned, the Borrowers defined in the Third Party Security
Agreement referenced above, hereby acknowledge and agree to all terms and
conditions of said Third Party Security Agreement and this Addendum, including
without limitation, those provisions requiring Borrowers to maintain the
Collateral Value of the Securities Account and/or repay the Indebtedness.

PHOTOWORKS, INC.

By: /s/ L. Cashmore Bond
   ------------------------
   Loran Cashmore Bond
   Chief Accounting Officer/Treasurer

OPTICOLOR, INC.

By: /s/ L. Cashmore Bond
   ------------------------
   Loran Cashmore Bond
   Chief Accounting Officer/Treasurer

SEATTLE FILMWORKS MANUFACTURING COMPANY

By: /s/ L. Cashmore Bond
   ------------------------
   Loran Cashmore Bond
   Chief Accounting Officer/Treasurer

                                      -2-
<PAGE>

                                            SECURITIES ACCOUNT CONTROL AGREEMENT
WELLS FARGO BANK                                      (Third Party Intermediary)
--------------------------------------------------------------------------------

THIS SECURITIES ACCOUNT CONTROL AGREEMENT (this "Agreement") is entered into as
of April 10, 2000, by and among PHOTOWORKS, INC. ("Customer"), NORWEST
INVESTMENT SERVICES, INC. ("Intermediary"), and WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Secured Party").

                                  RECITALS

     A. Customer maintains that certain Safekeeping Account (the "Securities
Account") with Intermediary pursuant to an agreement between Intermediary and
Customer dated as of June 23, 1998 (the "Account Agreement"), a copy of which is
attached hereto as Exhibit A, and Customer has granted to Secured Party a
security interest in the Securities Account and all financial assets and other
property now or at any time hereafter held in the Securities Account.

     B.   Secured Party, Customer and Intermediary have agreed to enter into
this Agreement to perfect Secured Party's security interests in the Collateral,
as defined below.

NOW, THEREFORE, in consideration of their mutual covenants and promises, the
parties agree as follows:

     1.   DEFINITIONS. As used herein:

     (a)  the term "Collateral" shall mean: (i) the Securities Account; (ii) all
financial assets credited to the Securities Account; (iii) all security
entitlements with respect to the financial assets credited to the Securities
Account; (iv) any and all other investment property or assets maintained or
recorded in the Securities Account; and (v) all replacements or substitutions
for, and proceeds of the sale or other disposition of, any of the foregoing,
including without limitation, cash proceeds; and

     (b)  the terms "investment property," "entitlement order, " "financial
asset" and "security entitlement" shall have the respective meanings set forth
in the Washington Uniform Commerical Code. The parties hereby expressly agree
that all property, including without limitation, cash, certificates of deposit
and mutual funds, at any time held in the Securities Account is to be treated as
a "financial asset."

     2 .  AGREEMENT FOR CONTROL. Intermediary is authorized by Customer and
agrees to comply with all entitlement orders originated by Secured Party with
respect to the Securities Account, and all other requests or instructions from
Secured Party regarding disposition and/or delivery of the Collateral, without
further consent or direction from Customer or any other party.

     3.   CUSTOMER'S RIGHTS WITH RESPECT TO THE COLLATERAL.

     (a)  Until Intermediary is notified otherwise by Secured Party: (i)
Customer, or any party authorized by Customer to advise or otherwise act with
respect to the Securities Account, may give trading instructions to Intermediary
with respect to Collateral in the Securities Account; and (ii) Intermediary may
distribute to Customer or any other party in accordance with Customer's
directions that portion of the Collateral which consists of interest and/or cash
dividends earned on financial assets maintained in the Securities Account.

     (b)  Without Secured Party's prior written consent, except to the extent
permitted by Section 3(a) hereof: (i) neither Customer nor any party other than
Secured Party may withdraw any Collateral from the Securities Account; and (ii)
Intermediary will not comply with any entitlement order or request to withdraw
any Collateral from the Securities Account given by any party other than Secured
Party.

     (c)  Upon receipt of either written or oral notice from Secured Party: (i)
Intermediary shall promptly cease complying with entitlement orders and other
instructions concerning the Collateral, including the Securities Account, from
all parties other than Secured Party; and (ii) Intermediary shall not make any
further distributions of any Collateral to any party other than Secured Party,
nor permit any further voluntary changes

                                                                          Page 1
<PAGE>

in the financial assets.

  4.  INTERMEDIARY'S REPRESENTATIONS AND WARRANTIES. Intermediary represents and
warrants to Secured Party that:

  (a) The Securities Account is maintained with Intermediary solely in
Customer's name.

  (b) Intermediary has no knowledge of any claim to, security interest in or
lien upon any of the Collateral, except: (i) the security interests in favor of
Secured Party; and (ii) Intermediary's liens securing fees and charges, or
payment for open trade commitments, as described in Section 4(e) hereof.

  (c) Attached hereto as Exhibit A is a true and complete copy of the Account
Agreement.

  (d) Attached hereto as Exhibit B is an accurate and complete statement of the
financial assets in the Securities Account as of the date set forth in said
statement.

  (e) Any claim to, security interest in or lien upon any of the Collateral
which Intermediary now has or at any time hereafter acquires shall be junior and
subordinate to the security interests of Secured Party in the Collateral, except
for Intermediary's liens securing: (i) fees and charges owed by Customer with
respect to the operation of the Securities Account; and (ii) payment owed to
intermediary for open trade commitments for purchases in and for the Securities
Account.

  5.  AGREEMENTS OF INTERMEDIARY AND CUSTOMER. Intermediary and Customer agree
that:

  (a) Intermediary shall flag its books, records and systems to reflect Secured
Party's security interests in the Collateral, and shall provide notice thereof
to any party making inquiry as to Customer's accounts with Intermediary to whom
Intermediary is legally required or permitted to provide information.

  (b) Intermediary shall send copies of all statements relating to the
Securities Account simultaneously to Customer and Secured Party.

  (c) Intermediary shall promptly notify Secured Party if any other party
asserts any claim to, security interest in or lien upon any of the Collateral,
and Intermediary shall not enter into any control, custodial or other similar
agreement with any other party that would create or acknowledge the existence of
any such other claim, security interest or lien.

  (d) Without Secured Party's prior written consent, Intermediary and Customer
shall not amend or modify the Account Agreement, other than amendments to
reflect ordinary and reasonable changes in Intermediary's fees and charges for
handling the Securities Account.

  (e) Neither Intermediary nor Customer shall terminate the Account Agreement
without giving 30 days' prior written notice to Secured Party.

  6.  MISCELLANEOUS.

  (a) This Agreement shall not create any obligation or duty of Intermediary
except as expressly set forth herein.

  (b) As to the matters specifically the subject of this Agreement, in the event
of any conflict between this Agreement and the Account Agreement or any other
agreement between Intermediary and Customer, the terms of this Agreement shall
control.

  (c) All notices, requests and demands which any party is required or may
desire to give to any other party under any provision of this Agreement must be
in writing (unless otherwise specifically provided) and delivered to each party
at the address or facsimile number set forth below its signature, or to such
other address or facsimile number as any party may designate by written notice
to all other parties. Each such

                                                                          Page 2
<PAGE>

notice, request and demand shall be deemed given or made as follows: (i) if sent
by hand delivery, upon delivery; (ii) if sent by facsimile, upon receipt; and
(iii) if sent by mail, upon the earlier of the date of receipt or 3 days after
deposit in the U.S. mail, first class and postage prepaid.

  (d) The prevailing party in the prosecution or defense of any action arising
out of this Agreement, including any action for declaratory relief, shall be
reimbursed by the party whose course of action necessitated such prosecution or
defense for all costs and expenses, including reasonable attorneys' fees (to
include outside counsel fees and all allocated costs of the prevailing party's
in-house counsel), expended or incurred by the prevailing party in connection
therewith, whether incurred at the trial or appellate level, in an arbitration
proceeding, bankruptcy proceeding or otherwise.

  (e) This Agreement shall be binding upon and inure to the benefit of the
heirs, executors, administrators, legal representatives, successors and assigns
of the parties; provided however, that Intermediary may not assign its
obligations hereunder without Secured Party's prior written consent. This
Agreement may be amended or modified only in writing signed by all parties
hereto.

  (f) This Agreement shall terminate upon: (i) Intermediary's receipt of written
notice from Secured Party expressly stating that Secured Party no longer claims
any security interest in the Collateral; or (ii) termination of the Account
Agreement pursuant to Section 5(e) hereof and Intermediary's delivery of all
Collateral to Secured Party or its designee in accordance with Secured Party's
written instructions.

  (g) This Agreement shall be governed by and construed in accordance with the
laws of the State of Washington.

                    SEE PAGE 4 OF AGREEMENT FOR SIGNATURES

                                                                          Page 3
<PAGE>

  IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.

NORWEST INVESTMENT SERVICES,       WELLS FARGO BANK, NATIONAL ASSOCIATION
INC.

By:___________________________     By: /s/ Donald H. Ralston
                                      ---------------------------------
Title:________________________     Title: Vice President
                                         ------------------------------


Address: 999 THIRD AVENUE          Address: 999 Third Avenue 11th FL
         SEATTLE, WA 98104                  Seattle, WA 98104
FAX No.:                           FAX No.:

PHOTOWORKS, INC.

By: /s/ L. Cashmore Bond
   --------------------------
   Loran Cashmore Bond, Chief
   Accounting Officer/Treasurer

Address: 1260 16TH AVENUE, W
         SEATTLE, WA 98119
FAX No.:

                                                                          Page 4