UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 13D

Under the Securities Exchange Act of 1934

Photoworks, Inc.

(Name of Issuer)

Common Stock

(Title of Class of Securities)

71940B208

(CUSIP Number)


	Robert Dellenbach, Esq.	Joseph Waechter
	c/o Fenwick and West LLP	c/o California Pacific Capital LLC
	275 Battery Street	50 California Street, Suite 1500
	San Francisco, CA 94111	San Francisco California, 94111
	(415) 875-2323	(415) 315-2015

(Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications)

July 27, 2005

(Date of Event Which Requires Filing of this Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box q

*The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).

SCHEDULE 13D

CUSIP No. 71940B208

Page 2 of 10 Pages


1	NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY) JOSEPH WAECHTER
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions)			(a) q (b) ý
3	SEC USE ONLY
4	SOURCE OF FUNDS (See Instructions) PF
5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) q
6	CITIZENSHIP OR PLACE OF ORGANIZATION United States
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH		7	SOLE VOTING POWER -0-
		8	SHARED VOTING POWER 6,468,271 (1)
		9	SOLE DISPOSITIVE POWER -0-
		10	SHARED DISPOSITIVE POWER 6,468,271 (1)
11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 6,468,271 (1)
12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (See Instructions) (2) ý
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 32.3%
14	TYPE OF REPORTING PERSON (See Instructions) IN


(1)	Includes 247,619 shares of Common Stock subject to a Warrant (defined below) exercisable within 60 days of this report.

(2)	Excludes shares held by other parties to the Purchase Agreement (defined below) and any other agreement described herein.

(3)	Based on 19,794,672 shares of Common Stock outstanding as of August 1, 2005, plus shares issuable upon excercise of the Warrant.

SCHEDULE 13D

CUSIP No. 71940B208

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1	NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY) CALIFORNIA PACIFIC CAPITAL LLC
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions)			(a) q (b) ý
3	SEC USE ONLY
4	SOURCE OF FUNDS (See Instructions) WC
5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) q
6	CITIZENSHIP OR PLACE OF ORGANIZATION Delaware
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH		7	SOLE VOTING POWER -0-
		8	SHARED VOTING POWER 6,468,271 (1)
		9	SOLE DISPOSITIVE POWER -0-
		10	SHARED DISPOSITIVE POWER 6,468,271 (1)
11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 6,468,271 (1)
12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (See Instructions) (2) ý
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 32.3%
14	TYPE OF REPORTING PERSON (See Instructions) CO


(1)	Includes 247,619 shares of Common Stock subject to a Warrant (defined below) exercisable within 60 days of this report.

(2)	Excludes shares held by other parties to the Purchase Agreement (defined below) and any other agreement described herein.

(3)	Based on 19,794,672 shares of Common Stock outstanding as of August 1, 2005, plus shares issuable upon excercise of the Warrant.

SCHEDULE 13D

CUSIP No. 71940B208

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Statement on Schedule 13D

This Statement on Schedule 13D is being filed on behalf of the Reporting Persons (as defined below, and relates to the beneficial ownership of common stock, par value $0.01 per share (the “Common Stock”), of Photoworks, Inc., a Delaware corporation (the “Issuer”).

ITEM 1. SECURITY AND ISSUER.

The class of equity securities to which this statement relates is the Common Stock of the Issuer. The principal executive offices of the Issuer are located at 1260 16th Avenue West, Seattle, Washington 98119.

ITEM 2. IDENTITY AND BACKGROUND.

This statement is filed by Joseph Waechter (“Waechter”) and California Pacific Capital LLC (“CPC”), each a “Reporting Person” and collectively the “Reporting Persons” in this Schedule 13D. Although this statement is being made jointly by the Reporting Persons, each Reporting Person expressly disaffirms membership in any group under Rule 13d-5 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise.

The principal business address of Waechter is c/o California Pacific Capital LLC, 50 California Street, Suite 1500, San Francisco, California 94111. Waechter’s principal occupation is to act as an officer, director or other manager of various entities engaged in investment activities, including managing member of CPC and president, chief executive officer and a director of Sunra Capital Holdings Ltd. (“Sunra”), the registered holder of the securities reported herein. Waechter has not been convicted in a criminal proceeding in the past five years (excluding traffic violations or similar misdemeanors). During the past five years, Waechter was not a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which he was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. Waechter is a citizen of the United States.

CPC was formed on August 15, 2002, as a limited liability company under the laws of the State of Delaware. The principal business address of CPC is 50 California Street, Suite 1500, San Francisco, California 94111. CPC’s principal business is to engage in various investment activities, including providing investment advice. Pursuant to the Management Agreement dated as of September 9, 2002 attached as Exhibit B to this filing, CPC has exclusive voting and investment control over the funds and assets of Sunra, including the shares of the Issuer’s Common Stock and Warrant owned by Sunra described below in Item 3. No member or manager of CPC has been convicted in a criminal proceeding in the past five years (excluding traffic violations or similar misdemeanors). During the past five years, no member or manager of CPC was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which such person was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws.

SCHEDULE 13D

CUSIP No. 71940B208

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ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.

On February 16, 2005, Sunra purchased from the Issuer $2,000,000 of debentures for cash, pursuant to a Convertible Note, Warrant and Common Stock Purchase Agreement between the Issuer and Sunra (the “Purchase Agreement”). The debentures bore interest at 6% per annum and were due and payable on April 30, 2008. The debentures were initially convertible into an aggregate of 18,442,876 shares of Common Stock of the Issuer at a conversion price of $0.1078 per share. In addition to the debentures, Sunra acquired a warrant to purchase 1,904,767 shares of Common Stock at an exercise price of $0.21 per share. On July 18, 2005, the Issuer effected a 5-to-1 reverse stock split of its Common Stock. As a result, (a) the number of shares of Common Stock into which the principal of the debentures were convertible was reduced from 18,442,876 shares to 3,688,575 shares, and the conversion price increased from $0.1078 per share to $0.539 per share; and (b) the number of shares of Common Stock exercisable under the warrant was reduced from 1,904,767 shares to 380,953 shares, and the exercise price increased from $0.21 per share to $1.05 per share. The debentures and warrant were issued in reliance on the exemption under Section 4(2) of the Securities Act of 1933, as amended.

On July 27, 2005, Sunra converted the principal and accrued interest under the debentures into 3,808,778 shares of Common Stock and a warrant to purchase 247,619 shares of Common Stock (the “Warrant”). The conversion price of the Common Stock was $0.539 per share. The exercise price of the Warrant is $1.05 per share. The Warrant is immediately exercisable and expires in five years if not previously exercised. These transactions were exempt from registration in reliance on the exemptions under Section 3(a)(9) and Section 4(2)of the Securities Act of 1933, as amended.

The total amount of the funds required to purchase the subject securities was and is anticipated to be furnished from the personal funds of the Reporting Persons or the investment capital of the client or clients of the Reporting Persons. No part of the purchase price was or is anticipated to be borrowed by such Reporting Persons or their clients for the purpose of acquiring such securities.

ITEM 4. PURPOSE OF TRANSACTION.

(a) The response to Item 3 is incorporated herein by reference.

In addition, the Reporting Persons may from time to time, depending on prevailing market, economic and other conditions, acquire additional shares of the capital stock of the Issuer or become the beneficial owner of additional shares of the capital stock of the Issuer by causing Sunra to acquire such additional shares of the Issuer’s capital stock,

SCHEDULE 13D

CUSIP No. 71940B208

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or engage in discussions with the Issuer concerning further acquisitions of shares of the Issuer’s capital stock or further investments in the Issuer. The Reporting Persons intend to review Sunra’s investment in the Issuer on a continuing basis and, depending upon the price and availability of shares of Common Stock, subsequent developments affecting the Issuer’s, the Issuer’s business and prospects, other investment and business opportunities available to such Reporting Persons, general stock market and economic conditions, tax considerations and other factors considered relevant, may decide at any time to increase or to decrease the size of their investment in the Issuer.

The Issuer may choose to grant additional shares of Common Stock or options to purchase shares of Common Stock in the future to Waechter in connection with his service as a director of the Issuer.

(b) The Reporting Persons do not presently have any plans or proposals which relate to or would result in an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Issuer or any of its subsidiaries.

(c) The Reporting Persons do not presently have any plans or proposals which relate to or would result in a sale or transfer of a material amount of assets of the Issuer or of any of its subsidiaries.

(d) In connection with the purchase of debentures on February 16, 2005 and the conversion of such debentures into stock on July 27, 2005, pursuant to that certain Amended and Restated Investor Rights Agreement dated February 16, 2005 (as amended), the Issuer granted Sunra the right to nominate a director of the Issuer. Sunra, at the instruction of the Reporting Persons, proposed that the Board appoint Waechter to fill a vacancy on the Board, and the Board appointed Waechter as a Class III director to fill such vacancy on August 10, 2005. Waechter’s term will expire at the next annual meeting of stockholders. At this time, the Reporting Persons have no present plans or proposals to make any additional changes in the present Board of Directors or management of the Issuer, including any changes in the number or term of directors or the filling of any existing vacancies on the Board of Directors.

(e) The response to Item 3 is incorporated herein by reference.

(f) The Reporting Persons do not presently have any plans or proposals which relate to or would result in any other material change in the Issuer’s business or corporate structure.

(g) The Reporting Persons do not presently have any plans or proposals which relate to or would result in changes in the Issuer’s charter, bylaws or instruments corresponding thereto or other actions which may impede the acquisition of control of the Issuer by any person.

(h) The Reporting Persons do not presently have any plans or proposals which relate to or would result in a class of securities of the Issuer being delisted from a national securities exchange or ceasing to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association.

SCHEDULE 13D

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(i) The Reporting Persons do not presently have any plans or proposals which relate to or would result in a class of equity securities of the Issuer becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Exchange Act.

(j) The Reporting Persons do not presently have any plans or proposals which relate to or would result in an action similar to any of those enumerated above.

ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.

(a) and (b) The approximate percentages of shares of Common Stock reported as beneficially owned by the Reporting Persons are based upon 19,794,672 shares of Common Stock outstanding as of August 1, 2005, as reported in the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 25, 2005, plus shares currently issuable upon exercise of the Warrant.


	Amount beneficially owned: See Row 11 of cover page for each Reporting Person.

	Percent of class: See Row 13 of cover page for each Reporting Person.

	Number of shares as to which the person has:

	(i) Sole power to vote or to direct the vote: See Row 7 of cover page for each Reporting Person.

	(ii) Shared power to vote or to direct the vote: See Row 8 of cover page for each Reporting Person.

	(iii) Sole power to dispose or to direct the disposition: See Row 9 of cover page for each Reporting Person.

	(iv) Shared power to dispose or to direct the disposition: See Row 10 of cover page for each Reporting Person.

By virtue of the fact that, pursuant to the Management Agreement, CPC has sole voting and dispositive power over the subject shares and Warrant held by Sunra, and that Waechter is the sole member and manager of CPC, Waechter and CPC may be deemed to share voting and dispositive power over the subject shares held by Sunra.

(c) Except as set forth in Items 3 and 5 above, the Reporting Persons have not effected any transaction in the Issuer’s Common Stock during the past 60 days.

(d) Except as set forth in Item 3, no person other than the beneficial owners referred to herein is known to have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, subject securities held by Sunra.

(e) Not applicable.

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ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER.

The responses to Items 3 and 4 are incorporated herein by reference. Except as otherwise described therein, there are no contracts, arrangements, understandings or relationships (legal or otherwise) among the persons named in Item 2 above or between such persons and any other person with respect to any securities of the Company.

ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.


Exhibit	Title

A	Joint Filing Agreement dated November 18, 2005 between the Reporting Persons.

B	Management Agreement, dated as of September 9, 2002, between between Sunra and California Pacific Capital LLC.

B	Convertible Note, Warrant and Common Stock Purchase Agreement dated February 15, 2005.*

C	Amended and Restated Investor Rights Agreement dated February 15, 2005 (as amended).*

D	Subordinated Convertible Noted dated February 15, 2005.*

E	Form of Warrant dated February 15, 2005.*

*Incorporated by reference to Exhibits 10.3, 10.5, 10.6 and 10.7, respectively, filed with the Company’s Form 10-Q filed May 31, 2005.

SCHEDULE 13D

CUSIP No. 71940B208

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SIGNATURE

After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

Dated: November 18, 2005


/s/ Joseph Waechter

JOSEPH WAECHTER, an individual

CALIFORNIA PACIFIC CAPITAL LLC

By /s/ Joseph Waechter

By: Joseph Waechter
Its: Manager

CUSIP No. 71940B208

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Exhibit A

JOINT FILING AGREEMENT

In accordance with Rule 13(d)-1(k)(l) under the Securities Exchange Act of 1934, as amended, the undersigned hereby agree to the joint filing with each other of the attached Statement on Schedule 13D and to all amendments to such statement.

IN WITNESS WHEREOF, the undersigned execute this agreement on November 18, 2005.


/s/ Joseph Waechter

JOSEPH WAECHTER, an individual

CALIFORNIA PACIFIC CAPITAL LLC

By /s/ Joseph Waechter

By: Joseph Waechter
Its: Manager

EXHIBIT B

MANAGEMENT AGREEMENT

This Management Agreement (this “Agreement”) is entered into as of the 9^thday of September, 2002 between Sunra Capital Holdings Limited, a Bermuda company (“SCH”), and California Pacific Capital LLC, a Delaware limited liability company (“Advisor”).

1. Appointment of Advisor. SCH hereby engages Advisor to provide the investment services described in this Agreement (the “Services”) with respect to SCH. Advisor agrees to use its diligent, commercially reasonable efforts to provide the Services.

2. Authority and Discretion of Advisor.

2.1 General Authority. SCH grants to Advisor absolute power and authority to manage and administer, in its sole discretion, the assets of SCH (now owned or hereafter acquired), including full power and authority to exercise all incidents of ownership with respect to such assets, including, but not limited to, the power of attorney, the sole power to vote or to direct the voting of any Securities (as defined below) held by SCH (now owned or hereafter acquired) and the sole power to dispose, or to direct the disposition of any such Securities, in the name, and for the account and risk, of SCH, including the power and authority to do any of the following things, in the sole discretion of Advisor, without prior approvals and directions from, or consultations with, SCH or any custodian of such assets:

(a) to have and exercise, in its sole discretion all “Voting power” as such term is defined and used in the Securities Exchange Act of 1934 (“Exchange Act”) and under Rule 13(d)-3, as promulgated under the Exchange Act;

(b) to have and exercise, in its sole discretion all “Investment power” as such term is defined and used in the Exchange Act and under Rule 13(d)-3, as promulgated under the Exchange Act;

(c) to authorize sub-advisers, in their discretion, to buy, sell, transfer, assign, pledge, lend, exchange, deliver and otherwise trade in Securities (as defined below), and purchase Securities in public offerings (including initial public offerings) and private placements;

(d) to engage directly in investment activities of the kind contemplated by clause (c) above;

(e) to select and engage custodians for SCH assets, enter into and terminate agreements with such custodians on terms and conditions approved by Advisor, and monitor the performance of such custodians;

(f) to perform any other act, including the signing and delivering of contracts, instruments, orders, receipts and all other documents, incidental to the broad powers granted to Advisor under this Agreement; and

(g) to select and engage other investment advisers as sub-advisers to SCH, enter into and terminate agreements with those sub-advisers on terms and conditions approved by Advisor, and monitor the performance of the sub-advisers;

provided, however, that Advisor cannot invest assets of SCH in investment related limited partnerships, limited liability companies or other entities managed by Advisor for which Advisor is separately compensated, unless Advisor receives the prior written consent of SCH, and in such case, the assets so invested would not be included in the computation of the fees described in Section 3 below.

As used in this Section 2, the term “Securities” encompasses common stock, preferred stock, warrants, convertible securities, bonds, notes, options, shares of investment companies, partnership interests, limited liability company interests, interests in REITs, derivative instruments, and any similar or related investment instruments or vehicles.

2.2 Custodian Instructions. SCH authorizes Advisor to give written instructions to any custodian for SCH assets at any time, and from time to time to (a) deliver any Securities sold, exchanged or otherwise disposed of from SCH to the relevant transferee, upon receipt of payment for such Securities, and (b) pay cash for any Securities delivered to a custodian upon acquisition for SCH. SCH authorizes and directs each custodian for SCH assets to follow such instructions. Except for payment of fees under Section 3 below, this authority shall not include the authority to cause Securities or cash to be delivered to Advisor.

2.3 Other Authorizations.

(a) In connection and simultaneous with the execution of this Agreement, SCH will execute and deliver to Advisor a copy of the Power of Attorney attached as Exhibit A to this Agreement.

(b) SCH, at its expense, shall promptly and duly execute and deliver such other documents and assurances, including, but not limited to, any powers of attorney and authorizations to buy, sell or otherwise dispose of any assets held by SCH, and shall take such further action as the Advisor may from time to time request in order to carry out the intent and purpose of this Agreement and the other agreements and transactions contemplated herein, including, but not limited to, voting of the Securities and the acquisition and disposition thereof in accordance with the power and authority granted Advisor hereunder and thereunder, and to establish and protect the rights and remedies created or intended to be created in favor of Advisor hereunder. Further, SCH will furnish, and will direct any custodian engaged by SCH or Advisor to furnish, such additional authorizations as may be requested from time to time by Advisor, or by brokers or other third parties with which SCH has dealings, in order to implement the authority granted in this Section 2 or otherwise carry out the intent and purpose of this Agreement.

3. Fees and Expenses.

3.1 Management Fee. SCH will pay Advisor a management fee (“Management Fee”) at the annual rate of 2.0% of the Assets Under Management. For purposes hereof, “Assets Under Management” means the aggregate cash or other consideration paid into

SCH as capital (whether or not then characterized as capital on SCH’s books or otherwise) through the specified time, determined in U.S. dollars as of the date of investment, and without regard to distributions. The Management Fee will be paid quarterly in advance based on the Assets Under Management as of the first day of each calendar quarter. SCH will pay the Management Fee in U.S. dollars promptly following the beginning of such quarter, unless the Advisor elects to defer receipt of the Management Fee as further described below. The Management Fee will be prorated for any period that is less than a full calendar quarter, and will be deducted in computing the net profit or net loss of SCH. For purposes of this Agreement the effective date for billing purposes is July 1, 2002. Notwithstanding the foregoing, upon request by SCH, and with the consent of the Advisor, the Management Fee may be waived or reduced with respect to Assets Under Management invested in SCH by employees or affiliates of the Advisor, relatives of such persons, and for certain strategic investors.

3.2 Incentive Fee. SCH will pay Advisor the incentive fees as set forth in this Section 3.2 (“Incentive Fee”).

(a) Appreciated Net Asset Value. Within 60 days after the end of each fiscal year of SCH, SCH will determine the Appreciated Net Asset Value for such fiscal year. For purposes hereof, “Net Appreciated Asset Value” means the increase in the value of SCH net assets, if any, during such fiscal year over the net assets of SCH, as of the end of the prior fiscal year. The value of SCH’s assets will be determined as set forth below. For purposes of this clause (a) the Incentive Fee is an amount equal to twenty percent (20%) of Net Appreciated Asset Value. If SCH determines that it has generated a Net Appreciated Asset Value for a fiscal year, and Advisor elects in writing within 60 days following receipt of such determination to receive an Incentive Fee with respect to such Net Appreciated Asset Value, SCH will pay the Incentive Fee with respect to such Net Appreciated Asset Value within 15 days following receipt of such notice. If SCH incurs a net reduction in net assets for one or more fiscal years, and during a subsequent fiscal year or years SCH generates Net Appreciated Asset Value, no Incentive Fee will be payable under this clause until the aggregate amount of the net reductions in net assets previously allocated has been recouped against Net Appreciated Asset Value for applicable fiscal year(s). If any Distribution (as defined in clause (b) below) is made during a fiscal year, the value of the Distribution will be subtracted from the value of SCH net assets for the prior fiscal in determining Net Appreciated Asset Value for such fiscal year in which the Distribution is made, unless Advisor receives an Incentive Fee pursuant to clause (b) with respect to such Distribution.

(b) Distributions. SCH will notify Advisor at least 30 days prior to making any distribution to SCH shareholders on account of their equity holdings in SCH (“Distribution”). For purposes of this clause (b), the Incentive Fee is an amount equal to twenty percent (20%) of the value of such distribution, calculated as of the time of such distribution. If Advisor elects in writing within 30 days following the date of such distribution to receive an Incentive Fee with respect to such distribution, SCH will pay the Incentive Fee with respect to such distribution within 15 days following receipt of such notice. If such distribution is made other than in cash in U.S. dollars, the value of such distribution in U.S. dollars will be determined by as set forth below. It is the intent of the parties that if Advisor receives an Incentive Fee with respect to a Distribution under this clause in a fiscal year, that Advisor may also receive an Incentive Fee under clause (a) with respect to such fiscal year, it being understood

that the calculations of the fees under such clauses are intended not to double-count fees payable with respect to such Distribution.

(c) Carry Over of Incentive Fees. In the event that Advisor does not elect to receive an Incentive Fee under clause (a) for a fiscal year in which Advisor would be entitled to receive such Incentive Fee, Advisor may elect to (i) carry over the Incentive Fee payable under clause (a) for such fiscal year, in which case such amount will be added to a future Incentive Fee payable under this Section 3.2, at Advisor’s discretion or (ii) with respect to contiguous fiscal years only, calculate the Incentive Fee payable under clause (a) with respect to such fiscal years, in which case Net Appreciated Asset Value will be calculated as the net change in the value of net assets over such fiscal years (net of any asset value reductions carried over from prior years).

(d) Termination. In the event that this Agreement is terminated prior to the last day of any fiscal year, the Incentive Fee under clause (a) for that fiscal year will be computed as if the termination date was the end of such fiscal year. Upon termination of this Agreement, except as set forth above, Advisor will not be entitled to an Incentive Fee under clause (a); however, Advisor will continue to be entitled to receive Incentive Fees under clause (b) with respect to Distributions until the assets of SCH are liquidated in full.

(e) Form of Payment. Unless otherwise mutually agreed, Incentive Fees will be paid in cash, in U.S. dollars. If SCH does not have liquid assets sufficient to make a required Incentive Fee payment at the time required, Advisor may liquidate SCH assets, in Advisor’s discretion, in order to make such payment.

(f) Valuation of Assets. For purposes of valuing the assets of SCH under clause (a) and for valuing non-U.S. dollar denominated assets included within any Distribution, the following will apply. Advisor and SCH will attempt to reach mutual agreement with respect to such value within 30 days following notice by the party seeking such valuation, and if such mutual agreement is reached, the value of such assets will be the mutually agreed value. If such agreement is not reached within such time period, the parties will appoint a mutually acceptable independent appraiser within 15 days to make a determination in good faith of such value, and if such appraiser is so appointed, the value of such assets will be the value assigned by such appraiser. SCH will pay the expenses of such appraiser. If the parties fail to agree upon an appraiser within such period, each party will appoint an appraiser at such party’s expense within 15 days, and such appraisers will within another 10 days appoint a third appraiser, whose expenses will initially be paid by SCH. Such appraisers will make a determination of the value of such assets. The value of the assets will be the average of the three values. If the value ascribed by the third appraiser is closer to the value ascribed by the appraiser appointed by Advisor, then Advisor will reimburse SCH for half of the cost of the third advisor.

3.3 Expenses. In addition to the Management Fee and Incentive Fee described above, SCH will be responsible for all expenses related to the management of SCH, including all custodian fees and expenses, sub-adviser performance fees, sub-adviser asset-based fees, bank service fees, wire transfer fees, exchange fees, debit-balance interest and similar administrative and transaction costs. These costs and expenses will be debited to SCH as they are incurred and will be promptly paid by SCH.

4. Management Fee Billing. SCH specifically authorizes its custodian bank(s) to pay Advisor the Management Fee and Incentive Fee upon receipt of Advisor’s invoice, pursuant to Section 4 of this agreement.

5. Standard of Care. SCH acknowledges that the investment strategies contemplated for SCH entail inherent risks and that Advisor does not guarantee either that SCH will realize any particular return or that there will not be losses by SCH.

6. Information and Confidentiality.

6.1 Information to be Provided to Advisor by SCH. SCH hereby agrees to provide to Advisor such information regarding SCH and its properties, business and affiliates as Advisor shall reasonably request for the purpose of filing with the United States Securities and Exchange Commission or other applicable governmental authorities any reports or other filings, including any amendments or updates thereto, required by applicable law to be filed by Advisor and/or its managers, members, employees and affiliates in connection with this Agreement and the performance of the Services by Advisor. SCH hereby represents and warrants that such information provided by SCH shall be complete and accurate as of the time such information is provided to Advisor, and that SCH will promptly notify Advisor of any changes in such information during the term of this Agreement and for such additional periods following the termination of this Agreement as Advisor and/or its managers, members, employees and affiliates may be required to make such regulatory filings

6.2 Confidentiality. Advisor and SCH acknowledge that they will acquire information and materials from each other and knowledge about each other’s business, financial condition, products, programming techniques, experimental work, customers and suppliers and that all such knowledge, information and materials acquired are and will be the trade secrets and confidential and proprietary information of such other party (collectively, the “Confidential Information”). Confidential Information will not include, however, any information that is or becomes part of the public domain through no fault of the receiving party or that the disclosing party regularly gives to third parties without restriction on use or disclosure. Advisor and SCH hereby agree to use all reasonable efforts to keep such Confidential Information in strict confidence and to not disclose it to others; provided, however, that the provisions of this Section 7.2 will not restrict Advisor and its managers, members, employees and affiliates from disclosing SCH’s Confidential Information to the extent required by any law or regulation or to the extent required to perform the Services hereunder.

7. Relationship of Parties.

7.1 Independent Contractor. Advisor is an independent contractor to, and is not an employee of, SCH. Except as expressly set forth herein, Advisor has no authority to bind SCH by contract or otherwise. Advisor will determine, in Advisor’s sole discretion, the manner and means by which the Services are accomplished, subject to the requirement that Advisor shall at all times comply with applicable law. SCH has no right or authority to control the manner or means by which the Services are accomplished.

7.2 Employment Taxes and Benefits. Advisor will report as income all compensation received by Advisor pursuant to this Agreement. Advisor will indemnify SCH and

hold it harmless from and against all claims, damages, losses and expenses, including reasonable fees and expenses of attorneys and other professionals, relating to any obligation imposed by law on SCH to pay any withholding taxes, social security, unemployment or disability insurance, or similar items in connection with compensation received by Advisor pursuant to this Agreement. Advisor will not be entitled to participate in any plans, arrangements, or distributions by SCH pertaining to any bonus, stock option, profit sharing, insurance or similar benefits for SCH’s employees.

7.3 Liability Insurance. Advisor will maintain adequate insurance to protect Advisor from the following: (i) claims under workers’ compensation and state disability acts; (ii) claims for damages because of bodily injury, sickness, disease or death that arise out of any negligent act or omission of Advisor or its managers, members or employees; and (iii) claims for damages because of injury to or destruction of tangible or intangible property, including loss of use resulting therefrom, that arise out of any negligent act or omission of Advisor or its managers, members or employees.

8. Mutual Indemnification.

8.1 Indemnification by Advisor. Advisor will indemnify and hold harmless SCH and its officers, directors, agents and affiliates (the “SCH Indemnified Parties”) from and against, and at SCH’s option, Advisor will defend the SCH Indemnified Parties against all claims, damages, losses and expenses (or actions, including shareholder actions, in respect thereof), including court costs and reasonable fees and expenses of attorneys, expert witnesses, and other professionals (“Losses”) arising out of or resulting from, and, any action by a third party that is based on any grossly negligent act or omission or willful conduct of Advisor or its managers, members or employees that result in: (a) any bodily injury, sickness, disease or death; (b) any injury or destruction to tangible or intangible property (including computer programs and data) or any loss of use resulting therefrom; or (c) any violation of any statute, ordinance, or regulation.

8.2 Indemnification by SCH. SCH will indemnify and hold harmless Advisor and its managers, members, employees and affiliates (the “Advisor Indemnified Parties”) from and against, and at Advisor’s option, SCH will defend the Advisor Indemnified Parties against all Losses (a) which are related to or result from the performance by Advisor of the Services contemplated by or the engagement of Advisor pursuant to this Agreement or (b) arising out of or resulting from any action by a third party that is based on any negligent act or omission or willful conduct of SCH or its employees (including any negligent or willful misstatement in, or omission from, the information provided and to be provided by SCH to Advisor hereunder) that results in: (i) any bodily injury, sickness, disease or death; (ii) any injury or destruction to tangible or intangible property (including computer programs and data) or any loss of use resulting therefrom; or (iii) any violation of any statute, ordinance, or regulation.

9. Termination. This Agreement may be terminated: (i) at any time upon mutual agreement of SCH and Advisor; and (ii) by SCH or Advisor on 90 days written notice to Advisor or SCH, as applicable. The provisions of Sections 6, 8, 9 and 10 hereof will survive the termination of this Agreement.

10. Miscellaneous.

10.1 Assignment. Advisor may not assign Advisor’s rights or delegate Advisor’s obligations under this Agreement either in whole or in part without the prior written consent of SCH. Any attempted assignment or delegation without such consent will be void.

10.2 Complete Understanding; Modification. This Agreement constitutes the complete and exclusive understanding and agreement of the parties with respect to the subject matter hereof and supersedes all prior understandings and agreements (including without limitation that certain Management Agreement by and between SCH and Joseph Waechter, dated June 21, 2002), whether written or oral, with respect to the subject matter hereof. Any waiver, modification or amendment of any provision of this Agreement will be effective only if in writing and signed by Advisor and SCH.

10.3 Governing Law; Severability. This Agreement will be governed by and construed in accordance with the laws of the State of California, excluding that body of law pertaining to conflict of laws. Any legal action or proceeding arising under this Agreement will be brought exclusively in the federal or state courts located in the Northern District of California and the parties hereby consent to the personal jurisdiction and venue therein. If any provision of this Agreement is for any reason found to be unenforceable, the remainder of this Agreement will continue in full force and effect.

10.4 Attorney’s Fees. If any action is necessary to enforce the terms of this Agreement, the substantially prevailing party will be entitled to reasonable attorneys’ fees, costs and expenses in addition to any other relief to which such prevailing party may be entitled.

10.5 Successors.This Agreement shall be binding upon, and inure to the benefit of, SCH and Advisor and their respective successors and permitted assigns.

10.6 Waiver.The waiver of any breach of any provision of this Agreement shall not constitute a waiver of any subsequent breach of the same or other provisions hereof.

10.7 Notices.Any and all notices required or permitted to be given to a party pursuant to the provisions of this Agreement will be in writing and will be effective and deemed to provide such party sufficient notice under this Agreement on the earliest of the following: (a) at the time of personal delivery, if delivery is in person; (b) one business day after deposit with an express overnight courier for United States deliveries, or two business days after such deposit for deliveries outside of the United States; or (c) three business days after deposit in the United States mail by certified mail (return receipt requested) for United States deliveries. All notices for delivery outside the United States will be sent by express courier. All notices not delivered personally will be sent with postage and/or other charges prepaid and properly addressed to the party to be notified at the address set forth below the signature lines of this Agreement or at such other address as such other party may designate by one of the indicated means of notice herein to the other parties hereto.

10.8 Titles and Headings.The titles, captions and headings of this Agreement are included for ease of reference only and will be disregarded in interpreting or construing this Agreement. Unless otherwise specifically stated, all references herein to “sections” and “exhibits” will mean “sections” and “exhibits” to this Agreement.

10.9 Counterparts. This Agreement may be executed in counterparts.

IN WITNESS WHEREOF, SCH and Advisor have caused this Agreement to be executed by their duly authorized representatives, as of the date first written above.


SUNRA CAPITAL HOLDINGS LIMITED		CALIFORNIA PACIFIC CAPITAL LLC

By:	/s/ Toshio Masuda	By:	/s/ Joseph Waechter

			Joseph Waechter, Its Manager

Name: Toshio Masuda		50 California Street, Suite 1500
Title: Chairman		San Francisco, CA 94111

[SIGNATURE PAGE TO MANAGEMENT AGREEMENT]