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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): MARCH 6, 2000
INTERNET PICTURES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 000-26363 52-2213841
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification Number)
1009 COMMERCE PARK DRIVE, OAK RIDGE, TENNESSEE 37830
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (865) 482-3000
N/A
(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS
On March 8, 2000, Internet Pictures Corporation ("iPIX") and PictureWorks
Technology, Inc. ("PictureWorks") announced that they had entered into an
Agreement and Plan of Merger dated as of March 6, 2000 (the "Merger
Agreement"), whereby iPIX would acquire PictureWorks by means of the merger of
Purple Sub, Inc., a wholly owned subsidiary of iPIX, with and into
PictureWorks (the "Merger"). Pursuant to the Merger Agreement, iPIX will issue
to the holders of PictureWorks' outstanding shares of common stock, Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, and Series
D Preferred Stock a number of shares of iPIX common stock to be determined
shortly before the closing date of the Merger that, subject to certain
limitations, has an aggregate market value of approximately $173 million. If
the average closing price of iPIX common stock during a 10-day period shortly
before the Merger closing date is more than $37.06 per share, the PictureWorks
stockholders will receive a total of 4,668,106 shares of iPIX common stock; and
if the average closing price of iPIX common stock during such period is less
than $27.39 per share, the PictureWorks stockholders will receive a total of
6,316,173 shares of iPIX common stock. The Merger is expected to be effected on
a tax-free basis to the PictureWorks stockholders and to be accounted for as a
purchase by iPIX. The consummation of the Merger is subject to various
conditions set forth in the Merger Agreement, including approval by
PictureWorks' stockholders. The Merger is expected to close in March 2000. A
copy of the Merger Agreement is filed as Exhibit 2.1 hereto.
In connection with the Merger, iPIX and certain stockholders of PictureWorks
(the "Stockholders") entered into a Stockholder Support Agreement dated as
March 6, 2000, pursuant to which the Stockholders agreed to vote their shares
of PictureWorks stock in favor of the adoption of the Merger Agreement and the
approval of the Merger. A copy of the Stockholder Support Agreement is filed as
Exhibit 2.2 hereto.
In addition, iPIX and PictureWorks entered into a Funding Obligation Agreement
dated as of March 6, 2000 (the "Funding Agreement"). On March 8, 2000, iPIX
deposited $7 million into an escrow fund (the "Escrow Fund") in accordance with
the Funding Agreement. Pursuant to the Funding Agreement, in the event that the
Merger Agreement is terminated, then after such termination and until the
escrow termination date, PictureWorks may from time to time draw funds from the
Escrow Fund, which draws will purchase investments by iPIX in PictureWorks, if
at the time of any such draw PictureWorks receives a matching investment from
another source. A copy of the Funding Agreement is filed as Exhibit 2.3 hereto.
On March 8, 2000, iPIX and PictureWorks issued a joint press release announcing
the signing of the Merger Agreement. A copy of the press release is filed as
Exhibit 99.1 hereto.
The foregoing descriptions of the Merger Agreement, the Stockholder Support
Agreement, the Funding Agreement, and the transactions contemplated thereby do
not purport to be complete and are qualified in their entirety by reference to
the Merger Agreement, the Stockholder Support Agreement, and the Funding
Agreement filed as Exhibits 2.1, 2.2 and 2.3, respectively, hereto, which are
incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits:
Exhibit
Number Description
- ------ -----------
2.1 Agreement and Plan of Merger dated as of March 6, 2000, among
Internet Pictures Corporation, PictureWorks Technology, Inc., and
Purple Sub, Inc. The exhibits and schedules have been omitted from
this filing. iPIX will furnish, as supplementary information, copies
of the omitted materials to the Securities and Exchange Commission
(the "SEC") upon request.
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2.2 Stockholder Support Agreement dated as of March 6, 2000, between
Internet Pictures Corporation and certain stockholders of
PictureWorks Technology, Inc. The schedule has been omitted from this
filing. iPIX will furnish, as supplementary information, copies of the
omitted materials to the SEC upon request.
2.3 Funding Obligation Agreement dated as of March 6, 2000, among
Internet Pictures Corporation, PictureWorks Technology, Inc., and
First Tennessee Bank National Association.
99.1 Press release issued on March 8, 2000, jointly by Internet Pictures
Corporation and PictureWorks Technology, Inc.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: March 10, 2000
INTERNET PICTURES CORPORATION
By: /s/ John J. Kalec
----------------------------------
John J. Kalec
Executive Vice President and
Chief Financial Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
2.1 Agreement and Plan of Merger dated as of March 6, 2000, among Internet Pictures Corporation,
PictureWorks Technology, Inc., and Purple Sub, Inc. The exhibits and schedules have been omitted
from this filing. iPIX will furnish, as supplementary information, copies of the omitted materials
to the Securities and Exchange Commission (the "SEC") upon request.
2.2 Stockholder Support Agreement dated as of March 6, 2000, between Internet Pictures Corporation and
certain stockholders of PictureWorks Technology, Inc. The schedule has been omitted from this
filing. iPIX will furnish, as supplementary information, copies of the omitted materials to the
SEC upon request.
2.3 Funding Obligation Agreement dated as of March 6, 2000, among Internet Pictures Corporation,
PictureWorks Technology, Inc., and First Tennessee Bank National Association.
99.1 Press release issued on March 8, 2000, jointly by Internet Pictures Corporation and PictureWorks
Technology, Inc.
</TABLE>
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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
Dated as of March 6, 2000
between
INTERNET PICTURES CORPORATION,
PICTUREWORKS TECHNOLOGY, INC.
and PURPLE SUB, INC.
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TABLE OF CONTENTS
<TABLE>
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PAGE
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ARTICLE 1 - THE MERGER..........................................................................1
SECTION 1.1. THE MERGER.....................................................................1
SECTION 1.2. EFFECTIVE TIME.................................................................1
SECTION 1.3. CLOSING OF THE MERGER..........................................................2
SECTION 1.4. EFFECTS OF THE MERGER..........................................................2
SECTION 1.5. CERTIFICATE OF INCORPORATION AND BYLAWS OF SURVIVING CORPORATION...............2
SECTION 1.6. BOARD OF DIRECTORS AND OFFICERS OF SURVIVING CORPORATION.......................2
SECTION 1.7. MERGER CONSIDERATION...........................................................2
SECTION 1.8. EXCHANGE OF CERTIFICATES.......................................................5
SECTION 1.9. ESCROW.........................................................................7
SECTION 1.10. STOCK OPTIONS..................................................................7
SECTION 1.11 WARRANTS.......................................................................8
SECTION 1.12 DISSENTING SHARES..............................................................9
SECTION 1.13 TAX TREATMENT..................................................................9
SECTION 1.14 TAKING OF NECESSARY ACTION; FURTHER ACTION.....................................9
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF PURPLE...........................................10
SECTION 2.1. ORGANIZATION AND QUALIFICATION................................................10
SECTION 2.2. CAPITALIZATION OF PICTUREWORKS................................................10
SECTION 2.3. AUTHORITY RELATIVE TO THIS AGREEMENT; RECOMMENDATION..........................11
SECTION 2.4. FINANCIAL STATEMENTS..........................................................12
SECTION 2.5. CONSENTS AND APPROVALS; NO VIOLATIONS.........................................12
SECTION 2.6. NO DEFAULT....................................................................13
SECTION 2.7. NO UNDISCLOSED LIABILITIES; ABSENCE OF CHANGES................................13
SECTION 2.8. LITIGATION....................................................................16
SECTION 2.9. COMPLIANCE WITH APPLICABLE LAW................................................16
SECTION 2.10. EMPLOYEE BENEFIT PLANS; LABOR MATTERS.........................................16
SECTION 2.11. ENVIRONMENTAL LAWS AND REGULATIONS............................................18
SECTION 2.12. EMPLOYEES AND CONSULTANTS.....................................................19
SECTION 2.13. TAX MATTERS...................................................................19
SECTION 2.14. TITLE TO PROPERTY.............................................................20
SECTION 2.15. INTELLECTUAL PROPERTY.........................................................20
SECTION 2.16. INSURANCE.....................................................................22
SECTION 2.17. MATERIAL CONTRACTS............................................................22
SECTION 2.18. TAX TREATMENT.................................................................25
SECTION 2.19. AFFILIATES....................................................................25
SECTION 2.20. CERTAIN BUSINESS PRACTICES....................................................25
SECTION 2.21. INSIDER INTERESTS.............................................................25
SECTION 2.22. BROKERS.......................................................................26
SECTION 2.23. NO OTHER AGREEMENTS TO SELL PICTUREWORKS......................................26
</TABLE>
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<TABLE>
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SECTION 2.24. ACCOUNTS RECEIVABLE...........................................................26
SECTION 2.25. POWERS OF ATTORNEY............................................................26
SECTION 2.26. CUSTOMERS.....................................................................26
SECTION 2.27. SUPPLIERS.....................................................................26
SECTION 2.28. ACQUISITIONS..................................................................26
SECTION 2.29. BOOKS AND RECORDS.............................................................26
SECTION 2.30. YEAR 2000 COMPLIANCE MATTERS..................................................27
SECTION 2.31. SECURITIES LAW COMPLIANCE.....................................................27
SECTION 2.32. OTHER AGREEMENTS..............................................................27
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF IPIX.............................................27
SECTION 3.1. ORGANIZATION AND QUALIFICATION................................................27
SECTION 3.2. CAPITALIZATION OF BLUE........................................................28
SECTION 3.3. AUTHORITY RELATIVE TO THIS AGREEMENT; RECOMMENDATION..........................28
SECTION 3.4. SEC REPORTS; FINANCIAL STATEMENTS.............................................29
SECTION 3.5. CONSENTS AND APPROVALS; NO VIOLATIONS.........................................29
SECTION 3.6. NO UNDISCLOSED LIABILITIES; ABSENCE OF CHANGES................................30
SECTION 3.7. LITIGATION....................................................................30
SECTION 3.8. TAX TREATMENT.................................................................31
SECTION 3.9. BROKERS.......................................................................31
SECTION 3.10. HART-SCOTT-RODINO.............................................................31
SECTION 3.11. OTHER AGREEMENTS..............................................................31
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF PURPLE SUB.......................................31
SECTION 4.1 ORGANIZATION..................................................................31
SECTION 4.2 CAPITALIZATION................................................................31
SECTION 4.3 AUTHORITY RELATIVE TO THIS AGREEMENT; RECOMMENDATION..........................31
SECTION 4.4 NONCONTRAVENTION..............................................................31
ARTICLE 5 - COVENANTS..........................................................................32
SECTION 5.1. CONDUCT OF BUSINESS OF PICTUREWORKS...........................................32
SECTION 5.2. REASONABLE BEST EFFORTS.......................................................34
SECTION 5.4. MEETINGS OF PICTUREWORKS STOCKHOLDERS.........................................35
SECTION 5.5. ACCESS TO INFORMATION.........................................................35
SECTION 5.6. EMPLOYEE BENEFIT PLANS........................................................35
SECTION 5.7. PUBLIC ANNOUNCEMENTS..........................................................36
SECTION 5.8. NOTIFICATION OF CERTAIN MATTERS...............................................36
SECTION 5.9. TAX TREATMENT.................................................................36
SECTION 5.10. INDEMNIFICATION...............................................................37
SECTION 5.11. NNM STATUS OF IPIX COMMON STOCK...............................................37
SECTION 5.12. CLOSING DATE..................................................................37
SECTION 5.13. CONSENT OF GREYROCK TO MERGER.................................................37
SECTION 5.14. TERMINATION OF INVESTORS' RIGHTS AGREEMENT....................................38
SECTION 5.15. PRIVATE PLACEMENT EXEMPTION...................................................38
</TABLE>
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<TABLE>
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ARTICLE 6 - CONDITIONS TO CONSUMMATION OF THE MERGER...........................................39
SECTION 6.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER...................39
SECTION 6.2. CONDITIONS TO THE OBLIGATIONS OF PICTUREWORKS.................................39
SECTION 6.3. CONDITIONS TO THE OBLIGATIONS OF IPIX.........................................40
ARTICLE 7 - INDEMNIFICATION....................................................................41
SECTION 7.1 INDEMNIFICATION BY PICTUREWORKS STOCKHOLDERS..................................41
SECTION 7.2 INDEMNIFICATION BY IPIX.......................................................42
SECTION 7.3 LIMITATIONS...................................................................42
SECTION 7.4 INDEMNIFICATION CLAIMS........................................................43
SECTION 7.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES....................................46
ARTICLE 8 - TERMINATION; AMENDMENT; WAIVER.....................................................47
SECTION 8.1. TERMINATION...................................................................47
SECTION 8.2. EFFECT OF TERMINATION.........................................................48
SECTION 8.3. FEES AND EXPENSES.............................................................48
SECTION 8.4. AMENDMENT.....................................................................48
SECTION 8.5. EXTENSION; WAIVER.............................................................49
ARTICLE 9 - MISCELLANEOUS......................................................................49
SECTION 9.1. ENTIRE AGREEMENT; ASSIGNMENT..................................................49
SECTION 9.2. VALIDITY......................................................................49
SECTION 9.3. NOTICES.......................................................................49
SECTION 9.4. GOVERNING LAW.................................................................50
SECTION 9.5. DESCRIPTIVE HEADINGS..........................................................51
SECTION 9.6. PARTIES IN INTEREST...........................................................51
SECTION 9.7. CERTAIN DEFINITIONS...........................................................51
SECTION 9.8. PERSONAL LIABILITY............................................................51
SECTION 9.9. SPECIFIC PERFORMANCE..........................................................51
SECTION 9.10. SEVERABILITY..................................................................52
SECTION 9.11. COUNTERPARTS..................................................................52
</TABLE>
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<TABLE>
<CAPTION>
EXHIBITS:
<S> <C>
Escrow Agreement........................................................................Exhibit 1
Funding Obligation Agreement ...........................................................Exhibit 2
Registration Rights Agreement ..........................................................Exhibit 3
Stockholder Support Agreement...........................................................Exhibit 4
Estimated Fees and Expenses.............................................................Exhibit 5
Form of Officer's Certificate of iPIX and Purple Sub.............................Exhibit 6.2(c)-1
Form of Officer's Certificate of PictureWorks....................................Exhibit 6.2(c)-2
</TABLE>
SCHEDULES:
iPIX Disclosure Schedule
PictureWorks Disclosure Schedule
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as of
March 6, 2000, is between Internet Pictures Corporation, a Delaware corporation
("IPIX"), PictureWorks Technology, Inc., a Delaware corporation
("PICTUREWORKS") and Purple Sub, Inc., a Delaware Corporation ("PURPLE SUB").
WHEREAS, the Boards of Directors of iPIX, PictureWorks and Purple Sub
each have, in light of and subject to the terms and conditions set forth
herein, (i) determined that the Merger (as defined below) is fair to their
respective stockholders and in the best interests of such stockholders and (ii)
approved the Merger in accordance with this Agreement;
WHEREAS, it is intended that the Merger be treated for Federal income
tax purposes as a tax-free reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "CODE") and the regulations promulgated
thereunder ("Treasury Regulations");
WHEREAS, iPIX and PictureWorks desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger; and
WHEREAS, iPIX and PictureWorks intend, by approving resolutions
authorizing this Agreement, to adopt this Agreement as a plan of reorganization
within the meaning of section 368(a) of the Code and the Treasury Regulations.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, iPIX and PictureWorks hereby agree as
follows:
ARTICLE 1
THE MERGER
SECTION 1.1. The Merger. As promptly as reasonably practicable after
the date hereof, iPIX shall take all necessary actions to form Purple Sub as
its wholly-owned subsidiary pursuant to and in accordance with the Delaware
General Corporation Law (the "DGCL"). At the Effective Time (as defined below)
and upon the terms and subject to the conditions of this Agreement and in
accordance with the DGCL, Purple Sub shall be merged with and into PictureWorks
(the "MERGER") with PictureWorks continuing as the surviving corporation (the
"SURVIVING CORPORATION"), wholly owned by iPIX, and the separate corporate
existence of Purple Sub shall cease.
SECTION 1.2. Effective Time. Upon the terms and subject to the
conditions set forth in this Agreement, a Certificate of Merger reflecting the
Merger (the "CERTIFICATE OF MERGER") shall be duly executed and acknowledged by
each of iPIX, PictureWorks and Purple Sub, as applicable, and thereafter the
Certificate of Merger shall be delivered to the Secretary of State of the State
of Delaware for filing pursuant to the DGCL on the Closing Date. The Merger
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shall become effective at such time as a properly executed and certified copy
of the Certificate of Merger is duly filed by the Secretary of State of the
State of Delaware in accordance with the DGCL or such later time as iPIX and
PictureWorks may agree upon and set forth in the Certificate of Merger (the
time at which the Merger becomes effective shall be referred to herein as the
("EFFECTIVE TIME").
SECTION 1.3. Closing of the Merger. The closing of the Merger (the
"CLOSING") will take place at a time and on a date to be specified by the
parties, which shall be no later than the second business day following the day
on which the latest to occur of the conditions set forth in Article 6 have been
satisfied and, in any event, no later than May 15, 2000 (the "CLOSING DATE"),
at the offices of Latham & Watkins, 505 Montgomery Street, San Francisco,
California 94111, unless another time, date or place is agreed to in writing by
the parties hereto or otherwise extended by operation of Section 5.15.
SECTION 1.4. Effects of the Merger. The Merger shall have the effects
set forth in this Agreement, the Certificate of Merger and the DGCL. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the properties, rights, privileges, powers and franchises of Purple
Sub shall vest in the Surviving Corporation, and all debts, liabilities and
duties of Purple Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
SECTION 1.5. Certificate of Incorporation and Bylaws of Surviving
Corporation. (a) The Certificate of Incorporation of Purple Sub as in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation.
(b) The Bylaws of Purple Sub immediately prior to the Effective
Time shall be the Bylaws of the Surviving Corporation.
SECTION 1.6. Board of Directors and Officers of Surviving
Corporation. The directors and officers of Purple Sub in office at and as of
the Effective Time shall be the directors and officers of the Surviving
Corporation (retaining their respective positions and terms of office),
together with any additional officers or directors duly elected following the
Effective Time.
SECTION 1.7. Merger Consideration.
(a) Definitions. For purposes of this Section 1.7,
"CONSIDERATION" shall mean (x) One Hundred Seventy-Three Million Dollars
($173,000,000) minus (y) (i) the number of PictureWorks Series B Preferred
Shares issuable upon exercise of all PictureWorks Series B Preferred Stock
Warrants outstanding immediately prior to the Effective Time multiplied by (ii)
$3.00. "MEASUREMENT PRICE" shall be the average of the closing prices as
reported on NASDAQ for iPIX Shares for the ten (10) business days ending on the
second business day prior to the date of this Agreement. "CLOSING MEASUREMENT
PRICE" shall mean the average of the closing prices on NASDAQ for iPIX Shares
for the ten (10) business days ending on the second business day prior to the
Closing Date, except if (i) such average closing price is more than 115% of the
Measurement Price, in which case the Closing Measurement Price shall be
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115% of the Measurement Price or (ii) such average closing price is less than
85% of the Measurement Price, in which case the Closing Measurement Price shall
be 85% of the Measurement Price. The "PREFERRED MEASUREMENT PRICE" shall mean
the average of the closing prices on NASDAQ for iPIX Shares for the ten (10)
business days ending on the second business day prior to the Closing Date.
"MERGER SHARES" shall mean that number of shares of iPIX common stock
determined by dividing the Consideration by the Closing Measurement Price. The
"COMMON MERGER SHARES" shall be a number of iPIX Shares (as defined below)
equal to the Merger Shares minus the number of iPIX Shares allocated as
Liquidation Preferences in subclauses (i) through (iii) of Section 1.7(b). The
"CONVERSION RATIO" shall be the number of iPIX Shares (or fraction thereof)
issuable upon conversion of one share of PictureWorks Common Stock by operation
of Section 1.7(b)(iv). Neither iPIX, PictureWorks, nor Purple Sub shall have
the right to terminate this Agreement on the basis that the Closing Measurement
Price exceeds or is less than the Measurement Price by greater than fifteen
percent (15%). No share of PictureWorks common stock or preferred stock
(collectively the "PICTUREWORKS SHARES") shall be deemed to be outstanding or
to have any rights other than those set forth in this Section 1.7 after the
Effective Time. Notwithstanding the foregoing, the iPIX Shares shall be issued
in accordance with Sections 1.7(f) and 1.9.
(b) Conversion of Shares. At the Effective Time, each share of
common stock or preferred stock of PictureWorks then issued and outstanding
(other than shares in respect of which appraisal rights have been validly
perfected in accordance with the DGCL), shall, by virtue of the Merger and
without any action on behalf of iPIX, PictureWorks, Purple Sub or the holder
thereof, be converted into the right (subject to the escrow agreements provided
for in Section 1.9) to receive that number of fully paid and nonassessable
shares of common stock, par value $0.001 per share, of iPIX (individually, an
"IPIX SHARE" and collectively the "IPIX SHARES") equal to the Merger Shares,
allocated with respect to holders of PictureWorks Common Stock and PictureWorks
Preferred Stock by first satisfying the liquidation preference applicable to
the PictureWorks Series A Preferred Stock, Series B Preferred Stock and Series
D Preferred Stock as described in clauses (i), (ii) and (iii) of this Section
1.7(b), and thereafter distributing the balance to the holders of shares of
PictureWorks Common Stock and shares of PictureWorks Preferred Stock as
described in clause (iv) of this Section 1.7(b):
(i) the Series A Liquidation Preference shall be satisfied with
respect to each outstanding share of Series A Preferred Stock
through the issuance to holders of PictureWorks Series A
Preferred Stock of a number of iPIX Shares determined as the
quotient of (x) $0.3233 and (y) the Preferred Measurement
Price;
(ii) the Series B Liquidation Preference shall be satisfied with
respect to each outstanding share of Series B Preferred Stock
through the issuance to holders of PictureWorks Series B
Preferred stock of a number of iPIX Shares determined as the
quotient of (x) $3.00 and (y) the Preferred Measurement
Price;
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(iii) the Series D Liquidation Preference shall be satisfied with
respect to each outstanding share of Series D Preferred Stock
(excluding therefrom any shares subject to recapture by
PictureWorks pursuant to the terms of that certain Escrow
Agreement by and among PictureWorks, Videobrush Corporation,
Sarnoff Corporation and Latham & Watkins dated March 16,
1999), through the issuance to such holders of PictureWorks
Series D Preferred Stock of a number of iPIX Shares
determined as the quotient of (x) $1.60 and (y) the Preferred
Measurement Price; and
(iv) the Common Merger Shares (i.e., the Merger Shares less the
iPIX Shares allocated by operation of subclauses (i) through
(iii) above) shall be divided proportionately among the
holders of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and
PictureWorks Common Stock issued and outstanding at the
Effective Time based on the number of issued and outstanding
shares of PictureWorks Common Stock, or in the case of
holders of PictureWorks Preferred Stock, the number of shares
of PictureWorks Common Stock into which such shares are
convertible; provided, however, that if this distribution
results in the holders of the Series C Preferred Stock
receiving iPIX Shares with a value (based on the Preferred
Measurement Price) of less than $3.20 per share of Series C
Preferred Stock, then the number of iPIX Shares issuable to
the holders of the Series C Preferred Stock shall be
increased until the holders receive $3.20 per share (valued
at the Preferred Measurement Price) before the remaining
Common Merger Shares are allocated to the other holders
(i.e., excluding the holders of Series C Preferred Stock)
participating in the distribution made in this subclause
(iv).
(c) At the Effective Time, each share of common stock, $0.01 par
value per share, of Purple Sub issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the
part of PictureWorks or Purple Sub, be converted into and shall become one
fully paid and nonassessable share of common stock of the Surviving Corporation
and shall constitute the only outstanding shares of capital stock of the
Surviving Corporation.
(d) The outstanding shares of capital stock of iPIX and each of
its subsidiaries shall remain outstanding after the Effective Time and shall be
unaffected by the Merger.
(e) The Conversion Ratio shall be subject to equitable adjustment
in the event of any stock split, stock dividend, reverse stock split or similar
event affecting the iPIX Shares between the date of the Agreement and the
Effective Time.
(f) Each stockholder of record of PictureWorks as of the
Effective Time shall be entitled to receive immediately 92.5% of the iPIX
Shares into which their PictureWorks Shares are converted pursuant to this
Section 1.7 (the "INITIAL SHARES"). The remaining 7.5% of the iPIX Shares into
which their PictureWorks Shares are converted pursuant to this
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Section 1.7 (the "ESCROW SHARES") shall be deposited in escrow pursuant to
Section 1.9 and shall be held and disposed of in accordance with the terms of
the Escrow Agreement. The allocation of the iPIX Shares into the Initial Shares
and the Escrow Shares shall be made on a stockholder-by-stockholder basis, with
the allocation in respect of each stockholder being rounded so that the Escrow
Shares consist only of full iPIX Shares, and any fractional share shall be
represented by the Initial Shares and paid in cash in accordance with Section
1.8(f).
SECTION 1.8. Exchange of Certificates. (a) Prior to the Effective
Time, iPIX shall enter into an agreement with, and shall deposit with such
agent or agents as may be satisfactory to iPIX and PictureWorks (the "EXCHANGE
AGENT"), for the benefit of the holders of PictureWorks Shares, for exchange
through the Exchange Agent in accordance with this Article 1: (i) certificates
representing the appropriate number of Initial Shares to be issued to holders
of PictureWorks Shares and (ii) cash to be paid in lieu of fractional iPIX
Shares (such iPIX Shares and such cash is hereinafter referred to as the
"EXCHANGE FUND") issuable pursuant to Section 1.7 in exchange for outstanding
PictureWorks Shares.
(b) As soon as reasonably practicable after the Effective Time,
the Exchange Agent shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding PictureWorks Shares (the "CERTIFICATES") whose shares were
converted into the right to receive iPIX Shares pursuant to Section 1.7 (the
"PICTUREWORKS STOCKHOLDERS"): (i) a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Exchange Agent and
shall be in such form and have such other provisions as iPIX and PictureWorks
may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing iPIX
Shares, in each case in customary form for a stock-for-stock merger
transaction. Upon surrender of a Certificate to the Exchange Agent, together
with such letter of transmittal, duly executed, and any other documents
reasonably required by the Exchange Agent, the holder of such Certificate shall
be entitled to receive in exchange therefor a certificate representing that
number of whole Initial Shares which such holder has the right to receive
pursuant to the provisions of this Article 1, and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of
ownership of PictureWorks Shares which is not registered in the transfer
records of PictureWorks, a certificate representing the proper number of iPIX
Shares may be issued to a transferee if the Certificate representing such
PictureWorks Shares is presented to the Exchange Agent, accompanied by all
documents reasonably required by the Exchange Agent or iPIX to evidence and
effect such transfer and by evidence that any applicable stock transfer or
other taxes have been paid. Until surrendered as contemplated by this Section
1.8, each Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the certificate
representing Initial Shares, the right to receive Escrow Shares in accordance
with this Agreement and the Escrow Agreement and cash in lieu of any fractional
PictureWorks Shares as contemplated by this Section 1.8. iPIX will use its
reasonable best efforts to make the letter of transmittal and related materials
available on or prior to the Effective Time.
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(c) No dividends or other distributions declared or made after
the Effective Time with respect to iPIX Shares with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate
with respect to the iPIX Shares represented thereby and no cash payment in lieu
of fractional shares shall be paid to any such holder pursuant to Section
1.8(f) until the holder of record of such Certificate shall surrender such
Certificate. Subject to the effect of applicable laws, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole Initial Shares issued in exchange therefor (or
deposited with the Escrow Agent to the extent attributable to the Escrow
Shares), without interest, (i) at the time of such surrender, the amount of any
cash payable in lieu of a fractional Initial Share to which such holder is
entitled pursuant to Section 1.8(f) and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole Initial Shares, and (ii) at the appropriate payment date,
the amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole Initial Shares.
(d) If any Certificate for PictureWorks Shares shall have been
lost, stolen or destroyed, the Exchange Agent shall issue in exchange therefor,
upon the making of an affidavit of that fact by the holder thereof, such
Initial Shares and cash in lieu of fractional Initial Shares, if any, as may be
required pursuant to this Agreement; provided, however, that iPIX or the
Exchange Agent, may, in its respective discretion, require the delivery of a
suitable bond, opinion or indemnity.
(e) All Initial Shares issued upon the surrender for exchange of
PictureWorks Shares in accordance with the terms hereof (including any cash
paid pursuant to Section 1.8(c) or 1.8(f)) shall be deemed to have been issued
in full satisfaction of all rights pertaining to such PictureWorks Shares
(other than rights in the Escrow Shares relating thereto). There shall be no
further registration of transfers on the stock transfer books of PictureWorks
of the PictureWorks Shares which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to
iPIX for any reason, they shall be canceled and exchanged as provided in this
Article 1.
(f) No fractional Initial Shares shall be issued in the Merger,
but in lieu thereof each holder of PictureWorks Shares otherwise entitled to a
fractional Initial Share shall, upon surrender of its, his or her Certificate
or Certificates, be entitled to receive an amount of cash rounded to the
nearest cent (without interest) determined by multiplying the Fair Market Value
of a iPIX Share at the Effective Time by the fractional share interest to which
such holder would otherwise have been entitled. The parties acknowledge that
payment of the cash consideration in lieu of issuing fractional shares was not
separately bargained for consideration but merely represents a mechanical
rounding off for purposes of simplifying the corporate and accounting
complexities which would otherwise be caused by the issuance of fractional
shares. For purposes of this Section 1.8(f), the "FAIR MARKET VALUE" of an iPIX
Share as of the Effective Time shall be the last reported sales price of such
share as reported by NASDAQ on the second trading day prior to the date on
which the Effective Time occurs.
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(g) Any portion of the Exchange Fund which remains undistributed
to the stockholders of PictureWorks for six months after the Effective Time
shall be delivered to iPIX, upon demand, and any stockholders of PictureWorks
who have not theretofore complied with this Article 1 shall thereafter look
only to iPIX for payment of their claim for iPIX Shares, any cash in lieu of
fractional iPIX Shares and any applicable dividends or distributions with
respect to iPIX Shares, as the case may be.
(h) Neither iPIX nor PictureWorks nor Purple Sub shall be liable
to any holder of PictureWorks Shares, as the case may be, for such shares (or
dividends or distributions with respect thereto) or cash from the Exchange Fund
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
SECTION 1.9. Escrow. (a) On the Closing Date, iPIX shall deliver to
the Escrow Agent a certificate (issued in the name of the Escrow Agent or its
nominee) representing the Escrow Shares, as described in Section 1.7(f), for
the purpose of securing the indemnification obligations of the PictureWorks
Stockholders and representing the sole recourse of iPIX in respect thereof,
except as otherwise set forth in this Agreement. The Escrow Shares shall be
held by the Escrow Agent under the Escrow Agreement pursuant to the terms
thereof. The Escrow Shares shall be held as a trust fund and shall not be
subject to any lien, attachment, trustee process or any other judicial process
of any creditor of any party, and shall be held and disbursed solely for the
purposes and in accordance with the terms of the Escrow Agreement; provided,
however, that notwithstanding any provision of this Agreement to the contrary,
the Escrow Agreement and the terms of the escrow established pursuant to this
Section 1.9 shall comply with the safe harbor ruling guidelines established in
Revenue Procedure 84-42, 1984-1 C.B. 521 for taxpayers seeking favorable
reorganization rulings from the Internal Revenue Service.
(b) The adoption of this Agreement and the approval of the Merger
by the PictureWorks stockholders shall constitute approval of the
indemnification provisions included in Article 6 of this Agreement and of the
Escrow Agreement and of all of the arrangements relating thereto, including
without limitation the placement of the Escrow Shares in escrow and the
appointment of the Sellers' Representative.
SECTION 1.10. Stock Options. (a) At the Effective Time, each
outstanding option to purchase PictureWorks Shares (an "PICTUREWORKS STOCK
OPTION" or collectively, "PICTUREWORKS STOCK OPTIONS") issued pursuant to the
PictureWorks 1994 Stock Option Plan, the PictureWorks 1996 Stock Plan and the
PictureWorks 1997 Stock Plan, whether vested or unvested, and all other
outstanding options to purchase PictureWorks Shares that are listed in Section
1.10 of the Disclosure Schedule shall be assumed by iPIX (all of such plans or
agreements pursuant to which any PictureWorks Stock Option has been issued or
may be issued are referred to collectively as the "PICTUREWORKS STOCK OPTION
PLANS"). Each PictureWorks Stock Option shall be deemed to constitute an option
to acquire, on the same terms and conditions as were applicable under such
PictureWorks Stock Option, the same number of iPIX Shares (rounded up to the
nearest whole share) as the holder of such PictureWorks Stock Option would have
been entitled to receive pursuant to the Merger had
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such holder exercised such option in full immediately prior to the Effective
Time, at a price per share (rounded down to the nearest whole cent) equal to
(y) the aggregate exercise price for the PictureWorks Shares otherwise
purchasable pursuant to such PictureWorks Stock Option divided by (z) the
number of full iPIX Shares deemed purchasable pursuant to such PictureWorks
Stock Option.
(b) As soon as practicable after the Effective Time, iPIX shall
deliver to the holders of PictureWorks Stock Options appropriate notices
setting forth such holders' rights pursuant to the PictureWorks Stock Option
Plans and the agreements evidencing the grants of such PictureWorks Stock
Options shall continue in effect on the same terms and conditions (subject to
the adjustments required by this Section 1.10 after giving effect to the
Merger). iPIX shall comply with the terms of the PictureWorks Plans and ensure
that PictureWorks Stock Options which qualified as "incentive stock options"
pursuant to Section 422 of the Code immediately prior to the Effective Time
continue to qualify as incentive stock options of iPIX after the Effective
Time.
(c) iPIX shall take all corporate action necessary to reserve for
issuance a sufficient number of iPIX Shares for delivery upon exercise of all
PictureWorks Stock Options assumed in accordance with this Section 1.10. With
respect to those individuals who subsequent to the Merger will be subject to
the reporting requirements under Section 16(a) of the Securities Exchange Act
of 1934, as amended (the "EXCHANGE ACT"), where applicable, iPIX shall
administer the PictureWorks Stock Option Plans assumed pursuant to this Section
1.10 in a manner that complies with Rule 16b-3 promulgated under the Exchange
Act, as it may be amended from time to time, to the extent the applicable
PictureWorks Stock Option Plan complied with such rule immediately prior to the
Merger.
(d) Promptly after the Effective Time, iPIX shall file one or
more registration statements on Form S-8 for the shares of iPIX common stock
issuable with respect to the options outstanding under the PictureWorks Stock
Option Plans. iPIX shall use its reasonable best efforts (and in any event the
same efforts as it uses with respect to any registration statement filed by
iPIX for options issued to its employees) to keep any such registration
statement related to options granted under any PictureWorks Stock Option Plan
(or successor thereto) effective for so long as any such options are
outstanding.
SECTION 1.11 Warrants. As of the Effective Time, all warrants to
purchase shares issued by PictureWorks ("WARRANTS") shall be assumed by iPIX.
Immediately after the Effective Time, each Warrant outstanding immediately
prior to the Effective Time shall be deemed to constitute a warrant to acquire,
on the same terms and conditions as were applicable under such Warrant at the
Effective Time, such number of shares of iPIX Shares as is equal to the number
of PictureWorks Shares subject to the unexercised portion of such Warrant
multiplied by the Conversion Ratio (with any fraction resulting from such
multiplication to be rounded down to the next lowest whole number); provided,
that with respect to iPIX Shares issuable in respect of PictureWorks Series B
Warrants, such number of shares of iPIX Shares shall be equal to the sum of (a)
the quotient of (i) $3.00 and (ii) the average of the closing prices on NASDAQ
for iPIX Shares for the ten (10) business days
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ending on the second day prior to such exercise, multiplied by the number of
PictureWorks Series B Preferred Shares that would be, but for the Merger,
issuable in respect of Series B Preferred Share Warrants outstanding as of the
exercise date and (b) the number of PictureWorks Shares subject to the
unexercised portion of such Warrant calculated on an as converted basis of 2:1,
multiplied by the Conversion Ratio. The exercise price per share of each such
assumed Warrant shall be equal to the exercise price of such Warrant
immediately prior to the Effective Time, divided by the Conversion Ratio (with
any fraction of a cent resulting from such division to be rounded up to the
next highest whole cent). The term, exercisability and all of the other terms
of the Warrants shall otherwise remain unchanged.
SECTION 1.12 Dissenting Shares. (a) For purposes of this Agreement,
"DISSENTING SHARES" means PictureWorks Shares held as of the Effective Time by
a PictureWorks Stockholder who has not voted such PictureWorks Shares in favor
of the adoption of this Agreement and the Merger and with respect to which
appraisal shall have been duly demanded and perfected in accordance with
Section 262 of the DGCL and not effectively withdrawn or forfeited prior to the
Effective Time. Notwithstanding Section 1.7 above, Dissenting Shares shall not
be converted into or represent the right to receive iPIX Shares, unless such
PictureWorks Stockholder shall have forfeited his or her right to appraisal
under the DGCL or properly withdrawn his, her or its demand for appraisal. If
such PictureWorks Stockholder has so forfeited or withdrawn his, her or its
right to appraisal of Dissenting Shares, then (i) as of the occurrence of such
event, such holder's Dissenting Shares shall cease to be Dissenting Shares and
shall be converted into and represent the right to receive the iPIX Shares
issuable in respect of such PictureWorks Shares pursuant to Section 1.7 and
(ii) promptly following the occurrence of such event, iPIX shall deliver to
PictureWorks Stockholder a certificate representing 92.5% of the iPIX Shares to
which such holder is entitled pursuant to Section 1.7 (which shares shall be
considered Initial Shares for all purposes of this Agreement) and shall deliver
to the Escrow Agent a certificate representing the remaining 7.5% of the iPIX
Shares to which such holder is entitled pursuant to Section 1.7 (which shares
shall be considered Escrow Shares for all purposes of this Agreement) rounded
in the manner specified in Section 1.7(f).
(b) PictureWorks shall give iPIX (i) prompt notice of any written
demands for appraisal of any PictureWorks Shares, withdrawals of such demands,
and any other instruments that relate to such demands received by PictureWorks
and (ii) the opportunity to direct all negotiations and proceedings with
respect to demands for appraisal under the DGCL. PictureWorks shall not, except
with the prior written consent of iPIX, which shall not be unreasonably
withheld, make any payment with respect to any demands for appraisal of
PictureWorks Shares or offer to settle any such demands.
SECTION 1.13 Tax Treatment. It is intended by the parties hereto that
the Merger shall constitute a reorganization within the meaning of Section
368(a) of the Code. The parties hereto hereby adopt this Agreement as a "plan
of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of
the Treasury Regulations.
SECTION 1.14 Taking of Necessary Action; Further Action. If, at any
time after the Effective Time, iPIX, PictureWorks or Purple Sub reasonably
determines that any deeds,
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assignments or instruments or confirmations of transfer are necessary or
desirable to carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets, property,
rights, privileges, powers and franchises of PictureWorks, the officers and
directors of iPIX, PictureWorks and Purple Sub are fully authorized in the name
of their respective corporations or otherwise to take, and will take, all such
lawful and necessary or desirable action.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF PICTUREWORKS
Except as set forth on the Disclosure Schedule delivered by
PictureWorks to iPIX ("PICTUREWORKS DISCLOSURE SCHEDULE"), PictureWorks hereby
represents and warrants to iPIX and Purple Sub as follows:
SECTION 2.1. Organization and Qualification. (a) PictureWorks is duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has all requisite power and authority to own, lease and operate
its properties and to carry on its businesses as now being conducted, except
where the failure to be so organized, existing and in good standing or to have
such power and authority would not have a Material Adverse Effect (as defined
below) on PictureWorks. When used in connection with PictureWorks, the term
"MATERIAL ADVERSE EFFECT" means any change or effect (i) that is or is
reasonably expected to be materially adverse to the business, results of
operations or condition (financial or otherwise) of PictureWorks, other than
any change or effect arising out of general economic conditions or conditions
affecting companies generally in the industries in which PictureWorks
participates or resulting from the public announcement of the Merger, or (ii)
that materially impairs the ability of PictureWorks to perform its obligations
hereunder or to consummate the transactions contemplated hereby.
(b) PictureWorks has heretofore delivered to iPIX accurate and
complete copies of the Certificate of Incorporation and Bylaws, as currently in
effect, of PictureWorks. PictureWorks is duly qualified or licensed and in good
standing to do business in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except in such jurisdictions where
the failure to be so duly qualified or licensed and in good standing would not
have a Material Adverse Effect on PictureWorks.
SECTION 2.2. Capitalization of PictureWorks. (a) As of March 6, 2000,
the authorized capital stock of PictureWorks consists of: (i) 25,000,000 shares
of Common Stock, $0.001 par value per share, of which 5,552,090 shares were
issued and outstanding; (ii) 2,279,212 shares of Series A Preferred Stock,
$0.001 par value per share, of which 2,279,212 shares were issued and
outstanding; and (iii) 1,623,083 shares of Series B Preferred Stock, par value
$0.001 per share, of which 1,329,423 were issued and outstanding; (iv)
3,749,997 shares of Series C Preferred Stock, par value $0.001, of which
3,749,997 shares were issued and outstanding; and (v) 3,500,000 shares of
Series D Preferred Stock, par value $0.001, of which
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3,458,650 shares were issued and outstanding (including all escrow shares). All
of the outstanding PictureWorks Shares have been duly authorized and validly
issued, and are fully paid, nonassessable and free of preemptive rights. As of
March 6, 2000, 3,155,893 PictureWorks Shares were reserved for issuance and
issuable upon or otherwise deliverable in connection with the exercise of
outstanding PictureWorks Stock Options. PictureWorks Shares reserved for
issuance and issuable upon or otherwise deliverable in connection with the
execution of outstanding Warrants are as described on the Disclosure Schedule.
As of March 6, 2000, 3,395,339 PictureWorks Shares were reserved for issuance
pursuant to the PictureWorks Stock Option Plans.
(b) Between February 28, 2000, and the date of this Agreement, no
shares of PictureWorks's capital stock have been issued other than pursuant to
PictureWorks Stock Options already in existence on such date, and, between
February 9, 2000, and the date hereof, no PictureWorks Stock Options have been
granted except grants to be made to new hires in the manner and amounts
described in the Disclosure Schedule. Except as set forth in Section 2.2(a)
above or provided in Section 2.2 of the PictureWorks Disclosure Schedule, as of
the date hereof, there are no outstanding (i) shares of capital stock or other
voting securities of PictureWorks, (ii) securities of PictureWorks convertible
into or exchangeable for shares of capital stock or voting securities of
PictureWorks, (iii) options or other rights to acquire from PictureWorks, or
obligations of PictureWorks to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of PictureWorks, or (iv) equity equivalents, interests in the
ownership or earnings of PictureWorks or other similar rights (collectively,
"PICTUREWORKS SECURITIES"). As of the date hereof, except as set forth in its
Certificate of Incorporation, there are no outstanding obligations of
PictureWorks to repurchase, redeem or otherwise acquire any PictureWorks
Securities or stockholder agreements, voting trusts or other agreements or
understandings to which PictureWorks is a party or by which it is bound
relating to the voting or registration of any shares of capital stock of
PictureWorks.
(c) PictureWorks does not own directly or indirectly any
outstanding voting securities or interests (including membership interests) of
any entity other than the entities reflected in Section 2.2(c) of the
PictureWorks Disclosure Schedule.
SECTION 2.3. Authority Relative to this Agreement; Recommendation.
(a) PictureWorks has all necessary corporate power and authority to execute and
deliver this Agreement and the agreements and instruments attached as exhibits
hereto or otherwise contemplated hereby and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the agreements and instruments attached as exhibits hereto or otherwise
contemplated hereby and the consummation of the transactions contemplated
hereby and thereby have been duly and validly authorized by the Board of
Directors of PictureWorks (the "PICTUREWORKS BOARD"), and no other corporate
proceedings on the part of PictureWorks are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby (other than the
adoption of this Agreement by PictureWorks stockholders entitled to vote on
this Agreement and the Merger holding the percentage which, pursuant to the
DGCL and PictureWorks's Certificate of Incorporation and By-laws, is
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required to approve the Merger. PictureWorks has delivered to iPIX written
commitments of PictureWorks Stockholders collectively holding a sufficient
percentage of PictureWorks Shares to approve the Merger to vote all
PictureWorks shares over which such stockholder exercises voting control in
favor of the adoption of this Agreement and approval of the Merger, such
agreement to be substantially in the form of EXHIBIT 4. This Agreement and the
agreements and instruments contemplated hereby to be executed concurrently
herewith to which PictureWorks is a party have been duly and validly executed
and delivered by PictureWorks and constitute a valid and binding agreement of
PictureWorks.
(b) The PictureWorks Board, at a meeting duly called and held,
has unanimously (i) determined that this Agreement and the agreements and
instruments attached as exhibits hereto or otherwise contemplated hereby and
the transactions contemplated hereby and thereby are fair to and in the best
interests of PictureWorks's shareholders, (ii) approved this Agreement, the
agreements and instruments attached as exhibits hereto or otherwise
contemplated hereby and the transactions contemplated hereby and thereby and
(iii) resolved to recommend that the stockholders of PictureWorks approve the
Merger pursuant to this Agreement.
SECTION 2.4. Financial Statements. PictureWorks has previously
furnished iPIX complete and accurate copies of (i) the audited balance sheets
of PictureWorks as of March 31, 1999, 1998 and 1997, together with the related
audited statements of operations, stockholders' equity and cash flows for such
fiscal years and notes thereto, accompanied by the report thereon of
PricewaterhouseCoopers, LLP, independent auditors, in the case of 1999, and
Ernst & Young, LLP, independent auditors, in the case of 1998 and 1997 (the
"ANNUAL FINANCIAL STATEMENTS"), (ii) the unaudited balance sheet of
PictureWorks as of December 31, 1999, and the related unaudited statements of
operations and cash flows for the nine month fiscal period ended on such date,
certified by the chief financial officer of PictureWorks solely in such
corporate capacity as to the fair presentation thereof in all material respects
and as to the compliance thereof with GAAP (defined below) except for the
failure to include all of the notes thereto required by GAAP (the "INTERIM
FINANCIAL STATEMENTS", and together with the Annual Financial Statements, the
"FINANCIAL STATEMENTS"). The Financial Statements were prepared in accordance
with generally accepted accounting principles ("GAAP") applied on a consistent
basis (except as may be indicated in the notes thereto), and fairly present in
all material respects the financial position of PictureWorks as of the dates
thereof and their results of operations and changes in financial position for
the periods then ended, subject in the case of interim financial statements to
the absence of footnotes and to normal year-end audit adjustments.
SECTION 2.5. Consents and Approvals; No Violations. (a) Except for
filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, state securities or iPIX sky laws,
and the filing and recordation of the Certificate of Merger as required by the
DGCL, no filing with or notice to, and no permit, authorization, consent or
approval of, any court or tribunal or administrative, governmental or
regulatory body, agency or authority, whether domestic or foreign, (a
"GOVERNMENTAL ENTITY") is necessary for the execution and delivery by
PictureWorks of this Agreement or the
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consummation by PictureWorks of the transactions contemplated hereby, except
where the failure to obtain such permits, authorizations, consents or approvals
or to make such filings or give such notice would not have a Material Adverse
Effect on PictureWorks.
(b) Except as set forth in Section 2.5(b) of the Disclosure
Schedule, no consent, approval, waiver or other action by any individual,
corporation, partnership, association, trust or other entity or organization,
including a government or political subdivision or any agency or
instrumentality thereof ("PERSON") (other than the Governmental Entities
referred to in paragraph (a) above) under any contract, agreement, indenture,
instrument of indebtedness, agreement or mortgage for borrowed money, lease,
sublease, license, sublicense, franchise, or other instrument to which
PictureWorks is a party or by which it is bound is necessary for the execution,
delivery and performance of this Agreement by PictureWorks, other than (i) any
thereof required pursuant to the agreements and instruments referred to in
Section 2.5(b) of the Disclosure Schedule (the "GREYROCK ARRANGEMENTS") and
(ii) such other consents, approvals, waivers or other actions the absence of
which would not, in the aggregate, have a Material Adverse Effect with respect
to the Company.
(c) Neither the execution, delivery and performance of this
Agreement or the agreements and instruments attached as exhibits hereto or
otherwise expressly contemplated hereby nor the consummation by PictureWorks of
the transactions contemplated hereby or thereby will (i) conflict with or
result in any breach of any provision of the Certificate of Incorporation or
Bylaws of PictureWorks, (ii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise
to any right of termination, amendment, cancellation or acceleration or Lien
(as defined below)) under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which PictureWorks is a party or by which it or any
of its properties or assets may be bound, or (iii) violate any order, writ,
injunction, decree, law, statute, rule or regulation applicable to PictureWorks
or any of its properties or assets, except in the case of (ii) or (iii) for
violations, breaches or defaults listed on Section 2.5 of the PictureWorks
Disclosure Schedule or which would not have a Material Adverse Effect on
PictureWorks. For purposes of this Agreement, "LIEN" means, with respect to any
asset (including, without limitation, any security) any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
SECTION 2.6. No Default. PictureWorks is not in breach, default or
violation (and no event has occurred which with notice or the lapse of time or
both would constitute a breach, default or violation) of any term, condition or
provision of (i) its Certificate of Incorporation or Bylaws, (ii) any note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which PictureWorks is now a party or by which it or
any of its properties or assets may be bound or (iii) any order, writ,
injunction, decree, law, statute, rule or regulation applicable to PictureWorks
or any of its properties or assets, except in the case of (ii) or (iii) for
violations, breaches or defaults that would not have a Material Adverse Effect
on PictureWorks.
SECTION 2.7. No Undisclosed Liabilities; Absence of Changes. (a)
Except as set forth on Section 2.7 of the Disclosure Schedule, as of the date
of this Agreement, PictureWorks had
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no liabilities or obligations of any nature, whether or not accrued, contingent
or otherwise, that (i) would be required by GAAP to be reflected on a balance
sheet of PictureWorks (including the notes thereto) except for (a) liabilities
shown on the Financial Statements, (b) liabilities which have arisen since
January 1, 2000, in the Ordinary Course of Business (defined below) and are
similar in nature to the liabilities which arose during the comparable period
of the immediately preceding financial period and (c) liabilities incurred in
the Ordinary Course of Business which are not required by GAAP to be reflected
on the Interim Financial Statements and which in the aggregate do not exceed
$50,000 or (ii) would have a Material Adverse Effect on PictureWorks.
(b) Except as set forth in the Financial Statements or in Section
2.7(b) of the Disclosure Schedule, or as contemplated by this Agreement, since
January 1, 2000, and through the date of this Agreement, PictureWorks has
conducted its business in the ordinary course consistent with past custom and
practice ("ORDINARY COURSE OF BUSINESS") and there has not been, and
PictureWorks has not agreed or committed that there shall be:
(i) any events that, individually or in the aggregate, have had
or would reasonably be expected to have a Material Adverse
Effect with respect to PictureWorks;
(ii) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of capital
stock of PictureWorks;
(iii) any alteration of any outstanding security of PictureWorks;
(iv) any incurrence, assumption or guarantee by PictureWorks of
any indebtedness for borrowed money, other than pursuant to
Greyrock Arrangements;
(v) any creation or assumption by PictureWorks of any Lien on any
material asset other than pursuant to the Greyrock
Arrangements;
(vi) any making of any loan, guaranty, advance or capital
contribution to or investment in any Person other than (1)
short-term investments in the Ordinary Course of Business, or
(2) travel, salary or other like advances to officers or
employees in the Ordinary Course of Business;
(vii) any material damage, destruction or other casualty loss
(whether or not covered by insurance) affecting the business
or assets of PictureWorks;
(viii) any transaction or commitment made, or any contract or
agreement entered into, by PictureWorks relating to its
assets or business (including the acquisition or disposition
of any substantial assets) or any relinquishment by
PictureWorks of any contract or other right, in any such case
material to PictureWorks, other than transactions or
commitments in the Ordinary Course of Business;
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(ix) any change in any material method of accounting or accounting
practice by PictureWorks except for any such change required
by reason of a concurrent change in GAAP;
(x) any grant of any severance or termination pay to any officer
or employee of PictureWorks other than in the Ordinary Course
of Business pursuant to a PictureWorks policy described in
Section 2.7(b) of the Disclosure Schedule, any entering into
of any employment, deferred compensation or other similar
agreement (or any amendment to any such existing agreement)
with any officer, director or employee of PictureWorks or any
increase in benefits payable under any existing severance or
termination pay policies or employment agreements, or any
increase in compensation, bonus or other benefits payable to
officers, directors or employees of PictureWorks, other than
such increases in the Ordinary Course of Business;
(xi) any payment of any obligation or liability other than in the
Ordinary Course of Business;
(xii) any amendment, termination, taking or failure to take any
action that would constitute a violation of or default under,
or a waiver of any rights under, any contract or agreement
listed in Section 2.17 of the Disclosure Schedule which would
result in a Material Adverse Effect;
(xiii) any making or commitment to make capital expenditures in
excess of $25,000 in the aggregate except capital
expenditures in accordance with PictureWorks's present
operating plans as described in Section 2.7 of the Disclosure
Schedule;
(xiv) any failure to take any action necessary to preserve the
validity of any Intellectual Property Rights or PictureWorks
Permit (each as defined below) that would reasonably be
expected to have a Material Adverse Effect on PictureWorks;
(xv) any material labor dispute, other than grievances, or any
activity or proceeding by a labor union or representative
thereof to organize employees of PictureWorks, which
employees were not subject to a collective bargaining
agreement at March 6, 2000, or any lockout strike, slowdown,
work stoppage or, to the knowledge of PictureWorks, threat
thereof by or with respect to a significant number of
employees of PictureWorks;
(xvi) any change in PictureWorks' relationship with any independent
contractor, customer, or supplier that could reasonably be
expected to have a Material Adverse Effect on PictureWorks;
(xvii) any amendment of the Certificate of Incorporation or By-laws
of PictureWorks;
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(xviii) any claim or dispute between PictureWorks and any stockholder
thereof (in such capacity); or
(xix) any material election with respect to Taxes (as defined
below).
(c) Since January 1, 2000 and through the date of this Agreement,
except as set forth on Section 2.7(c) of the Disclosure Schedule, there has not
been any change in the number of outstanding shares of the capital stock of or
other ownership interests in or the capitalization of PictureWorks, whether by
reason of a reclassification, recapitalization, stock split or combination,
exchange or readjustment of shares, stock dividend or otherwise, other than any
issuance of additional shares of PictureWorks Common Stock upon the exercise of
PictureWorks Stock Options or Warrants outstanding and the grant of
PictureWorks Stock Options and Warrants; or any purchase, redemption or other
acquisition by PictureWorks of any outstanding shares of capital stock of or
other ownership interests in PictureWorks.
SECTION 2.8. Litigation. As of the date hereof there is no (a)
unsatisfied judgment, order, decree or injunction or (b) suit, claim, action,
proceeding or investigation pending or, to the knowledge of PictureWorks,
threatened by or against PictureWorks or any of its properties or assets before
any Governmental Entity ("LITIGATION") which, individually or in the aggregate,
would have a Material Adverse Effect on PictureWorks or would prevent the
consummation of this transaction. As of the date hereof PictureWorks is not
subject to any outstanding order, writ, injunction or decree which, insofar as
can be reasonably foreseen in the future, would have a Material Adverse Effect
on PictureWorks or would prevent the consummation of the transactions
contemplated hereby.
SECTION 2.9. Compliance with Applicable Law. PictureWorks holds all
permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities necessary for the lawful conduct of its business as
conducted on the date of this Agreement (the "PICTUREWORKS PERMITS"), except
for failures to hold such permits, licenses, variances, exemptions, orders and
approvals which would not have a Material Adverse Effect on PictureWorks.
PictureWorks is in compliance with the terms of the PictureWorks Permits,
except where the failure so to comply would not have a Material Adverse Effect
on PictureWorks. The business of PictureWorks as conducted on the date of this
Agreement is not being conducted in violation of any law, ordinance or
regulation of any Governmental Entity except for violations or possible
violations which do not, and, insofar as reasonably can be foreseen, in the
future would not have a Material Adverse Effect on PictureWorks. To the
knowledge of PictureWorks, as of the date hereof, no investigation or review by
any Governmental Entity with respect to PictureWorks is pending or threatened,
nor has any Governmental Entity indicated an intention to conduct the same,
other than, in each case, those which PictureWorks reasonably believes will not
have a Material Adverse Effect on PictureWorks.
SECTION 2.10. Employee Benefit Plans; Labor Matters. (a) Section 2.10
of the PictureWorks Disclosure Schedule lists each employment, bonus, deferred
compensation, pension, disability, stock option, stock appreciation right,
profit-sharing or retirement plan, arrangement or practice, each medical,
vacation, retiree medical, severance pay plan, and each
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other agreement or fringe benefit plan, arrangement or practice, of
PictureWorks, whether formal or informal, written or oral, which affects one or
more of its employees, including all "employee benefit plans" as defined by
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (collectively, the "PICTUREWORKS PLANS").
(b) Copies of each such PictureWorks Plan requested by iPIX have
heretofore been delivered to iPIX. For each PictureWorks Plan which is an
"employee benefit plan" under Section 3(3) of ERISA, PictureWorks has made
available to iPIX correct and complete copies of the plan documents and summary
plan descriptions, the most recent determination letter received from the
Internal Revenue Service (as applicable), the most recent Form 5500 Annual
Report (including all applicable schedules), and all related trust agreements,
insurance contracts and funding agreements which implement each such
PictureWorks Plan.
(c) Except as may be required under the Code or ERISA,
PictureWorks does not have any commitment, whether formal or informal, (i) to
create any additional such PictureWorks Plan; (ii) to modify or change any such
PictureWorks Plan; or (iii) to maintain for any period of time any such
PictureWorks Plan.
(d) There are no PictureWorks Plans which are subject to Title IV
of ERISA or the minimum funding standards of Section 412 of the Code. To the
knowledge of PictureWorks, neither PictureWorks nor any PictureWorks Plan nor
any trustee, administrator, fiduciary or sponsor of any PictureWorks Plan has
engaged in any prohibited transactions as defined in Section 406 of ERISA or
Section 4975 of the Code for which there is no statutory or administrative
exemption. All filings, reports and descriptions as to such PictureWorks Plans
(including Form 5500 Annual Reports, Summary Plan Descriptions, PBCG-1s and
Summary Annual Reports) required to have been made or distributed to
participants, the Internal Revenue Service, the United States Department of
Labor and other governmental agencies have been made in a timely manner or will
be made on or prior to the Closing Date; there is no material litigation,
disputed claim, governmental proceeding or investigation pending or threatened
with respect to any of such PictureWorks Plans, the related trusts, or any
fiduciary, trustee, administrator or sponsor of such PictureWorks Plans; such
PictureWorks Plans have been established, maintained and administered in all
material respects in accordance with their governing documents and applicable
provisions of ERISA and the Code and Treasury Regulations promulgated
thereunder; there has been no "REPORTABLE EVENT" as defined in Section 4043 of
ERISA with respect to any PictureWorks Plan that has not been waived by the
Pension Benefit Guaranty Corporation; and each PictureWorks Plan which is
intended to be a qualified plan under Section 401(a) of the Code has received a
favorable determination letter from the Internal Revenue Service.
(e) Except as disclosed on Section 2.10 of the PictureWorks
Disclosure Schedule, the consummation of the transactions on the part of
PictureWorks contemplated by this Agreement will not (i) entitle any employee
or former employee of PictureWorks to severance pay, unemployment compensation
or any other payment, and (ii) accelerate the time of payment or vesting of any
stock option, stock appreciation right, deferred compensation or other employee
benefits under any PictureWorks Plan (including vacation and sick pay).
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(f) None of the PictureWorks Plans which are "welfare benefit
plans," within the meaning of Section 3(1) of ERISA, provide for continuing
benefits or coverage after termination or retirement from employment, except
for COBRA rights under a "group health plan" as defined in Code Section
4980B(g) and ERISA Section 607.
(g) Neither PictureWorks nor any other entity required to be
aggregated with PictureWorks under Code Section 414(b), (c), (m) or (n) ("ERISA
AFFILIATE") has ever participated in or withdrawn from a multi employer plan as
defined in Section 4001(a)(3) of Title IV of ERISA, and neither PictureWorks
nor any ERISA Affiliate has incurred and does not presently owe any liability
as a result of any partial or complete withdrawal by any employer from such a
multi-employer plan as described under Sections 4201, 4203, or 4205 of ERISA.
(h) There are no collective bargaining agreements in effect
between PictureWorks and labor unions or organizations representing any of
PictureWorks's employees. During the past three years, there has been no
request for collective bargaining or for an employee election from any
employee, union or the National Labor Relations Board. In addition, (i)
PictureWorks is in material compliance with all federal, state and local laws,
rules and regulations relating to employees' employment and/or employment
relationships, including, without limitation, wage related laws,
anti-discrimination laws, employee safety laws and COBRA (defined herein to
mean the requirements of Code Section 4980B, Proposed Treasury Regulation
Section 1.162-26 and Part 6 of Subtitle B of Title I of ERISA), and is not
engaged in any unfair labor practice; (ii) there is no unfair labor practice
complaint against PictureWorks pending or, to the knowledge of PictureWorks,
threatened before the National Labor Relations Board or the United States
Department of Labor or similar agency of a foreign government; (iii) there is
no labor strike, dispute, slowdown or stoppage in progress or, to the knowledge
of PictureWorks, threatened against or involving PictureWorks; (iv) no question
concerning representation has been raised or, to the knowledge of PictureWorks,
is threatened respecting the employees of PictureWorks; (v) no grievance or
arbitration proceeding is pending and no claim therefor has been made; (vi) to
the knowledge of PictureWorks, no private agreement restricts PictureWorks from
relocating, closing or terminating any of its operations or facilities; and
(vii) PictureWorks has not in the past three years experienced any labor
strike, dispute, slowdown, stoppage or other labor difficulty.
SECTION 2.11. Environmental Laws and Regulations. (a) (i)
PictureWorks is in compliance with all applicable federal, state, local and
foreign laws and regulations relating to pollution or protection of the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata) (collectively, "ENVIRONMENTAL LAWS"),
except for non-compliance that would not have a Material Adverse Effect on
PictureWorks, which compliance includes, but is not limited to, the possession
by each of PictureWorks of all material permits and other governmental
authorizations, if any, required under applicable Environmental Laws, and
compliance with the terms and conditions thereof; and (ii) PictureWorks has not
received written notice of, and, to the knowledge of PictureWorks, PictureWorks
is not the subject of, any action, cause of action, claim,
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investigation, demand or notice by any person or entity alleging liability
under or non-compliance with any Environmental Law (an "ENVIRONMENTAL CLAIM")
that, in any such event, would have a Material Adverse Effect on PictureWorks.
(b) PictureWorks does not presently own nor has it in the past
owned any real property on which any above ground or underground storage tanks
are located, or on which any such tanks were located during the ownership by
PictureWorks of such real property except as would not have a Material Adverse
Effect on PictureWorks.
(c) Except as would not have a Material Adverse Effect on
PictureWorks, PictureWorks has not at any time generated, used, treated or
otherwise handled any materials listed in Section 101(14) of the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. 9601 et seq. ("CERCLA"), nor any other substance, material or waste
defined as toxic or hazardous under any Environmental Law, including, but not
limited to asbestos ("HAZARDOUS MATERIALS").
SECTION 2.12. Employees and Consultants. (a) Section 2.12 of the
Disclosure Schedule identifies all of the current employees and consultants of
PictureWorks. As of the date of this Agreement, none of such employees has
indicated to PictureWorks that he or she intends to resign or retire as a
result of the transaction contemplated hereby or otherwise prior to March 15,
2000.
(b) Section 2.12 of the Disclosure Schedule sets forth the annual
compensation, including all bonuses and material non-standard fringe benefits,
of each officer, employee or consultant of PictureWorks as of the date of this
Agreement.
(c) Section 2.12 of the Disclosure Schedule sets forth the base
salary, annual bonus and description of PictureWorks benefits and all other
material forms of compensation provided to each employee of PictureWorks
entitled to a severance payment.
(d) Each person listed in Section 2.12 of the Disclosure Schedule
has entered into a confidentiality and assignment of inventions agreement with
PictureWorks in the form previously delivered to iPIX and attached to the
Disclosure Schedule.
(e) No employees of PictureWorks are employed or permanently
located outside the United States.
SECTION 2.13. Tax Matters. (a) (i) PictureWorks has filed or has had
filed on its behalf in a timely manner (within any applicable extension
periods) with the appropriate Governmental Entity all income and other material
Tax Returns (as defined herein) with respect to Taxes (as defined herein) of
PictureWorks, and all Tax Returns were in all material respects true, complete
and correct; (ii) all material Taxes with respect to PictureWorks have been
paid in full or have been provided for in accordance with and as required by
GAAP on PictureWorks's most recent balance sheet which is part of the Financial
Statements; (iii) there are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any material Tax Returns required
to be filed by or with respect to
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PictureWorks; (iv) to the knowledge of PictureWorks, none of the material Tax
Returns of or with respect to PictureWorks is currently being audited or
examined by any Governmental Entity; (v) no deficiency for any income or other
material Taxes has been assessed with respect to PictureWorks which has not
been abated or paid in full; (vi) no claim has ever been made specifically with
respect to PictureWorks by an authority in a jurisdiction where PictureWorks
does not file Tax Returns that it is or may be subject to taxation by such
jurisdiction; (vii) PictureWorks has not been a member of an affiliated,
consolidated, combined or unitary group other than one of which PictureWorks
was the common parent, or made any election or participated in any arrangement
whereby any Tax liability or any Tax asset of PictureWorks was determined or
taken into account for Tax purposes with reference to or in conjunction with
any Tax liability or any Tax asset of any other person; (viii) PictureWorks is
not party to any Tax sharing agreement or to any other express or implied
agreement or arrangement, as a result of which liability of PictureWorks to a
Governmental Authority is determined or taken into account with reference to
the activities of any other person, and PictureWorks is not currently under any
obligation to pay any amounts as a result of having been a party to such an
agreement or arrangement; and (ix) PictureWorks has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, shareholder or other third
party.
(b) For purposes of this Agreement, (i) "TAXES" shall mean all
taxes, charges, fees, levies or other assessments, including, without
limitation, income, gross receipts, sales, use, ad valorem, goods and services,
capital, transfer, franchise, profits, license, withholding, payroll,
employment, employer health, excise, estimated, severance, stamp, occupation,
property or other taxes, customs duties, fees, assessments or charges of any
kind whatsoever, together with any interest and any penalties, additions to tax
or additional amounts imposed by any taxing authority and (ii) "TAX RETURN"
shall mean any report, return, documents, declaration or other information or
filing required to be supplied to any taxing authority or jurisdiction with
respect to Taxes.
SECTION 2.14. Title to Property. Except as set forth on Section 2.14
of the Disclosure Schedule, PictureWorks has good and defensible title to all
of its properties and assets, free and clear of all liens, charges and
encumbrances except liens for taxes not yet due and payable and such liens or
other imperfections of title, if any, as do not materially detract from the
value of or interfere with the present use of the property affected thereby or
which, individually or in the aggregate, would not have a Material Adverse
Effect on PictureWorks. The tangible personal property owned or used by
PictureWorks is in condition sufficient and adequate to permit PictureWorks to
carry on its business as conducted on the date of this Agreement.
SECTION 2.15. Intellectual Property. (a) "INTELLECTUAL PROPERTY
RIGHTS" shall mean United States and foreign patents; trademarks, trade names,
service marks, internet domain names and any associated goodwill; and
copyrights, trade secrets, know how, methods or processes and other
intellectual properties and proprietary information and any applications
therefor. Schedule 2.15(a) lists any existing Intellectual Property Rights in
which PictureWorks claims an ownership interest and that are material to
PictureWorks's business
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as currently conducted (the "PICTUREWORKS OWNED INTELLECTUAL PROPERTY RIGHTS").
Except as identified on the Disclosure Schedule, all PictureWorks Owned
Intellectual Property Rights are free and clear of all Liens and as of the date
hereof, the title thereto of PictureWorks is not being questioned in any
Litigation or administrative proceeding before any court or government agency.
All of the Intellectual Property Rights owned by a third party and licensed or
sublicensed to PictureWorks and that are material to PictureWorks's business as
currently conducted are listed on Schedule 2.15(a) (subject to the terms of the
applicable licenses, the "PICTUREWORKS LICENSED INTELLECTUAL PROPERTY RIGHTS").
Collectively, all of the PictureWorks Owned Intellectual Property Rights and
all of the PictureWorks Licensed Intellectual Property Rights are all of the
Intellectual Property Rights that are material to PictureWorks's business as
currently conducted. Each item of PictureWorks Owned Intellectual Property
Rights will be owned or available for use by the Surviving Corporation
immediately following the Effective Time on substantially identical terms and
conditions as it was immediately prior to the Effective Time. All of (i) the
PictureWorks Owned Intellectual Property Rights and (ii) to PictureWorks's
knowledge, PictureWorks's internal systems to the extent that they do not
embody PictureWorks Owned Intellectual Property Rights, and that are in each
such case material to the business or operations of PictureWorks as currently
conducted, including without limitation computer hardware systems, software
application and embedded systems, are free from material defects or programming
errors and conform in all material respects to the written documentation and
specifications therefor to the extent that they have been provided to
PictureWorks.
(b) As of the date hereof, there is no action, suit, investigation or
proceeding (or, to the knowledge of PictureWorks, any basis therefor) pending
against, or, to the knowledge of PictureWorks, threatened against or affecting,
PictureWorks, or to the knowledge of PictureWorks, any present or former
officer, director or employee of PictureWorks that would have a Material
Adverse Effect on PictureWorks and that (i) is based upon, or challenging or
seeking to deny or restrict, the use by PictureWorks of any of the PictureWorks
Owned Intellectual Property Rights or the PictureWorks Licensed Intellectual
Property Rights, (ii) alleges that the use by PictureWorks of the PictureWorks
Owned Intellectual Property Rights or the PictureWorks Licensed Intellectual
Property Rights or any services provided, processes used, or products
manufactured or sold by PictureWorks do or may conflict with, misappropriate or
infringe upon any Intellectual Property Right or other proprietary right of any
third person or (iii) alleges that the rights of PictureWorks in or to the
PictureWorks Owned Intellectual Property Rights or the PictureWorks Licensed
Intellectual Property Rights conflict with, misappropriate, or infringe upon
any Intellectual Property Right or other proprietary right of any third party.
(c) To the knowledge of PictureWorks, the conduct of the business
of PictureWorks as now conducted does not infringe any valid patents,
trademarks, trade names, service marks, internet domain names or copyrights or
make any unauthorized use of any trade secret, know how, methods or processes
and any other intellectual properties or proprietary information of others. The
consummation of the transactions completed hereby
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will not result in the loss or impairment of any PictureWorks Owned
Intellectual Property Rights or PictureWorks Licensed Intellectual Property
Rights.
(d) To the knowledge of PictureWorks, no third person is engaging
in any activity or using any Intellectual Property Right that materially
infringes upon the PictureWorks Intellectual Property Rights or the Licensed
Intellectual Property Rights or upon the rights of PictureWorks therein.
(e) PictureWorks has taken all reasonable steps it believes
appropriate to protect and maintain its material trade secrets, know how,
methods or processes as such, except in cases where PictureWorks has elected to
rely on patent or copyright protection in lieu of trade secret protection. To
the knowledge of PictureWorks, there has been no misappropriation of any
material trade secrets or other material confidential Intellectual Property
Rights of PictureWorks by any third person that would have a Material Adverse
Effect on PictureWorks.
(f) Except as disclosed on Section 2.15 of the Disclosure
Schedule, no current material licenses for the use of any PictureWorks Owned
Intellectual Property Rights have been granted by PictureWorks to any third
parties.
(g) Except as disclosed on Section 2.15 of the Disclosure
Schedule, PictureWorks has not given an indemnity in connection with any
PictureWorks Owned Intellectual Property Rights or any PictureWorks Licensed
Intellectual Property Rights to any person.
SECTION 2.16. Insurance. Section 2.16 of the Disclosure Schedule sets
forth a list (including the name of the insurer, the name of each insured, the
policy number, the periods of coverage, the scope of coverage and any pending
claims thereunder) of each material insurance policy maintained by PictureWorks
or under which PictureWorks is a named insured or otherwise the beneficiary of
such coverage. All of such insurance policies are in full force and effect and
PictureWorks is not in default with respect to its obligations under any of
such insurance policies. None of the transactions contemplated by this
Agreement shall eliminate or alter the coverage provided by such policies for
occurrences prior to Closing, and PictureWorks shall continue to be entitled to
the benefit and recovery under such policies for pre-Closing occurrences
(subject to the deductibles, limits and other terms and conditions of such
policies).
SECTION 2.17. Material Contracts. (a) Pursuant to this Section
2.17(a) and Section 2.10(b), PictureWorks has delivered or otherwise will make
available to iPIX or its representatives true, correct and complete copies of,
and has identified on the Disclosure Schedule, all written contracts and
agreements (and all amendments, modifications and supplements thereto and all
side letters to which PictureWorks is a party affecting the obligations of any
party thereunder) which involves:
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(i) any employment contract or arrangement, written or oral, with
any officer, consultant, independent contractor, agent,
director or employee whose total compensation exceeds
$60,000;
(ii) any lease for real property;
(iii) any contract for the purchase of equipment, materials or
supplies or for construction requiring aggregate payments in
any twelve-month period by or to PictureWorks that are
expected to be $60,000 or more;
(iv) any sales, distribution or other similar agreement providing
for the sale, distribution or marketing of products,
materials, supplies, goods, services or equipment and
requiring aggregate payments in any twelve-month period to
PictureWorks that, as of the date of this Agreement, are
expected by management of PictureWorks to be $60,000 or more;
(v) any partnership, joint venture, or other similar material
contract, arrangement or agreement;
(vi) any contract relating to indebtedness for borrowed money
(whether incurred, assumed, guaranteed or secured by any
asset);
(vii) any written material arrangement concerning confidentiality,
or any arrangement concerning assignment of inventions or
non-competition or involving material Intellectual Property
Rights, excluding license, service and similar arrangements
entered into in the Ordinary Course of Business;
(viii) any written arrangement that prohibits PictureWorks from
freely engaging in business anywhere in the world and which
is material to PictureWorks;
(ix) any written arrangement involving any greater than 5%
stockholder, executive officer or director of PictureWorks as
defined in Rule 12b-2 under the Exchange Act ("AFFILIATES")
involving annual payments of more than $60,000 but excluding
employment arrangements otherwise disclosed;
(x) any written arrangement not otherwise listed on Section 2.17
of the Disclosure Schedule under which the consequences of a
default or termination would reasonably be expected to have a
Material Adverse Effect on PictureWorks;
(xi) any collective bargaining agreements or other contracts or
commitments to or with any labor union, representative or
group of employees;
(xii) any agreement relating to the acquisition or disposition of
assets, businesses or companies (whether by sale of assets,
sale of stock, merger or otherwise) entered into in the past
three years;
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(xiii) any severance, golden parachute or other agreement with any
employee or consultant pursuant to which such person would be
entitled to receive any additional compensation or an
accelerated payment of compensation solely as a result of the
consummation of the transactions contemplated hereby; or
(xiv) any other written agreement (or group of related
arrangements) involving more than $60,000 which is material
to PictureWorks (the "PICTUREWORKS CONTRACTS").
(b) Each of the PictureWorks Contracts is valid and enforceable
against PictureWorks in accordance with its terms and to the knowledge of
PictureWorks, is valid, binding and enforceable against each other party
thereto in accordance with its terms and the PictureWorks Contracts is in full
force and effect, (i) there is no default under any PictureWorks Contract so
listed either by PictureWorks or, to the knowledge of PictureWorks, by any
other party thereto, and (ii) no event has occurred that with the lapse of time
or the giving of notice or both would constitute a default thereunder by
PictureWorks or any other party, in any such case in which such default or
event would reasonably be expected to have a Material Adverse Effect on
PictureWorks.
(c) No party to any such PictureWorks Contract has to the
knowledge of the executive officers of PictureWorks given notice to
PictureWorks of or made a claim against PictureWorks with respect to any breach
or default thereunder, in any such case in which such breach or default would
have a Material Adverse Effect on PictureWorks.
(d) PictureWorks does not own any real property. Section 2.17 of
the Disclosure Schedule lists all real property leased or subleased to or by
PictureWorks. PictureWorks has made available to iPIX correct and complete
copies of the leases and subleases (as amended to date) listed therein. Except
as described on Section 2.17 of the Disclosure Schedule, with respect to each
such lease and sublease:
(i) The lease or sublease is legal, valid, binding, and
enforceable against PictureWorks, and to the knowledge of
PictureWorks, against each other party thereto, and is in
full force and effect. In the case of any sublease from
PictureWorks to any subtenant, PictureWorks, has obtained all
landlord and other consents required in connection with such
sublease.
(ii) The lease or sublease will continue to be legal, valid,
binding, and enforceable against PictureWorks and to the
knowledge of PictureWorks, against each other party thereto,
and is and in full force and effect immediately following the
Effective Time in accordance with the terms thereof as in
effect prior to the Effective Time.
(iii) Neither PictureWorks nor, to PictureWorks's knowledge, any
other party to the lease or sublease, is in material breach
or default, and no event has
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occurred which, with notice or lapse of time, would
constitute a material breach or default or permit
termination, modification or acceleration thereunder.
(iv) There are no disputes, oral agreements or forbearance
programs to which PictureWorks is a party in effect as to the
lease or sublease.
(v) PictureWorks has not assigned, transferred, conveyed,
mortgaged, deeded in trust or encumbered any interest in the
leasehold or subleasehold.
(vi) All facilities leased or subleased by PictureWorks thereunder
are supplied with utilities necessary for the operation of
said facilities as conducted on the date of this Agreement.
(vii) None of such leases or subleases has been capitalized on the
balance sheet contained in the Interim Financial Statements.
(viii) PictureWorks has obtained consents for all alterations made
as of the date hereof to each such facility and, upon the
expiration or earlier termination of the lease or sublease
with respect thereto, shall not be obligated to remove any
such alterations or restore the premises to the condition
they were in prior to the time such alterations were
undertaken, except for removal or restoration obligations
which individually or in the aggregate do not exceed $25,000.
SECTION 2.18. Tax Treatment. PictureWorks has not taken or agreed to
take any action that would prevent the Merger from qualifying as a tax-free
reorganization under Section 368(a) of the Code.
SECTION 2.19. Affiliates. Except for the stockholders, directors and
executive officers of PictureWorks identified on Section 2.19 of the Disclosure
Schedule, there are no persons who, to the knowledge of PictureWorks, may be
deemed to be affiliates of PictureWorks under Rule 1-02(b) of Regulation S-X of
the SEC (the "PICTUREWORKS AFFILIATES").
SECTION 2.20. Certain Business Practices. Neither PictureWorks, nor
to the knowledge of the executive officers of PictureWorks, any directors,
officers, agents or employees of PictureWorks has (i) used any funds for
unlawful contributions, gifts, entertainment or other unlawful expenses
relating to political activity, (ii) made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic political
parties or campaigns or violated any provision of the Foreign Corrupt Practices
Act of 1977, as amended (the "FCPA"), or (iii) made any other unlawful payment,
in each case except as would not have a Material Adverse Effect on
PictureWorks.
SECTION 2.21. Insider Interests. Except as listed in Section 2.21 of
the Disclosure Schedule, no executive officer, director or, to the knowledge of
the executive officers of PictureWorks, other affiliate of PictureWorks is
party to any transaction which would require
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disclosure by operation of Item 404 of Registration S-K in a registration
statement declared effective as of the date of this Agreement.
SECTION 2.22. Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of PictureWorks except as described on Section 2.22 of the
Disclosure Schedule.
SECTION 2.23. No Other Agreements to Sell PictureWorks. Neither
PictureWorks nor, to its knowledge, any affiliate of PictureWorks, has any
legal obligation, absolute or contingent, to any Person other than iPIX and
Purple Sub to effect any merger, consolidation or other reorganization of
PictureWorks or to enter into any agreement with respect thereto.
SECTION 2.24. Accounts Receivable. All accounts receivable of
PictureWorks reflected on the Interim Financial Statements are valid
receivables subject to no setoffs or counterclaims and are current and believed
by PictureWorks to be collectible (within 90 days after the date on which it
first became due and payable), net of the applicable reserve for bad debts on
the Interim Financial Statements. All accounts receivable reflected in the
financial or accounting records of PictureWorks that have arisen since the
Interim Financial Statements are valid receivables subject to no setoffs or
counterclaims and are believed by PictureWorks to be collectible (within 90
days after the date on which it first became due and payable), net of a reserve
for bad debts.
SECTION 2.25. Powers of Attorney. Except as set forth in Section 2.25
of the Disclosure Schedule, there are no outstanding powers of attorney
executed on behalf of PictureWorks.
SECTION 2.26. Customers. Except as set forth in Section 2.26 of the
Disclosure Schedule, there are no customers that accounted for more than 5% of
the revenues of PictureWorks taken as a whole, during the last full fiscal
year.
SECTION 2.27. Suppliers. Section 2.27 of the Disclosure Schedule sets
forth a true, correct and complete list of (i) the names and addresses of each
of the suppliers of PictureWorks which accounted for a dollar volume of
purchases by PictureWorks in excess of $50,000 for the nine month period ended
December 31, 1999, and (ii) the present sole source suppliers of significant
goods or services, other than utilities, for any product or service with
respect to which practical alternative sources of supply are not available on
comparable terms and conditions, indicating the contractual arrangements for
continued supply from each such supplier. PictureWorks believes it has good
relations with all of its material suppliers.
SECTION 2.28. Acquisitions. Attached hereto as Section 2.28 of the
Disclosure Schedule is a complete and correct list of all acquisitions
undertaken by PictureWorks in the past three years.
SECTION 2.29. Books and Records. The minute books and other similar
records of PictureWorks contain records of all actions taken at any meetings of
PictureWorks's
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stockholders, Board of Directors or any committee thereof and of all written
consents executed in lieu of the holding of any such meeting which are complete
and accurate in all material respects. The books and records of PictureWorks
accurately reflect in all material respects the assets, liabilities, business,
financial condition and results of operations of PictureWorks and have been
maintained in accordance with good business and bookkeeping practices.
SECTION 2.30. Year 2000 Compliance Matters. Except for matters which,
individually and in the aggregate, would not have a Material Adverse Effect on
PictureWorks, all proprietary and third-party licensed computer systems
including computer hardware and software owned, leased or licensed by
PictureWorks and computer software incorporated in products produced by
PictureWorks (a) have on and after December 31, 1999, accurately and without
interruption recognized the advent of the year 2000 without any adverse change
in operations associated with such recognition, (b) can accurately and without
interruption recognize and manipulate date information relating to dates prior
to, on and after January 1, 2000 and (c) can accurately and without
interruption interact with other year 2000 compliant computer systems and
computer software in a way that does not compromise their ability to correctly
recognize the advent of the year 2000 or to accurately and without interruption
recognize and manipulate date information relating to dates prior to, on or
after January 1, 2000.
SECTION 2.31. Securities Law Compliance. Any and all sales by
PictureWorks of any PictureWorks Securities during the period from March 1,
1997 to the date hereof complied in all material respects with the Securities
Act, any applicable state or iPIX sky laws, and all rules and regulations
promulgated pursuant thereto, except for any non-compliance which would not
have a Material Adverse Effect on PictureWorks.
SECTION 2.32. Other Agreements. PictureWorks has entered into the
Funding Obligation Agreement substantially in the form attached as EXHIBIT 2
concurrently herewith, and PictureWorks has caused the holders of PictureWorks
Shares described in Section 2.3(a) to enter into the Stockholder Support
Agreements substantially in the form attached as EXHIBIT 4.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF IPIX
Except as set forth on the Disclosure Schedule delivered by iPIX to
PictureWorks and Purple Sub (the "IPIX DISCLOSURE SCHEDULE"), iPIX hereby
represents and warrants to PictureWorks as follows:
SECTION 3.1. Organization and Qualification. Each of iPIX and its
subsidiaries is duly incorporated, validly existing and in good standing under
the State of Delaware and has all requisite power and authority to own, lease
and operate its properties and to carry on its businesses as now being
conducted, except where the failure to be so organized, existing and
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in good standing or to have such power and authority would not have a Material
Adverse Effect (as defined below) on iPIX. When used in connection with iPIX,
the term "MATERIAL ADVERSE EFFECT" means any change or effect (i) that is or is
reasonably expected to be materially adverse to the business, results of
operations or condition (financial or otherwise) of iPIX and its subsidiaries,
taken as a whole, other than any change or effect arising out of general
economic conditions or in conditions affecting companies generally in the
industries in which iPIX participates or resulting from the public announcement
of the Merger, or (ii) that materially impairs the ability of iPIX to perform
its obligations hereunder or to consummate the transactions contemplated
hereby.
SECTION 3.2. Capitalization of iPIX. (a) As of February 29, 2000, the
authorized capital stock of iPIX consists of (i) 150,000,000 iPIX Common
Shares, $0.001 par value, of which 39,984,745 iPIX Shares were issued and
outstanding, (ii) 7,421,536 shares of Class B Common Stock, $0.0001 par value
per share, of which 6,894,692 shares were issued and outstanding; (iii)
5,001,100 shares of preferred stock, $.001 par value, 1,100 shares of which are
designated Series C redeemable preferred stock, of which no shares were issued
and outstanding. All of the outstanding iPIX Shares have been duly authorized
and validly issued, and are fully paid, nonassessable and free of preemptive
rights.
(b) iPIX or its subsidiaries is the record and beneficial owner
of all of the issued and outstanding shares of common stock of its
subsidiaries.
(c) The shares of iPIX common stock to be issued pursuant to this
Agreement have been duly authorized and, when issued in accordance with the
terms hereof, will be validly issued, fully paid and nonassessable.
(d) Other than the transactions contemplated by this Agreement,
there is no outstanding vote, plan or pending proposal for any redemption of
stock of iPIX or any merger or consolidation of iPIX or any subsidiary of iPIX
with or into any other entity or any similar transaction involving the asset of
stock or assets of a third party.
SECTION 3.3. Authority Relative to this Agreement; Recommendation.
iPIX has all necessary corporate power and authority to execute and deliver
this Agreement and the agreements and instruments attached as exhibits hereto
or otherwise contemplated hereby and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the agreements and instruments attached as exhibits hereto or otherwise
contemplated hereby and the consummation of the transactions contemplated
hereby and thereby have been duly and validly authorized by the Board of
Directors of iPIX (the "IPIX BOARD"), and no other corporate proceedings on the
part of iPIX are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement and the agreements and
instruments contemplated hereby to be executed concurrently herewith to which
iPIX is a party have been duly and validly executed and delivered by iPIX and
constitute a valid and binding agreement of iPIX. No vote or approval of any
stockholder of iPIX is required to approve this Agreement and the agreements
and instruments attached as exhibits hereto or otherwise contemplated hereby.
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SECTION 3.4. SEC Reports; Financial Statements. iPIX has filed all
required forms, reports and documents with the SEC, each of which has complied
in all material respects with all applicable requirements of the Securities Act
and the Exchange Act (and the rules and regulations promulgated thereunder,
respectively), each as in effect on the dates such forms, reports and documents
were filed. iPIX has heretofore delivered or promptly will deliver prior to the
Effective Date to PictureWorks, in the form filed with the SEC (including any
amendments thereto), (i) all definitive proxy statements relating to iPIX's
meetings of shareholders (whether annual or special) held since January 19, 2000
and (ii) all other reports or registration statements filed by iPIX with the SEC
(all of the foregoing, collectively, the "IPIX SEC REPORTS"). None of such iPIX
SEC Reports, including, without limitation, any financial statements or
schedules included or incorporated by reference therein, contained, when filed,
any untrue statement of a material fact or omitted to state a material fact
required to be stated or incorporated by reference therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading. The consolidated financial statements of iPIX
included in the iPIX SEC Reports were prepared in accordance with GAAP (except
as may be indicated in the notes thereto), and fairly present in all material
respects the consolidated financial position of iPIX and its consolidated
subsidiaries as of the dates thereof and their consolidated results of
operations and changes in financial position for the periods then ended, subject
in the case of interim financial statements to the absence of footnotes and to
normal year-end audit adjustments. Since January 19, 2000, there have not been
any events which, individually or in the aggregate, have had or would reasonably
be expected to have a Material Adverse Effect with respect to iPIX.
SECTION 3.5. Consents and Approvals; No Violations. (a) Except for
filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, state securities or iPIX sky laws,
and the filing and recordation of the Certificate of Merger as required by the
DGCL, no filing with or notice to, and no permit, authorization, consent or
approval of, any Governmental Entity is necessary for the execution and delivery
by iPIX of this Agreement or the consummation by iPIX of the transactions
contemplated hereby, except where the failure to obtain such permits,
authorizations, consents or approvals or to make such filings or give such
notice would not have a Material Adverse Effect on iPIX. Section 3.5 of the
Disclosure Schedule contains a list of all material approvals and consents
required of third parties relating to the business conducted by iPIX and its
subsidiaries as of the date of this Agreement required to be given to or
obtained by iPIX in connection with the consummation of the transactions
contemplated by this Agreement.
(b) Neither the execution, delivery and performance of this
Agreement or the agreements and instruments attached as exhibits hereto or
otherwise contemplated hereby by iPIX nor the consummation by iPIX of the
transactions contemplated hereby or thereby will (i) conflict with or result in
any breach of any provision of the respective Charter or Bylaws (or similar
governing documents) of iPIX or any of iPIX's subsidiaries, (ii) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration or Lien) under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, license, contract,
agreement or other instrument or obligation to which iPIX
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or any of iPIX's subsidiaries is a party or by which any of them or any
of their respective properties or assets may be bound or (iii) violate any
order, writ, injunction, decree, law, statute, rule or regulation applicable to
iPIX or any of iPIX's subsidiaries or any of their respective properties or
assets, except in the case of (ii) or (iii) for violations, breaches or defaults
listed on Schedule 3.5 to the iPIX Disclosure Schedule or which would not have a
Material Adverse Effect on iPIX.
SECTION 3.6. No Undisclosed Liabilities; Absence of Changes. (a) As of
December 31, 1999, none of iPIX or its subsidiaries had any liabilities or
obligations of any nature, whether or not accrued, contingent or otherwise, that
would be required by GAAP to be reflected on a consolidated balance sheet of
iPIX and its consolidated subsidiaries (including the notes thereto) which are
not so reflected. Since December 31, 1999, none of iPIX or its subsidiaries has
incurred any liabilities of any nature, whether or not accrued, contingent or
otherwise, which have had, and there have been no events, changes or effects
with respect to iPIX or its subsidiaries having, a Material Adverse Effect on
iPIX.
(b) Except as set forth in Section 3.6(b) of the Disclosure
Schedule, since January 19, 2000, iPIX has conducted its business in the
Ordinary Course of Business and there has not been, and iPIX has not agreed or
committed that there shall be:
(i) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of capital stock
of iPIX;
(ii) any amendment of the Certificate of Incorporation or By-laws
of iPIX;
(iii) any alteration of any outstanding security of iPIX;
(iv) any change in any material method of accounting or accounting
practice by iPIX except for any such change required by reason
of a concurrent change in GAAP or any restatement of any
previously published financial statements of iPIX or any
predecessor; or
(v) any amendment, termination, taking or failure to take any
action that would constitute a violation or default under, or
a waiver of any rights under any material contract or
agreement, including agreements for borrowed money, to which
iPIX or any of its subsidiaries is a party or by which it or
any of its subsidiaries or any of their respective properties
or assets may be bound.
SECTION 3.7. Litigation. Except as listed on Schedule 3.7 to the
Disclosure Schedule, as of the date hereof, there is no suit, claim, action,
proceeding or investigation pending or, to the knowledge of iPIX, threatened
against iPIX or any of its subsidiaries or any of their respective properties or
assets before any Governmental Entity which, individually or in the aggregate,
would have a Material Adverse Effect on iPIX or would prevent the consummation
of the transactions contemplated by this Agreement. As of the date hereof, none
of iPIX or its subsidiaries is subject to any outstanding order, writ,
injunction or decree which, insofar as
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can be reasonably foreseen in the future, would have a Material Adverse Effect
on iPIX or would prevent the consummation of the transactions contemplated
hereby.
SECTION 3.8. Tax Treatment. Neither iPIX nor, to the knowledge of iPIX,
any of its affiliates has taken or agreed to take any action that would prevent
the Merger from qualifying as a tax-free reorganization under Section 368(a) of
the Code.
SECTION 3.9. Brokers. No broker, finder or investment banker (other
than the iPIX Financial Adviser) is entitled to any brokerage, finder's or other
fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of iPIX, such fees and
commission to be the sole responsibility of iPIX.
SECTION 3.10. Hart-Scott-Rodino. iPIX confirms that it is not a "$100
million person" as such term is commonly used in respect of the filing
obligations imposed by the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the regulations promulgated thereunder.
SECTION 3.11. Other Agreements. iPIX has entered into the Funding
Obligation Agreement substantially in the form attached as EXHIBIT 2
concurrently herewith.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURPLE SUB
Purple Sub hereby represents and warrants to iPIX and PictureWorks as
follows:
SECTION 4.1 Organization. Purple Sub is duly incorporated, validly
existing and in good standing under the laws of the State of Delaware.
SECTION 4.2 Capitalization. The authorized capital stock of Purple Sub
consists of 100 shares of common stock, $0.01 par value per share, of which 100
shares are issued and outstanding and held by iPIX. The common stock of Purple
Sub represents the only class or series of capital stock of Purple Sub entitled
to vote on the adoption of this Agreement. Since the date of its incorporation,
Purple Sub has not engaged in any activity of any nature except in connection
with or as contemplated by the Agreement.
SECTION 4.3 Authority Relative to this Agreement; Recommendation.
Purple Sub has all requisite power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. The execution, delivery and
performance of this Agreement, as well as the consummation of the transactions
contemplated hereby by Purple Sub have been duly and validly authorized by all
necessary corporate and stockholder action on the part of Purple Sub. This
Agreement has been duly and validly executed and delivered by Purple Sub and
constitutes a valid and binding agreement of Purple Sub.
SECTION 4.4 Noncontravention. The execution and delivery of this
Agreement and the agreements provided for herein, and the consummation by Purple
Sub of the transactions
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contemplated hereby or thereby, will not (a) conflict with or violate any
provisions of the charter or by-laws of Purple Sub; (b) require on the part of
Purple Sub any filing with, or permit, authorization, consent or approval of,
any Governmental Entity; (c) conflict with, result in breach of, constitute
(with or without due notice or lapse of time or both) a default under, result in
the acceleration of, create in any party any right to accelerate, terminate,
modify or cancel, or require any notice, consent or waiver under, any contract,
lease, sublease, license, franchise, permit, indenture, agreement or mortgage
for borrowed money, instrument of indebtedness, or other arrangement to which
Purple Sub is a party or by which either is bound or to which any of its assets
are subject; or (d) violate any order, writ, injunction, decree, statute, rule
or regulation applicable to Purple Sub or any of its properties or assets.
ARTICLE 5
COVENANTS
SECTION 5.1. Conduct of Business of PictureWorks. Except as
contemplated by this Agreement or as described in Section 5.1 of the
PictureWorks Disclosure Schedule, during the period from the date hereof to the
Effective Time, PictureWorks will use its reasonable best efforts, subject to
the restraints otherwise imposed by this Agreement, to conduct its operations in
the Ordinary Course of Business and, to the extent consistent therewith, with no
less diligence and effort than would be applied in the absence of this
Agreement, seek to preserve intact its current business organization, keep
available the service of its current officers and employees and preserve its
relationships with customers, suppliers and others having business dealings with
it to the end that goodwill and ongoing businesses shall be unimpaired at the
Effective Time. Without limiting the generality of the foregoing, except as
otherwise expressly provided in this Agreement or as described in Section 5.1 of
the PictureWorks Disclosure Schedule, prior to the Effective Time, PictureWorks
will not, without the prior written consent of iPIX:
(a) amend its Certificate of Incorporation or Bylaws (or other
similar governing instrument);
(b) authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or otherwise)
any stock of any class or any other securities (except bank loans) or equity
equivalents (including, without limitation, any stock options or stock
appreciation rights) , except for (i) issuances upon the exercise of outstanding
PictureWorks Stock Options and Warrants identified in the Disclosure Schedule or
(ii) the grant of PictureWorks Stock Options, consistent with past practice, to
new hires in the manner and amounts described in the Disclosure Schedule;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock,
make any other actual, constructive or deemed
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distribution in respect of its capital stock or otherwise make any payments to
stockholders in their capacity as such, or redeem or otherwise acquire any of
its securities;
(d) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization
of PictureWorks (other than the Merger);
(e) (i) create, incur or assume any long-term or short-term debt
not currently outstanding or issue any debt securities, except for draws under
the Greyrock Arrangements to fund ongoing operations in the Ordinary Course of
Business; (ii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other person or entity; (iii) make any loans, advances or capital
contributions to, or investments in, any other person or entity; (iv) pledge or
otherwise encumber shares of capital stock of PictureWorks; or (v) mortgage or
pledge any of its material assets, tangible or intangible, or create or suffer
to exist any material Lien thereupon (other than tax Liens for taxes not yet
due, Liens under the Greyrock Arrangements or Liens in the Ordinary Course of
Business);
(f) except as may be required by law, and except in the Ordinary
Course of Business in accordance with Section 5.1(b)), and except as
contemplated in Section 5.1(b) above (including, without limitation with respect
to new hires), enter into, adopt or amend or terminate any bonus, profit
sharing, compensation, severance, termination, stock option, stock appreciation
right, restricted stock, performance unit, stock equivalent, stock purchase
agreement, pension, retirement, deferred compensation, employment, severance or
other employee benefit agreement, trust, plan, fund or other arrangement for the
benefit or welfare of any director, officer or employee in any manner, or
increase in any manner the compensation or fringe benefits of any director,
officer or employee or pay any benefit not required by any plan and arrangement
as in effect as of the date hereof (including, without limitation, the granting
of stock appreciation rights or performance units);
(g) acquire, sell, lease or dispose of any material assets in any
single transaction or series of related transactions (other than in the Ordinary
Course of Business) , except for the lease of the new office space in San Ramon
and the related steps necessary to occupy those premises;
(h) except as may be required as a result of a change in law or in
GAAP, change any of the material accounting principles or practices used by it;
(i) revalue in any material respect any of its assets, including,
without limitation, writing down the value of inventory or writing-off notes or
accounts receivable other than as required under GAAP in the Ordinary Course of
Business;
(j) (i) acquire (by merger, consolidation, or acquisition of stock
or assets) any corporation, partnership, or other business organization or
division thereof or any equity interest therein; (ii) enter into any contract or
agreement, other than in the Ordinary Course of
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Business consistent with past practice, which would be material to PictureWorks;
(iii) authorize any new capital expenditure or expenditures which in the
aggregate are in excess of $60,000; provided, however that none of the foregoing
shall limit any capital expenditure (x) required pursuant to existing contracts
or (y) contemplated by the existing operations plan (including without
limitation the new office premises in San Ramon identified in the Disclosure
Schedule);
(k) make any tax election or settle or compromise any income tax
liability material to PictureWorks;
(l) settle or compromise any pending or threatened suit, action or
claim which (i) relates to the transactions contemplated hereby or (ii) the
settlement or compromise of which would have a Material Adverse Effect on
PictureWorks; or
(m) take, or agree in writing or otherwise to take, any of the
actions described in Sections 5.1(a) through 5.1(l) or take any action that
would be intended to make, or have the intended effect of making, any of the
representations or warranties of PictureWorks contained in this Agreement
materially untrue or incorrect.
SECTION 5.2. Reasonable Best Efforts. Each of the parties shall use its
reasonable best efforts to take all actions and to do all things necessary,
proper or advisable to consummate the transactions contemplated by this
Agreement, including without limitation, ensuring that (i) its representations
and warranties remain true and correct in all material respects through the
Closing Date and (ii) the conditions to the obligations of the other parties to
consummate the Merger are satisfied.
SECTION 5.3. No Solicitation by PictureWorks. PictureWorks shall not,
nor shall it authorize or permit any of its directors, officers or employees or
any investment banker, financial advisor, attorney, accountant or other
representative retained by it to, directly or indirectly through another person,
(i) solicit, initiate or encourage (including by way of furnishing information),
or take any other action designed to facilitate, any inquiries or the making of
any proposal which constitutes a PictureWorks Takeover Proposal (as defined
below) or (ii) participate in any discussions or negotiations regarding any
PictureWorks Takeover Proposal. For purposes of this Agreement, "PICTUREWORKS
TAKEOVER PROPOSAL" means any inquiry, proposal or offer from any person relating
to any PictureWorks Takeover Event, and "PICTUREWORKS TAKEOVER EVENT" means any
(x) direct or indirect acquisition or purchase of 30% or more of the net
revenues, net income or the assets of PictureWorks, (y) direct or indirect
acquisition or purchase of 30% or more of the equity securities of PictureWorks
or (z) merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving PictureWorks other
than the transactions contemplated by this Agreement. Subject to their
respective fiduciary duties, neither the Board of Directors of PictureWorks nor
any committee thereof shall (i) withdraw or modify, or propose publicly to
withdraw or modify, in a manner adverse to iPIX, the approval or recommendation
by such Board of Directors or such committee of the Merger or this Agreement or
(ii) approve or recommend, or propose publicly to approve or recommend, any
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PictureWorks Takeover Proposal. The foregoing restrictions shall be null and
void and of no effect if, at any time after the date hereof and prior to the
Effective Time, the consideration paid to holders of PictureWorks Shares is, or
is proposed to be, less than $173 million in the aggregate.
SECTION 5.4. Meetings of PictureWorks Stockholders. PictureWorks shall
take all action necessary, in accordance with the DGCL, its Certificate of
Incorporation and Bylaws, to duly call, give notice of, convene and hold a
meeting of its shareholders as promptly as practicable, or solicit action by
written consent in lieu of a meeting, to consider and vote upon the adoption and
approval of this Agreement and the transactions contemplated hereby.
PictureWorks will, through its Board of Directors and, subject to the their
fiduciary duties, recommend to its shareholders approval of such matters. iPIX
shall promptly after the date of this Agreement provide to PictureWorks for the
purpose of soliciting the approval of PictureWorks's stockholders to this
Agreement and the transactions contemplated hereby (including, without
limitation, the issuance of iPIX Shares in exchange for the capital stock of
PictureWorks) a disclosure document regarding the iPIX Shares which document
will not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading as of the date thereof.
SECTION 5.5. Access to Information. (a) Between the date hereof and the
Effective Time or the earlier termination of this Agreement, (i) PictureWorks
will give iPIX and its authorized representatives, officers and independent
accountants access to the offices and other facilities and to all books and
records of PictureWorks, will permit iPIX to make such inspections as iPIX may
reasonably require and will cause its officers to furnish iPIX with such
financial and operating data and other information with respect to the business,
properties, financial condition and prospects of PictureWorks as iPIX may from
time to time reasonably request, and (ii) iPIX will give PictureWorks and its
authorized representatives reasonable access to all officers, offices and other
facilities of iPIX and will permit PictureWorks to make such inspections and
cause its officers to furnish PictureWorks all data and information with respect
to iPIX's business, properties, financial condition and prospects as are
material to the stockholders of PictureWorks acquiring iPIX Shares in connection
with the Merger.
(b) Each of the parties hereto will hold and will cause its
consultants and advisers to hold in confidence all confidential documents and
information furnished to it in connection with the transactions contemplated by
this Agreement pursuant to the terms of that certain Mutual Nondisclosure
Agreement (the "NDA") entered into between iPIX and PictureWorks dated February
25, 2000, which Agreement is hereby confirmed and which shall remain in full
force and effect.
SECTION 5.6. Employee Benefit Plans. (a) It is the parties' present
intent to provide after the Effective Time to employees of iPIX and PictureWorks
and their subsidiaries employee benefit plans which, in the aggregate, are not
less favorable than those currently provided by iPIX and PictureWorks,
respectively. Notwithstanding the foregoing, nothing
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contained herein shall be construed as requiring the parties to continue any
specific employee benefit plans.
(b) The parties agree to work together prior to the Effective Time
to develop and design such plans, programs and arrangements and to prepare for
the implementation of such plans, programs and arrangements described in this
Section 5.6 following the Effective Time.
(c) The parties agree to discuss in good faith prior to taking any
action that would result in a "CHANGE OF CONTROL" for purposes of the
PictureWorks stock options. PictureWorks shall take no action (and has taken no
action) under any PictureWorks Stock Option Plan to accelerate the
exercisability of any option granted under any of the PictureWorks Stock Option
Plans to a date which is earlier than the permitted exercise date of such option
as it existed as of February 1, 2000.
SECTION 5.7. Public Announcements. iPIX and PictureWorks will consult
with one another before issuing any press release or otherwise making any public
statements with respect to the transactions contemplated by this Agreement,
including, without limitation, the Merger, and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by applicable law as determined by iPIX or PictureWorks.
SECTION 5.8. Notification of Certain Matters. The parties hereto shall
give prompt notice to the other parties if any of the parties discover or
receive notice of (i) the occurrence or nonoccurrence of any event the
occurrence or nonoccurrence of which would be likely to cause any representation
or warranty contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Effective Time, (ii) any material failure of
such party to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder, (iii) any notice of, or other
communication relating to, a default or event which, with notice or lapse of
time or both, would become a default, received by such party or any of its
subsidiaries subsequent to the date of this Agreement and prior to the Effective
Time, under any contract or agreement material to the financial condition,
properties, businesses or results of operations of such party and its
subsidiaries taken as a whole to which such party or any of its subsidiaries is
a party or is subject, (iv) any notice or other communication from any third
party alleging that the consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement, (v) any
amendments made (other than such amendments effected in the Ordinary Course of
Business that will not materially adversely affect the contractual arrangement
in question) to any PictureWorks Contract prior to the Effective Time, or (vi)
any material adverse change in their respective financial condition, properties,
businesses or results of operations, taken as a whole, other than changes
resulting from general economic conditions or resulting from the public
announcement of the Merger; provided, however, that the delivery of any notice
pursuant to this Section 4.8 shall not cure such breach or non-compliance or
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
SECTION 5.9. Tax Treatment. (a) From and after the date hereof and
until the Effective Time, neither iPIX nor PictureWorks shall take any action,
or fail to take any action,
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that it knows would jeopardize qualification of the Merger as a tax-free
reorganization under Section 368(a)(2)(E) of the Code or enter into any
contract, agreement, commitment or arrangement with respect to the foregoing and
(b) after the Effective Time, neither iPIX nor any of its affiliates will take
or will agree to take any action that would prevent the Merger from qualifying
as a tax-free reorganization under Section 368(a) of the Code.
SECTION 5.10. Indemnification. iPIX and the Surviving Corporation shall
cause to be maintained in effect for a period of six years after the Effective
Time the current provisions regarding exculpation and indemnification of current
or former officers and directors (each an "Indemnified PictureWorks Person")
contained in the Certificate of Incorporation and by-laws of PictureWorks and in
any agreements between in Indemnified PictureWorks Person and PictureWorks,
provided that in the event any claim or claims are asserted or made within such
six year period, all rights to indemnification in respect of any claim or claims
shall continue until final disposition of any and all such claims. For a period
of six years after the Effective Time (provided that in the event any claim or
claims are asserted or made within such six year period, all rights to
indemnification in respect of any claim or claims shall continue until final
disposition of any and all such claims), iPIX shall indemnify each Indemnified
PictureWorks Person to the same extent as such Indemnified PictureWorks Person
is entitled to indemnification pursuant to the first sentence of this Section
5.10. Without limitation of the foregoing, in the event any such Indemnified
PictureWorks Person is or becomes involved in any action, proceeding or
investigation in connection with any matter occurring prior to or on the
Effective Time, including the transactions contemplated hereby, iPIX will pay as
incurred such Indemnified PictureWorks Person's reasonable fees and expenses of
counsel selected by the Indemnified PictureWorks Person and reasonably
acceptable to iPIX (including the cost of any investigation and preparation and
the cost of any appeal) incurred in connection therewith to the extent permitted
pursuant to the DGCL. The agreements contained in this Section 5.10 shall
survive the closing of the Merger and other transactions contemplated hereby and
are intended to be for the benefit of, and shall be enforceable by, each of the
Indemnified PictureWorks Persons and their respective heirs and legal
representatives.
SECTION 5.11. NNM Status of iPIX Common Stock. iPIX shall cause to be
authorized for listing on the NASDAQ National Market, prior to the Effective
Time, all shares of iPIX common stock to be issued pursuant to Article 1 hereto
upon the conversion of the outstanding shares of PictureWorks capital stock or
the exercise of any outstanding PictureWorks Stock Options or Warrants.
SECTION 5.12. Closing Date. Each party shall use its reasonable best
efforts to cause the Effective Time to occur by March 31, 2000.
SECTION 5.13. Consent of Greyrock to Merger. (a) PictureWorks shall use
its best efforts to take all actions and to do all things necessary in order to
obtain from Greyrock Capital in connection with the Greyrock Arrangements all
consents, waivers and authorizations in connection with the Merger such that the
consummation of the Merger shall not result in any default or event of default
under any agreement or instrument which is part
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of the Greyrock Arrangements; provided that iPIX shall cooperate and assist
PictureWorks in such efforts (including by providing an iPIX guaranty of the
obligations evidenced by the Greyrock Arrangements, if required) and further
provided, that iPIX shall not withhold consent pursuant to Section 5.1(m) to (i)
the payment by PictureWorks of a reasonable fee to Greyrock Capital if required
in connection with the granting of such consent, waiver or authorization or (ii)
if PictureWorks has not received all consents, approvals or waivers regarding
the Merger required pursuant to the terms of the Greyrock Arrangements on or
before May 15, 2000, PictureWorks entering into another financing facility
having material terms identical in all material respects to the terms of the
Greyrock Arrangements (including an iPIX guarantee).
(b) From and after the Effective Time, iPIX hereby agrees to
indemnify and hold harmless each Person who has guarantied any obligation of
PictureWorks under the Greyrock Arrangements from any claim of any sort
whatsoever under any such guaranty and to use its reasonable best efforts
(including by providing an iPIX guaranty of the obligations of PictureWorks
under the Greyrock Arrangements if required) to obtain a complete and
unconditional release of such guaranties. In the event that any such guaranties
are not released, iPIX shall not take any action from and after the Effective
Time with respect to the Greyrock Arrangements having the effect of lengthening
the term of the indebtedness underlying any such guaranty without the
Guarantor's prior written consent. iPIX acknowledges that the Persons who have
provided guaranties to Greyrock are intended third party beneficiaries to this
Section 5.13(b) and may directly enforce this Section as if they were a party to
this Agreement.
(c) PictureWorks shall use its reasonable best efforts to obtain
(i) written confirmation from the Guarantors (as defined in those certain
Contribution and Reimbursement Agreements by and between PictureWorks and Weston
Presidio Capital II, L.P., Stanley B. Fry, Cyrus W. Gregg and Edward D. Herrick
(collectively, "Guarantors"), dated July 26, 1999 and October 1999 (collectively
"Reimbursement Agreements")) in a form reasonably satisfactory to iPIX that,
upon the payment by iPIX to the Guarantors of the Guaranty Fees (as defined in
the Reimbursement Agreements) in connection with the Merger, the provisions in
the Reimbursement Agreements relating to payment of Guaranty Fees shall be null
and void and of no further effect and (ii) written waiver of the requirement of
payment of the Guarantee Fees by iPIX on the Closing Date, which waiver shall
defer such payment until the later of the Closing Date and April 3, 2000,
provided that iPIX unconditionally guarantees such payment obligation.
SECTION 5.14. Termination of Investors' Rights Agreement. Prior to the
Closing Date, PictureWorks shall cause to be terminated the Amended and Restated
Investors' Rights Agreement among PictureWorks, Stanley Fry and various
PictureWorks Stockholders, dated March 16, 1999, and superceded by a iPIX
Registration Rights Agreement substantially in the form of EXHIBIT 3.
SECTION 5.15. Private Placement Exemption. The issuance of iPIX Shares
provided for in this Agreement is intended to be a private placement of such
securities exempt from
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registration under the federal and state securities laws. In the event for any
reason that iPIX determines that the contemplated exemption is not available,
iPIX agrees as follows: (i) it will promptly notify PictureWorks in writing;
(ii) it may not terminate this Agreement by operation of Section 8.1(b)(ii) or
on any other basis due to the failure to timely perfect such exemption under any
circumstances; and (iii) it shall immediately commence to use its reasonable
best efforts to either register the issuance of the iPIX Shares with the SEC or
perfect an alternative exemption reasonably satisfactory to PictureWorks (it
being understood that, under present law, an issuance in reliance upon Section
3(a)(10) of the Securities Act of 1933 based on receipt of a permit granted
subsequent to a hearing as to the fairness of the transaction conducted by the
California Commissioner of Corporations would be acceptable to PictureWorks), in
any such case with the objective of closing the Merger as soon as possible.
ARTICLE 6
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 6.1. Conditions to Each Party's Obligations to Effect the
Merger. The respective obligations of each party hereto to effect the Merger are
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) no statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or enforced by any
Governmental Authority which prohibits, restrains, enjoins or restricts the
consummation of the Merger; and
(b) any governmental, regulatory or third party notices, consents
or approvals required with respect to the transactions contemplated hereby shall
have been either filed or received.
SECTION 6.2. Conditions to the Obligations of PictureWorks. The
obligation of PictureWorks to effect the Merger is subject to the satisfaction
at or prior to the Effective Time of the following conditions:
(a) the representations of iPIX contained in this Agreement or in
any other document delivered pursuant hereto shall be true and correct (except
to the extent that the breach thereof would not have a Material Adverse Effect
on iPIX) at and as of the Effective Time with the same effect as if made at and
as of the Effective Time (except to the extent such representations specifically
related to an earlier date, in which case such representations shall be true and
correct as of such earlier date), and at the Closing iPIX shall have delivered
to PictureWorks a certificate to that effect;
(b) each of the covenants and obligations of iPIX to be performed
at or before the Effective Time pursuant to the terms of this Agreement shall
have been duly performed in all material respects at or before the Effective
Time, except for any failure to perform which,
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individually or in the aggregate, would not have a Material Adverse Effect on
iPIX, and at the Closing iPIX shall have delivered to PictureWorks a certificate
to that effect;
(c) PictureWorks shall have received the opinion of Latham &
Watkins, counsel to PictureWorks, dated the Closing Date and addressed to
PictureWorks, to the effect that (i) the Merger will be treated for Federal
income tax purposes as a reorganization under Section 368(a) of the Code, and
such opinion shall not have been withdrawn or modified in any material respect.
In rendering such opinion, counsel to PictureWorks shall be entitled to rely
upon representations of officers of iPIX, Purple Sub and PictureWorks
substantially in the form of EXHIBITS 6.2(C)-1 AND 6.2(C)-2 (allowing for such
amendments to the representations as counsel to PictureWorks deems necessary).
(d) there shall have been no events, changes or effects with
respect to iPIX or its subsidiaries that have had a Material Adverse Effect on
iPIX; and
(e) Sellers' Representative and PictureWorks shall have entered
into the Escrow Agreement substantially in the form of EXHIBIT 1 attached hereto
and iPIX and the signatories listed thereon shall have entered into the
Registration Rights Agreement substantially in the form of EXHIBIT 3, and such
agreements shall be in full force and effect on the Closing Date in accordance
with their respective terms.
SECTION 6.3. Conditions to the Obligations of iPIX. The obligation of
iPIX to effect the Merger is subject to the satisfaction at or prior to the
Effective Time of the following conditions:
(a) the representations of PictureWorks contained in this
Agreement or in any other document delivered pursuant hereto shall be true and
correct (except to the extent that the breach thereof would not have a Material
Adverse Effect on PictureWorks) at and as of the Effective Time with the same
effect as if made at and as of the Effective Time (except to the extent such
representations specifically related to an earlier date, in which case such
representations shall be true and correct as of such earlier date), and at the
Closing PictureWorks shall have delivered to iPIX a certificate to that effect;
(b) each of the covenants and obligations of PictureWorks to be
performed at or before the Effective Time pursuant to the terms of this
Agreement shall have been duly performed in all material respects at or before
the Effective Time, except for any failure to perform which, individually or in
the aggregate, would not have a Material Adverse Effect, and at the Closing
PictureWorks shall have delivered to iPIX a certificate to that effect;
(c) on or before May 15, 2000, PictureWorks shall have received
all consents, approvals or waivers regarding the Merger required pursuant to the
terms of the Greyrock Arrangements or shall have entered into another financing
facility having material terms identical in all material respects to the terms
of the Greyrock Arrangements;
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(d) there shall have been no events, changes or effects with
respect to PictureWorks or its subsidiaries that have had a Material Adverse
Effect on PictureWorks; and
(e) Sellers' Representative and PictureWorks shall have entered
into the Escrow Agreement substantially in the form of EXHIBIT 1 attached hereto
and iPIX and the signatories listed thereon shall have entered into the
Registration Rights Agreement substantially in the form of EXHIBIT 3, and such
agreements shall be in full force and effect on the Closing Date in accordance
with their respective terms.
ARTICLE 7
INDEMNIFICATION
SECTION 7.1 Indemnification by PictureWorks Stockholders. Subject to
the limitations set forth in Section 7.3, the PictureWorks Stockholders
receiving the iPIX Shares pursuant to Section 1.7 (the "INDEMNIFYING
STOCKHOLDERS") all indemnify iPIX in respect of, and hold it harmless against,
any and all debts, obligations and other liabilities (whether absolute, accrued,
contingent, fixed or otherwise, or whether known or unknown, or due or to become
due or otherwise), monetary damages, fines, fees, penalties, interest
obligations, deficiencies, losses and expenses (including without limitation
amounts paid in settlement, interest, court costs, reasonable costs of
investigators, reasonable fees and expenses of attorneys, accountants, financial
advisors and other experts, and other expenses of litigation) ("LOSSES")
incurred or suffered by the Surviving Corporation or iPIX or any Affiliate
thereof resulting from, relating to or constituting:
(a) any misrepresentation, breach of representation or warranty or
failure to perform any covenant or agreement of PictureWorks contained in this
Agreement or the Certificate delivered pursuant to Section 6.3;
(b) any claim by a stockholder or former stockholder of
PictureWorks, or any other person or entity (other than stockholders of record
and option holders and warrant holders identified in the Disclosure Schedule),
seeking to assert, or based upon: (i) ownership or rights to ownership of any
shares of stock of PictureWorks; (ii) any rights of a shareholder (other than
the right to receive the iPIX Shares pursuant to this Agreement or appraisal
rights under the applicable provisions of the DGCL), including any option,
preemptive rights or rights to notice or to vote; (iii) any rights under the
Certificate of Incorporation or By-laws of PictureWorks; or (iv) any claim that
his, her or its shares were wrongfully repurchased by PictureWorks; or
(c) the matters described in item 2 on Section 2.8 to the
PictureWorks Disclosure Schedule; provided, that as a condition to such
indemnification obligation pursuant to this subsection (c), iPIX shall as
promptly as practicable following the Effective Time take all necessary action
to change the name of the Surviving Corporation and discontinue the use of
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such name in connection with the business conducted by the Surviving Corporation
thereafter.
SECTION 7.2 Indemnification by iPIX. iPIX shall indemnify the
Indemnifying Stockholders in respect of, and hold them harmless against, any and
all Losses incurred or suffered by the Indemnifying Stockholders resulting from,
relating to or constituting any misrepresentation, breach of warranty or failure
to perform any covenant or agreement of iPIX contained in this Agreement or the
iPIX Certificate delivered pursuant to Section 6.2.
SECTION 7.3 Limitations.
(a) Notwithstanding anything to the contrary herein, (i) the
aggregate liability of the Indemnifying Stockholders for Losses under this
Article 7 shall not exceed the shares and other assets, if any, comprising the
Escrow Fund (as defined in the Escrow Agreement), and (ii) the Indemnifying
Stockholders shall not be liable under this Article 7 unless and until the
aggregate Losses for which it would otherwise be liable exceed $1,000,000 (at
which point the Indemnifying Stockholders shall become liable only for the
aggregate Losses in excess of $1,000,000); provided that the limitation set
forth in clause (ii) above shall not apply to a claim made by iPIX pursuant to
Section 7.1(a) relating to (x) a breach of the representations and warranties
set forth in Sections 2.1(a), 2.2(a) and (b), or 2.3 or (y) the matters
indemnifiable pursuant to Section 7.1(c); provided, however, that the
Indemnifying Stockholders will be liable for 90% of any Losses and iPIX will be
liable for 10% of any Losses related to the matters indemnifiable pursuant to
Section 7.1(c) up to $500,000, and the Indemnifying Stockholders will be liable
for all such Losses exceeding $500,000. iPIX and the Indemnifying Stockholders
shall bear all Losses up to $500,000 pro rata according to the foregoing
percentages, and shall be concurrently liable for their respective percentages
of such Loss. For purposes solely of measuring the $1,000,000 deductible in
clause (ii) of this Section 7.3(a), all representations and warranties of
PictureWorks in Article II shall be construed as if the term "material" and any
reference to "MATERIAL ADVERSE EFFECT" (and variations thereof) were omitted
from such representations and warranties.
(b) The stockholders of PictureWorks and their officers,
directors, partners, stockholders, members, trustees, fiduciaries, affiliates,
accountants, attorneys, advisors and other representatives (including those of
PictureWorks prior to the Effective Time) shall not under any circumstances have
any liability of any sort whatsoever under this Agreement or any agreement or
document delivered in connection herewith in excess of the Escrow Fund, except
in the event of a fraudulent breach (i.e., a knowing and intentional breach of a
representation, warranty, covenant or agreement with the intent to deceive). In
the event of such a fraudulent breach, iPIX shall have all remedies available at
law or in equity with respect to such breach; provided, however, that,
notwithstanding anything to the contrary contained in this Agreement, in no
event shall the liability resulting from this sentence exceed the Merger
consideration or proceeds, if any, actually received by a former stockholder of
PictureWorks in connection with the disposition of such Merger consideration.
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(c) No Indemnifying Stockholder shall have any right of
contribution against PictureWorks or the Surviving Corporation with respect to
any breach by PictureWorks of any of its representations, warranties, covenants
or agreements except as otherwise set forth in Section 5.10.
(d) iPIX acknowledges and agrees that the representations and
warranties set forth in Article 2 above are the only representations and
warranties made by PictureWorks in connection with the Merger and related
transactions contemplated hereby and iPIX has not, and agrees that it may not,
rely on any other representations or warranties in any manner relating to
PictureWorks. In the event the Merger is consummated, it is further recognized
and agreed that the sole and exclusive remedy for any claims arising out of or
relating to a breach of one or more of such representations or warranties or any
other provision of this Agreement shall be Losses, subject to the limitations
set forth in, and except as otherwise set forth in, this Article 7. The
inclusion of any entry in the Disclosure Schedule shall not be deemed an
admission that such item is material.
(e) The Indemnifying Stockholders' liability for any Losses with
respect to which iPIX is entitled to or is seeking to assert rights to
indemnification under this Article 7 shall be reduced by any amounts actually
received by iPIX from any third party with respect to such Losses.
SECTION 7.4 Indemnification Claims.
(a) A party entitled, or seeking to assert rights, to
indemnification under this Article 7 (an "INDEMNIFIED PARTY") shall give written
notification to the party from whom indemnification is sought (an "INDEMNIFYING
PARTY") of the commencement of any suit or proceeding relating to a third party
claim for which indemnification pursuant to this Article 7 may be sought. Such
notification shall be given within 20 days after receipt by the Indemnified
Party of notice of such suit or proceeding, and shall describe in reasonable
detail (to the extent known by the Indemnified Party) the facts constituting the
basis for such suit or proceeding and the amount of the claimed damages;
provided, however, that no delay on the part of the Indemnified Party in
notifying the Indemnifying Party shall relieve the Indemnifying Party of any
liability or obligation hereunder except to the extent of any damage or
liability caused by or arising out of such failure. Within 20 days after
delivery of such notification, the Indemnifying Party may, upon written notice
thereof to the Indemnified Party, assume control of the defense of such suit or
proceeding with counsel reasonably satisfactory to the Indemnified Party;
provided that (i) the Indemnifying Party may assume control of such defense only
if it acknowledges in writing to the Indemnified Party that, assuming the
principal alleged facts are materially true, any damages, fines, costs or other
liabilities that may be assessed against the Indemnified Party in connection
with such suit or proceeding constitute Losses for which the Indemnified Party
shall be indemnified pursuant to this Article 7. Notwithstanding the foregoing,
the Indemnifying Party may not assume control of the defense of a suit or
proceeding involving criminal liability or in which equitable relief is sought
against the Indemnified Party. In addition, notwithstanding anything in this
Agreement to the contrary, iPIX shall control the defense of any claim against
the
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Indemnifying Stockholders if iPIX certifies in writing to Sellers'
Representative that iPIX reasonably believes that the amount of Losses relating
to such claim and all other pending claims may exceed the Value (as defined
below) in the Escrow Fund. If the Indemnifying Party does not so assume control
of such defense (or does not have the right to such control), the Indemnified
Party shall control such defense. The party not controlling such defense (the
"NON-CONTROLLING PARTY") may participate therein at its own expense; provided
that if the Indemnifying Party assumes control of such defense and the
Indemnified Party reasonably concludes that the Indemnifying Party and the
Indemnified Party have conflicting interests or different defenses available
with respect to such suit or proceeding, the reasonable fees and expenses of one
firm of attorneys acting as counsel to the Indemnified Party shall be considered
"LOSSES" for purposes of this Agreement. The party controlling such defense (the
"CONTROLLING PARTY") shall keep the Non-controlling Party advised of the status
of such suit or proceeding and the defense thereof and shall consider in good
faith recommendations made by the Non-controlling Party with respect thereto.
The Non-controlling Party shall furnish the Controlling Party with such
information as it may have with respect to such suit or proceeding (including
copies of any summons, complaint or other pleading which may have been served on
such party and any written claim, demand, invoice, billing or other document
evidencing or asserting the same) and shall otherwise cooperate with and assist
the Controlling Party in the defense of such suit or proceeding; provided,
however, that this requirement shall not apply in respect of materials related
to a dispute involving the interpretation and application of this Article 7. The
Indemnifying Party shall not agree to any settlement of, or the entry of any
judgment arising from, any such suit or proceeding without the prior written
consent of the Indemnified Party, which shall not be unreasonably withheld or
delayed. The Indemnified Party shall not agree to any settlement of, or the
entry of any judgment arising from, any such suit or proceeding without the
prior written consent of the Indemnifying Party, which shall not be unreasonably
withheld or delayed.
(b) In order to seek indemnification under this Article 7, an
Indemnified Party shall give written notification (a "CLAIM NOTICE") to the
Indemnifying Party which contains (i) a description and the amount (the "CLAIMED
AMOUNT") of any Losses incurred or reasonably expected to be incurred by the
Indemnified Party, (ii) a statement that the Indemnified Party is entitled to
indemnification under this Article 7 for such Losses and a reasonable
explanation of the basis therefor, and (iii) a demand for payment (in the manner
provided in paragraph (c) below) in the amount of such Losses. If the
Indemnified Party is iPIX, the Indemnified Party shall deliver a copy of the
Claim Notice to the Escrow Agent.
(c) Within 20 days after delivery of a Claim Notice, the
Indemnifying Party shall deliver to the Indemnified Party a written response
(the "RESPONSE") in which the Indemnifying Party shall: (i) agree that the
Indemnified Party is entitled to receive all of the Claimed Amount (in which
case the Response shall be accompanied by a payment by the Indemnifying Party to
the Indemnified Party of the Claimed Amount, by check or by wire transfer;
provided that if the Indemnified Party is iPIX, the sole recourse shall be as
specified in Section 7.3 and accordingly the Indemnifying Party and the
Indemnified Party shall deliver to the Escrow Agent, within three days following
the delivery of the Response, a written notice executed by both parties
instructing the Escrow Agent to distribute to iPIX
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such number of Escrow Shares as have an aggregate Value (as defined in the
Escrow Agreement) equal to the Claimed Amount), (ii) agree that the Indemnified
Party is entitled to receive part, but not all, of the Claimed Amount (the
"AGREED AMOUNT") (in which case the Response shall be accompanied by a payment
by the Indemnifying Party to the Indemnified Party of the Agreed Amount, by
check or by wire transfer; provided that if the Indemnified Party is iPIX, the
Indemnifying Party and the Indemnified Party shall deliver to the Escrow Agent,
within three days following the delivery of the Response, a written notice
executed by both parties instructing the Escrow Agent to distribute to iPIX such
number of Escrow Shares as have an aggregate Value equal to the Agreed Amount)
or (iii) dispute that the Indemnified Party is entitled to receive any of the
Claimed Amount. If the Indemnifying Party in the Response disputes its liability
for all or part of the Claimed Amount, the Indemnifying Party and the
Indemnified Party shall follow the procedures set forth in Section 7.4(d) for
the resolution of such dispute (a "DISPUTE").
(d) During the 60-day period following the delivery of a Response
that reflects a Dispute, the Indemnifying Party and the Indemnified Party shall
use good faith efforts to resolve the Dispute. If the Dispute is not resolved
within such 60-day period, the Indemnifying Party and the Indemnified Party
shall discuss in good faith the submission of the Dispute to a mutually
acceptable alternative dispute resolution procedure (which may be non-binding or
binding upon the parties, as they agree in advance) (the "ADR PROCEDURE"). In
the event the Indemnifying Party and the Indemnified Party agree upon an ADR
Procedure, such parties shall, in consultation with the chosen dispute
resolution service (the "ADR SERVICE"), promptly agree upon a format and
timetable for the ADR Procedure, agree upon the rules applicable to the ADR
Procedure, and promptly undertake the ADR Procedure. The provisions of this
Section 7.4(d) shall not obligate the Indemnifying Party and the Indemnified
Party to pursue an ADR Procedure or prevent either such party from pursuing the
Dispute in a court of competent jurisdiction; provided that, if the Indemnifying
Party and the Indemnified Party agree to pursue an ADR Procedure, neither the
Indemnifying Party nor the Indemnified Party may commence litigation or seek
other remedies with respect to the Dispute prior to the completion of such ADR
Procedure. Any ADR Procedure undertaken by the Indemnifying Party and the
Indemnified Party shall be considered a compromise negotiation for purposes of
federal and state rules of evidence, and all statements, offers, opinions and
disclosures (whether written or oral) made in the course of the ADR Procedure by
or on behalf of the Indemnifying Party, the Indemnified Party or the ADR Service
shall be treated as confidential and, where appropriate, as privileged work
product. Such statements, offers, opinions and disclosures shall not be
discoverable or admissible for any purposes in any litigation or other
proceeding relating to the Dispute (provided that this sentence shall not be
construed to exclude from discovery or admission any matter that is otherwise
discoverable or admissible). The fees and expenses of any ADR Service used by
the Indemnifying Party and the Indemnified Party shall be shared equally by the
Indemnifying Party and the Indemnified Party. If the Indemnified Party is
seeking to enforce the claim that is the subject of the Dispute pursuant to the
Escrow Agreement, the Indemnifying Party and the Indemnified Party shall deliver
to the Escrow Agent, promptly following the resolution of the Dispute (whether
by mutual agreement, pursuant to an ADR Procedure, as a result of a judicial
decision or otherwise), a written notice executed by both
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parties instructing the Escrow Agent as to what (if any) portion of the Escrow
Shares shall be distributed to iPIX and/or the Indemnifying Stockholders (which
notice shall be consistent with the terms of the resolution of the Dispute).
(e) Notwithstanding the other provisions of this Section 7.4, if a
third party asserts (other than by means of a lawsuit) that an Indemnified Party
is liable to such third party for a monetary or other obligation which may
constitute or result in Losses for which such Indemnified Party may be entitled
to indemnification pursuant to this Article 7, and such Indemnified Party
reasonably determines that it has a valid business reason to fulfill such
obligation, then (i) such Indemnified Party shall be entitled to satisfy such
obligation, without prior consent of the Indemnifying Party, (ii) such
Indemnified Party may subsequently make a claim for indemnification in
accordance with the provisions of this Article 7, and (iii) such Indemnified
Party shall be reimbursed, in accordance with the provisions of this Article 7,
for any such Losses for which it is entitled to indemnification pursuant to this
Article 7 (subject to the right of the Indemnifying Party to dispute the
Indemnified Party's entitlement to indemnification, or the amount for which it
is entitled to indemnification, under the terms of this Article 7). If the
Indemnified Party exercises its rights pursuant to this Section 7.4(e), it shall
advise the Indemnifying Party prior to exercising such right and in good faith
seek to solicit the views of the Indemnifying Party with respect to any such
matters. Notwithstanding anything in Section 7.1 the payment or satisfaction of
any obligation pursuant to this Section 7.4 shall not itself evidence the
existence or amount of Losses.
(f) For purposes of this Section 7.4 and the last two sentences of
Section 7.5, (i) if the Indemnifying Stockholders comprise the Indemnifying
Party, any references to the Indemnifying Party (except provisions relating to
an obligation to make or a right to receive any payments provided for in Section
7.4 or Section 7.5) shall be deemed to refer to the Sellers' Representative, and
(ii) if the Indemnifying Stockholders comprise the Indemnified Party, any
references to the Indemnified Party (except provisions relating to an obligation
to make or a right to receive any payments provided for in Section 7.4 or
Section 7.5) shall be deemed to refer to the Sellers' Representative. The
Sellers' Representative shall have full power and authority on behalf of each
Indemnifying Stockholder to take any and all actions on behalf of, execute any
and all instruments on behalf of, and execute or waive any and all rights of,
the Indemnifying Stockholders under this Article 7. The Sellers' Representative
shall have no liability to any Indemnifying Stockholder for any action taken or
omitted on behalf of the Indemnifying Stockholders pursuant to this Article 7.
SECTION 7.5 Survival of Representations and Warranties. All
representations and warranties contained in this Agreement and the Certificates
to be delivered pursuant to Sections 6.2 and 6.3 shall (a) survive the Closing
and any investigation at any time made by or on behalf of an Indemnified Party
and (b) shall, absent a fraudulent breach as defined in Section 7.3(b), with
respect to which such representations and warranties shall survive until the
expiration of the applicable statute of limitations, expire on the date upon
which the first audited consolidated financial statements of iPIX (or any
successor) are released by the independent auditors thereof following the
Closing Date. If an Indemnified Party delivers to
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an Indemnifying Party, before expiration of a representation or warranty, either
a Claim Notice based upon a breach of such representation or warranty, or a
notice that, as a result a legal proceeding instituted by or written claim made
by a third party, the Indemnified Party reasonably expects to incur Damages as a
result of a breach of such representation or warranty (an "EXPECTED CLAIM
NOTICE"), then such representation or warranty shall survive until, but only for
purposes of, the resolution of the matter covered by such notice. If the legal
proceeding or written claim with respect to which an Expected Claim Notice has
been given is definitively withdrawn or resolved in favor of the Indemnified
Party, the Indemnified Party shall promptly so notify the Indemnifying Party;
and if the Indemnified Party has delivered a copy of the Expected Claim Notice
to the Escrow Agent and Escrow Shares have been retained in escrow after the
Termination Date (as defined in the Escrow Agreement) with respect to such
Expected Claim Notice, the Indemnifying Party and the Indemnified Party shall
promptly deliver to the Escrow Agent a written notice executed by both parties
instructing the Escrow Agent to distribute such retained Escrow Shares to the
Indemnifying Stockholders in accordance with the terms of the Escrow Agreement.
ARTICLE 8
TERMINATION; AMENDMENT; WAIVER
SECTION 8.1. Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether before
or after approval and adoption of this Agreement by PictureWorks's shareholders:
(a) by mutual written consent of iPIX and PictureWorks;
(b) by iPIX or PictureWorks if (i) any court of competent
jurisdiction in the United States or other United States Governmental Entity
shall have issued a final order, decree or ruling or taken any other final
action restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action is or shall have become non-appealable or
(ii) the Merger has not been consummated by May 15, 2000; provided, however,
that no party may terminate this Agreement pursuant to this clause (ii) if such
party's failure to fulfill any of its obligations under this Agreement shall
have been the reason that the Effective Time shall not have occurred on or
before said date;
(c) by PictureWorks if (i) there shall have been a breach of any
representation or warranty on the part of iPIX set forth in this Agreement and
iPIX has not cured such breach within twenty (20) business days after notice by
PictureWorks thereof, or if any representation or warranty of iPIX shall have
become untrue, in either case such that the conditions set forth in Section
6.2(a) would be incapable of being satisfied by May 15, 2000 (or as otherwise
extended), (ii) there shall have been a breach by iPIX of any of its covenants
or agreements hereunder having a Material Adverse Effect on iPIX or materially
adversely affecting (or materially delaying) the consummation of the Merger, and
iPIX has not cured such breach within twenty (20) business days after notice by
PictureWorks thereof, provided that
47
<PAGE> 53
PictureWorks has not breached any of its obligations hereunder, (iii) the iPIX
Board shall have withdrawn, modified or changed its approval of this Agreement
or the Merger or shall have adopted any resolution to effect any of the
foregoing.
(d) by iPIX if (i) there shall have been a breach of any
representation or warranty on the part of PictureWorks set forth in this
Agreement, and PictureWorks has not cured such breach within twenty (20)
business days after notice by iPIX thereof, or if any representation or warranty
of PictureWorks shall have become untrue, in either case such that the
conditions set forth in Section 6.3(a) would be incapable of being satisfied by
May 15, 2000 (or as otherwise extended), (ii) there shall have been a breach by
PictureWorks of any of its covenants or agreements hereunder having a Material
Adverse Effect on PictureWorks or materially adversely affecting (or materially
delaying) the consummation of the Merger, and PictureWorks has not cured such
breach within twenty (20) business days after notice by iPIX thereof, provided
that iPIX has not breached any of its obligations hereunder, (iii) the
PictureWorks Board shall have withdrawn, modified or changed its approval or
recommendation of this Agreement or the Merger or shall have failed to call,
give notice of, convene or hold a stockholders' meeting to vote upon the Merger,
or shall have adopted any resolution to effect any of the foregoing, or (iv)
PictureWorks shall have convened a meeting of its shareholders to vote upon the
Merger and shall have failed to obtain the requisite vote of its stockholders
within five (5) business days thereafter.
SECTION 8.2. Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 8.1, this Agreement shall
forthwith become void and have no effect, without any liability on the part of
any party hereto or its affiliates, directors, officers or shareholders, other
than the provisions of Sections 5.5(b) and 8.3 , and except as may otherwise be
provided in Section 7 hereof with respect to a fraudulent breach and except that
nothing contained in this Section 8.2 shall relieve any party from liability for
any breach of this Agreement prior to such termination.
SECTION 8.3. Fees and Expenses. Each party shall bear its own expenses
in connection with this Agreement and the transactions contemplated hereby
except that:
(a) in the event the Merger is consummated, iPIX shall pay and
assume all reasonable fees and expenses incurred by PictureWorks in connection
with its proposed initial public offering and the Merger, to the persons and in
the amounts or consistent in all material respects with the estimated amounts
set forth on attached EXHIBIT 5; and
(b) if, in the exercise of its fiduciary duty, the PictureWorks
Board accepts a PictureWorks Takeover Proposal and therefore terminates this
Agreement, PictureWorks shall pay to iPIX upon demand by wire transfer of good
funds a termination fee in the amount of $6,125,000.
SECTION 8.4. Amendment. This Agreement may be amended by action taken
by iPIX and PictureWorks at any time before or after approval of the Merger by
the shareholders of iPIX and PictureWorks (if required by applicable law) but,
after any such approval, no amendment shall be made which requires the approval
of such shareholders under applicable
48
<PAGE> 54
law without such approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of the parties hereto.
SECTION 8.5. Extension; Waiver. At any time prior to the Effective
Time, each party hereto may (i) extend the time for the performance of any of
the obligations or other acts of any other party, (ii) waive any inaccuracies in
the representations and warranties of any other party contained herein or in any
document, certificate or writing delivered pursuant hereto or (iii) waive
compliance by any other party with any of the agreements or conditions contained
herein. Any agreement on the part of any party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of any party hereto to assert any of its
rights hereunder shall not constitute a waiver of such rights.
ARTICLE 9
MISCELLANEOUS
SECTION 9.1. Entire Agreement; Assignment. This Agreement and the other
agreements expressly referred to herein or attached as Exhibits hereto (a)
constitute the entire agreement between the parties hereto with respect to the
subject matter hereof and supersede all other prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof and (b) shall not be assigned by operation of law or
otherwise.
SECTION 9.2. Validity. If any provision of this Agreement, or the
application thereof to any person or circumstance, is held invalid or
unenforceable, the remainder of this Agreement, and the application of such
provision to other persons or circumstances, shall not be affected thereby, and
to such end, the provisions of this Agreement are agreed to be severable.
SECTION 9.3. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by facsimile
or by registered or certified mail (postage prepaid, return receipt requested),
to each other party as follows:
If to iPIX: James M. Phillips
Chairman and Chief Executive Officer
Internet Pictures Corporation
1009 Commerce Park Drive
Oak Ridge, Tennessee 37830
Fax: (423) 482-6755
49
<PAGE> 55
Matthew S. Heiter, Esq.
General Counsel and Corporate Secretary
Internet Pictures Corporation
165 Madison Avenue
Memphis, Tennessee 38103
Fax: (901) 577-0737
with a copy to: Baker, Donelson, Bearman & Caldwell, P.C.
165 Madison Avenue
Memphis, Tennessee 38103
Attn: Desiree M. Franklin
Fax: (901) 577-0730
if to PictureWorks: Donald Strickland
President and Chief Executive Officer
PictureWorks Technology, Inc.
649 San Ramon Valley Blvd.
Danville, California 94526
Fax: (408) 741-4981
Stan Fry
69 Pine Street
Peterborough, New Hampshire 03458
Fax: (603) 924-8473
with a copy to: Latham & Watkins
135 Commonwealth Drive
Menlo Park, California 94025
Attn: Tony Richmond
Fax: (650) 463-2600
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
SECTION 9.4. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to the principles of conflicts of law thereof. Each party irrevocably and
unconditionally (i) agrees that any suit, action or legal proceeding arising out
of or relating to this Agreement shall be brought in the courts of record in the
State of California in Santa Clara County, or, if applicable, the federal
district court serving Santa Clara County, California, and that any ADR
Procedure commenced as to any claim or controversy arising out of or relating to
this Agreement shall take Santa Clara County, California, (ii) consents to the
jurisdiction of each such court in any suit, action or proceeding, and (iii)
waives any objection which it may have to the laying of venue of any such ADR
Procedure in Santa Clara County, California, and of any action or proceeding in
any of such courts.
50
<PAGE> 56
SECTION 9.5. Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION 9.6. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and its successors and
permitted assigns nothing in this Agreement, express or implied, is intended to
or shall confer upon any other person any rights, benefits or remedies of any
nature whatsoever under or by reason of this Agreement, except as set forth in
Sections 1.10, 1.11, 5.10 and 5.13.
SECTION 9.7. Certain Definitions. For the purposes of this Agreement,
the term:
(a) "AFFILIATE" means (except as otherwise provided in Sections
2.20, 3.20 and 4.13) a person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with, the
first mentioned person;
(b) "BUSINESS DAY" means any day other than a day on which NASDAQ
is closed;
(c) "CAPITAL STOCK" means common stock, preferred stock,
partnership interests, limited liability company interests or other ownership
interests entitling the holder thereof to vote with respect to matters involving
the issuer thereof;
(d) "KNOWLEDGE" or "KNOWN" means, with respect to any matter in
question, if an executive officer of iPIX or PictureWorks or their respective
subsidiaries, as the case may be, has actual knowledge of such matter;
(e) "PERSON" means an individual, corporation, partnership,
limited liability company, association, trust, unincorporated organization or
other legal entity; and
(f) "SUBSIDIARY" or "SUBSIDIARIES" of iPIX, PictureWorks or any
other person, means any corporation, partnership, limited liability company,
association, trust, unincorporated association or other legal entity of which
iPIX, PictureWorks or any such other person, as the case may be (either alone or
through or together with any other subsidiary), owns, directly or indirectly,
50% or more of the capital stock, the holders of which are generally entitled to
vote for the election of the board of directors or other governing body of such
corporation or other legal entity.
SECTION 9.8. Personal Liability. This Agreement shall not create or be
deemed to create or permit any personal liability or obligation on the part of
any direct or indirect stockholder of iPIX, PictureWorks or Purple Sub or any
officer, director, employee, agent, representative or investor of any party
hereto.
SECTION 9.9. Specific Performance. The parties hereby acknowledge and
agree that the failure of either party to perform its agreements and covenants
hereunder, including its failure to take all actions as are necessary on its
part to the consummation of the Merger, will cause irreparable injury to the
other parties for which damages, even if available, will not be
51
<PAGE> 57
an adequate remedy. Accordingly, each party hereby consents to the issuance of
injunctive relief by any court of competent jurisdiction to compel performance
of such party's obligations and to the granting by any court of the remedy of
specific performance of its obligations hereunder.
SECTION 9.10. Severability. If any one or more of the provisions
contained in this Agreement shall for any reason be held invalid, illegal or
unenforceable for any reason, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, which shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein. It is the intention of the parties that if any provision of
this Agreement is capable of two constructions, one of which would render the
provision void and the other of which would render the provision valid, then the
provision shall have the meaning which renders it valid.
SECTION 9.11. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
52
<PAGE> 58
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed on its behalf as of the day and year first above written.
PICTUREWORKS TECHNOLOGY, INC.
By: /s/ Donald Strickland
---------------------------------------------
Donald Strickland
President and Chief Executive Officer
INTERNET PICTURES CORPORATION
By: /s/ James M. Phillips
---------------------------------------------
James M. Phillips
Chairman and Chief Executive Officer
PURPLE SUB, INC.
By: /s/ Matthew S. Heiter
---------------------------------------------
Name: Matthew S. Heiter
---------------------------------------
Title: Vice President
---------------------------------------
53
<PAGE> 1
EXHIBIT 2.2
STOCKHOLDER SUPPORT AGREEMENT
<PAGE> 2
STOCKHOLDER SUPPORT AGREEMENT
STOCKHOLDER SUPPORT AGREEMENT, dated as of March 6, 2000 (this
"Agreement"), by the stockholders listed on the signature page(s) hereto
(collectively, "Stockholders" and each individually, a "Stockholder") to and
for the benefit of, Internet Pictures Corporation, a Delaware corporation
("Parent"). Capitalized terms used and not otherwise defined herein shall have
the respective meanings assigned to them in the Merger Agreement referred to
below.
WHEREAS, as of the date hereof, each Stockholder is the record and
beneficial owner of the number of shares of capital stock of PictureWorks
Technology, Inc, a Delaware corporation (the "Company"), as set forth on
Schedule I hereto (or any other voting or equity of securities of the Company
hereafter acquired by any Stockholder prior to the termination of this
Agreement, whether upon the exercise of warrants, options, conversion of
convertible securities or otherwise, being referred to herein collectively as
the "Shares");
WHEREAS, concurrently with the execution of this Agreement, Parent, a
wholly-owned subsidiary of Parent ("Merger Sub") and the Company are entering
into an Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"), pursuant to which, upon the terms and subject to the conditions
thereof, Merger Sub will be merged with and into the Company, and the Company
will be the surviving corporation (the "Merger"); and
WHEREAS, as a condition to the willingness of the Company and Parent
to enter into the Merger Agreement, Parent has requested that the Stockholders
agree, and in order to induce Parent to enter into the Merger Agreement, the
Stockholders are willing to agree to vote in favor of adopting the Merger
Agreement and approving the Merger, upon the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereby agree, severally and not jointly, as follows:
Section 1. Voting of Shares. Each Stockholder covenants and agrees
that until the termination of this Agreement in accordance with the terms
hereof, at the meeting of the stockholders of the Company called to approve the
Merger, however called, and in any action by written consent of the
stockholders of the Company, such Stockholder will vote, or cause to be voted,
all of his, her or its respective Shares in favor of (a) the adoption of the
Merger Agreement and approval of the Merger contemplated by the Merger
Agreement, as the Merger Agreement may be modified or amended from time to time
in a manner not adverse to the Stockholders and (b) any other matters necessary
to the consummation of the transactions contemplated by the Merger Agreement.
Section 2. Transfer of Shares. Each Stockholder covenants and agrees
that such Stockholder will not directly or indirectly, (a) offer to sell, sell,
assign, transfer (including by merger, testamentary disposition, interspousal
disposition pursuant to a domestic relations proceeding or otherwise by
operation of law), pledge, encumber or
<PAGE> 3
otherwise dispose of any of the Shares, (b) deposit any of the Shares into a
voting trust or enter into a voting agreement or arrangement with respect to
the Shares or grant any proxy or power of attorney with respect thereto which
is inconsistent with this Agreement or (c) enter into any contract, option or
other arrangement or undertaking with respect to the direct or indirect sale,
assignment, transfer (including by merger, testamentary disposition,
interspousal disposition pursuant to a domestic relations proceeding or
otherwise by operation of law) or other disposition of any Shares.
Section 3. Representations and Warranties of the Stockholders. Each
Stockholder on its own behalf hereby represents and warrants to Parent with
respect to itself and its or her ownership of the Shares as follows:
(a) Ownership of Shares. On the date hereof, the Shares are owned
beneficially by Stockholder or its nominee. Stockholder is the sole record and
beneficial owner of, and has good title to, all of the Shares, and there exist
no restrictions on transfer, options, proxies, voting agreements, voting trusts
or liens affecting said Shares, except as imposed by law. Stockholder has the
power to vote, without restrictions, with respect to all of the Shares.
(b) Power, Binding Agreement. Stockholder has the legal capacity,
power and authority to enter into and perform all of its obligations under this
Agreement. The execution, delivery and performance of this Agreement by
Stockholder will not violate any material agreement to which Stockholder is a
party, including, without limitation, any voting agreement, stockholders'
agreement, partnership agreement or voting trust. The execution, delivery and
performance of the Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by Stockholder and no
other actions on the part of Stockholder are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by Stockholder and constitutes
a valid and binding obligation of Stockholder, enforceable against Stockholder
in accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and subject, as to enforceability, to
general principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
Section 4. Termination. This Agreement shall terminate upon the
earliest to occur of (i) the Effective Time (as such term is defined in the
Merger Agreement) or (ii) any termination of the Merger Agreement in accordance
with the terms thereof.
Section 5. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
Section 6. Fiduciary Duties. Each Stockholder is signing this
Agreement solely in such Stockholder's capacity as an owner of his, her or its
respective Shares, and
<PAGE> 4
nothing herein shall prohibit, prevent or preclude such Stockholder from taking
or not taking any action in his or her capacity as an officer or director of
the Company, to the extent permitted by the Merger Agreement.
Section 7. Miscellaneous.
(a) Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings, both written and oral,
between the parties with respect thereto. This Agreement may not be amended,
modified or rescinded except by an instrument in writing signed by each of the
parties hereto.
(b) Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible to the fullest
extent permitted by applicable law in a mutually acceptable manner in order
that the terms of this Agreement remain as originally contemplated to the
fullest extent possible.
(c) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware without regard to the
principles of conflicts of law thereof.
(d) Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original and all of which together shall constitute
one and the same instrument.
(Signature pages follow)
<PAGE> 5
IN WITNESS WHEREOF, each of the parties hereto has caused this
Stockholder Support Agreement to be signed individually or by its respective
duly authorized officer as of the date first written above.
INTERNET PICTURES CORPORATION
By: /s/ James M. Phillips
--------------------------------------------
Name: James M. Phillips
Title: Chairman and Chief Executive Officer
STOCKHOLDERS:
SARNOFF CORPORATION, As Sarnoff, a Proxy Holder
for other VideoBrush Stockholders (Series D)
By: /s/ Anne M. VanLent
--------------------------------------------
Anne M. VanLent
WESTON PRESIDIO CAPITAL II, LP
By: /s/ Thomas A. Patterson
--------------------------------------------
Thomas A. Patterson
BATTERY VENTURES III, LP, by Battery Partners III,
LP
By: /s/ Oliver D. Curme
--------------------------------------------
Oliver D. Curme, General Partner
WOODHAVEN VENTURE PARTNERS, LP
By: /s/ Edward D. Herrick
--------------------------------------------
Edward D. Herrick
WOODHAVEN VENTURE PARTNERS II, LP
By: /s/ Edward D. Herrick
--------------------------------------------
Edward D. Herrick
/s/ Stanley B. Fry
--------------------------------------------
Stanley B. Fry
<PAGE> 1
EXHIBIT 2.3
FUNDING OBLIGATION AGREEMENT
<PAGE> 2
FUNDING OBLIGATION AGREEMENT
This FUNDING OBLIGATION AGREEMENT (the "Agreement") is dated as of
March 6, 2000, by and between PictureWorks Technology, Inc., a Delaware
corporation ("PictureWorks"), Internet Pictures Corporation, a Delaware
corporation ("iPIX"), and First Tennessee Bank National Association, as the
Escrow Agent (the "Escrow Agent").
Recitals:
A. PictureWorks, iPIX and a wholly-owned subsidiary of iPIX are
parties to that certain Agreement and Plan of Merger, of even
date herewith, which provides for the execution and delivery
of this Agreement by the parties to the Merger Agreement.
B. In connection with its execution of the Merger Agreement,
PictureWorks has discontinued pending fundraising efforts
and, therefore, has required as a material element of its
decision to enter into the Merger Agreement that iPIX provide
a funding commitment to PictureWorks in the amount of up to
$7.0 million.
C. Upon the terms and subject to the conditions set forth in
this Agreement, iPIX agrees to provide up to $7.0 million of
funding to PictureWorks.
Agreement:
NOW, THEREFORE, as a material inducement to PictureWorks to enter into
the Merger Agreement, and for other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties hereby agree
as follows:
1. Defined Terms. Capitalized terms used in this Agreement without
definition shall have the meanings ascribed to them in the Merger Agreement. In
addition, the following terms shall have the following defined terms for
purposes of this Agreement:
"Drawing Certificate" shall mean a written document executed on behalf
of PictureWorks by its Chief Executive Officer and certifying compliance with
the Funding Conditions imposed by this Agreement.
"Escrow Agent" shall mean First Tennessee Bank National Association.
<PAGE> 3
"Escrow Balance" or "Escrow Funds" shall mean, as of any given date,
the Initial Escrow Funds minus the cumulative total of the amounts specified in
all Funding Requests granted prior to such given date.
"Escrow Termination Date" shall mean the earliest to occur of (i) the
Closing Date as defined in the Merger Agreement, (ii) the date which is six
months from the date hereof and (iii) the date of any Adverse Final Order.
"Funding Request" shall mean a written request to the Escrow Agent to
release to PictureWorks funds in an amount not to exceed the Escrow Balance in
effect as of the date of the Funding Request and otherwise in accordance with
the terms of this Agreement.
"Initial Escrow Funds" shall mean $7.0 million in cash.
"Prime Rate" shall mean the prime rate (or similar successor reference
rate) as published by Bank of America NT & SA from time to time.
2. Funding of Escrow. Contemporaneous with the execution of this
Agreement, iPIX shall deliver to the Escrow Agent the Initial Escrow Funds by
wire transfer of immediately available funds.
3. Funding Obligation.
(a) General. From and after the termination of the Merger Agreement
prior to the occurrence of the Effective Time thereunder, and until the Escrow
Termination Date, PictureWorks may draw funds from the Escrow Balance at any
time or from time to time by delivering to the Escrow Agent, with a copy to
iPIX, a duly executed Drawing Certificate which reasonably demonstrates that
each of the following conditions (the "Funding Conditions") have been
satisfied:
(i) The Merger Agreement has terminated for any reason
whatsoever (whether by breach, the passage of the termination date or
otherwise).
(ii) The Escrow Agent has received a Drawing Certificate from
PictureWorks.
(iii) PictureWorks has provided documentary evidence to the
Escrow Agent that PictureWorks has received new capital funding from
another party or parties in an amount at least equal to the amount
being requested in the relevant Drawing Certificate (the "Matching
Funding").
(iv) PictureWorks shall have concurrently delivered to the
Escrow Agent securities, promissory notes or other consideration
having the same terms and provisions as the securities, promissory
notes or other consideration as was provided to the purchasers in the
Matching Funding (the "Matching Securities"). The Matching Securities
will be registered in the name of iPIX and shall feature the same
terms, conditions and benefits as are contained in the other
securities of the same class or series issued in the related Matching
Funding and iPIX will become a
<PAGE> 4
counterparty to any related documentation (the "Transaction
Documentation") that was also signed by the other purchasers (e.g.,
securities purchase agreement, investor's rights agreement and the
like) and provide signature pages to such documents. Upon receipt of
the Matching Securities and release of the funds specified in the
Drawing Certificate to PictureWorks, such securities will promptly be
delivered by the Escrow Agent to iPIX.
(v) the Escrow Agent shall be reasonably satisfied that
subclauses (i), (ii), (iii) and (iv) have been complied with.
(b) Obligation to Release Funds. If the Funding Conditions are met,
the Escrow Agent shall immediately (and in any event within one business day of
such event) release the funds (as a wire transfer of immediately available
federal funds) specified in the Funding Request to PictureWorks in the manner
specified in the Funding Certificate. This obligation to release the funds is
conditioned only upon satisfaction of the Funding Conditions and iPIX shall
take no action to interfere or otherwise prevent the proper release of Escrow
Funds to PictureWorks hereunder.
(c) Clarification for Escrow Agent. If pursuant to subclause (v)
above, the Escrow Agent is dissatisfied with any documentation, it shall
provide written notice thereof to PictureWorks with a copy to iPIX within three
business days of receipt of the Drawing Certificate, which notice shall
expressly state the basis for its objection.
4. Disputes Relating to Merger Agreement. With regard to disputes
between iPIX and PictureWorks as to the cause of or liability for the
termination of the Merger Agreement, iPIX and PictureWorks further agree, as
between themselves and without recourse to the Escrow Agent, as follows:
(a) Final Order; Right to Compel Repurchase. If an ultimate
adjudication of the dispute results in a final order (the "Adverse Final
Order") finding (i) a material breach by PictureWorks of its representations,
warranties, covenants or obligations under the Merger Agreement, or (ii) a
material adverse change in the business, financial or management condition of
PictureWorks which event would have permitted iPIX to terminate the Merger
Agreement, then PictureWorks shall, not later than 90 days from the date of
such final adjudication, repurchase all securities issued to iPIX pursuant to
all previously granted Funding Requests at a price equal to the amount of money
specified in each relevant Funding Request, unless iPIX irrevocably waives such
obligation in writing. Any such waiver shall be delivered to PictureWorks not
later than thirty (30) days from the date of such Adverse Final Order. In
addition, in the event that PictureWorks is obligated to return funds pursuant
to this section, PictureWorks shall pay interest on the funds returned to iPIX,
calculated from the day of drawdown to the day of return at an interest rate
equal to the Prime Rate plus 2.00% for such period. Such interest will be
payable at the time the funds are returned. This right to receive the
repurchase price, plus interest as set forth herein, is personal to iPIX and
may not be assigned, transferred or exercised by any other person, it being
expressly understood that such right shall terminate if iPIX transfers the
related Matching Securities to any other Person except for a wholly-owned
subsidiary of iPIX (which must continue to be a wholly-owned subsidiary at the
time of repurchase).
<PAGE> 5
(b) Breach by iPIX. If the termination of the Merger Agreement is due
to (i) a breach by iPIX of its representations, warranties, covenants and
obligations under the Definitive Agreement, or (ii) a material adverse change
in the business, financial or management condition of iPIX, or (iii) the
termination date contained in the Merger Agreement is reached without the
transaction being completed (for other than any reason set forth in Section
4(a)), then PictureWorks will be not be obligated to return to iPIX funds
received pursuant to any Funding Requests except as may be provided for in the
related Matching Securities.
(c) Other Claims. Notwithstanding the foregoing, PictureWorks and iPIX
shall be free to pursue other claims against each other (including damages)
related to any termination of the Merger Agreement prior to the occurrence of
the Effective Time.
5. Terms of the Escrow. With respect to any cash or cash equivalents
held in the Escrow Account from time to time (and the investment thereof, as
provided above):
(a) Investment and Segregation of Escrow Funds. The Escrow Agent shall
hold and safeguard the Escrow Funds during the term of this Agreement and not
as the property of iPIX and shall hold and dispose of the Escrow Funds only in
accordance with the terms of this Agreement. Such funds shall be invested
solely in interest bearing U. S. Treasury money market or similar highly liquid
accounts approved by iPIX and PictureWorks (such approval not to be
unreasonably withheld). All interest shall be payable to iPIX, which shall also
be responsible for any investment losses.
(b) Tax Reporting. For tax reporting purposes, all interest or other
income earned from the investment of the Escrow Funds in any tax year shall be
reported as allocable to iPIX.
(c) Certification of Taxpayer Identification Number. iPIX shall
provide a certified tax identification number by signing and returning a Form
W-9 to the Escrow Agent prior to the earlier of 30 days after the date of this
Agreement. iPIX understands that, in the event its tax identification number is
not certified to the Escrow Agent, the Internal Revenue Code, as amended from
time to time, may require the withholding of a portion of any interest or other
income earned on the investment of the Escrow Funds.
(d) Tax Indemnification. iPIX agrees (i) to assume any and all
obligations imposed now or hereafter by any applicable tax law with respect to
any payment or distribution of the Escrow Funds or performance of other
activities under this Agreement, withholding and other taxes, assessments or
other governmental reporting that may be required under any laws or regulations
that may be applicable in connection with its acting as Escrow Agent under this
Agreement, (ii) to instruct the Escrow Agent in writing with respect to the
Escrow Agent's responsibility for withholding and other taxes, assessments or
other governmental charges, and to instruct the Escrow Agent with respect to
any certifications and governmental reporting that may be required under any
laws or regulations that may be applicable in connection with its acting as
Escrow Agent under this Agreement and (iii) to indemnify and hold the Escrow
Agent harmless from any liability or obligation on account of taxes,
assessments, additions for late payment, interest, penalties, expenses and
other
<PAGE> 6
governmental charges that may be assessed or asserted against the Escrow Agent
in connection with or relating to any payment made or other activities
performed under the terms of this Agreement, including without limitation any
liability for the withholding or deduction of (or the failure to withhold or
deduct) the same, and any liability for failure to obtain proper certifications
or to report properly to governmental authorities in connection with this
Agreement, including costs and expenses (including reasonable legal fees and
expenses), interest and penalties. The foregoing indemnification and agreement
to hold harmless shall survive the termination of this Agreement.
6. Fees and Expenses of Escrow Agent. IPIX agrees to (i) to pay or
reimburse the Escrow Agent for its attorney's fees and expenses incurred in
connection with the preparation of this Agreement, (ii) to pay the annual
escrow fee in accordance with the fee schedule set forth on Attachment B and
(iii) to pay any reasonable legal fees and expenses incurred by the Escrow
Agent in connection with resolution of any claim by any party hereunder.
7. Limitation of Escrow Agent's Liability.
(a) General. The Escrow Agent shall incur no liability with respect to
any action taken or suffered by it in reliance upon any notice, direction,
instruction (including without limitation wire transfer instructions), consent,
statement or other documents believed by it to be genuine and duly authorized,
nor for other action or inaction except its own willful misconduct or gross
negligence. The Escrow Agent shall not be responsible for the validity or
sufficiency of this Agreement. In all questions arising under the Escrow
Agreement, the Escrow Agent may rely on the advice of counsel (which may
include in-house counsel), and the Escrow Agent shall not be liable to anyone
for anything done, omitted or suffered in good faith by the Escrow Agent based
on such advice. The Escrow Agent shall not be required to take any action
hereunder involving any expense unless the payment of such expense is made or
provided for in a manner reasonably satisfactory to it. In no event shall the
Escrow Agent be liable for indirect, punitive, special or consequential
damages.
(b) Indemnity of the Escrow Agent. IPIX and PictureWorks agree,
jointly and severally, to indemnify the Escrow Agent for, and hold it harmless
against, any loss, liability or expense (including, without limitation,
attorneys fees and expenses) incurred without gross negligence or willful
misconduct on the part of Escrow Agent, arising out of or in connection with
its appointment hereunder on the carrying out of its duties hereunder. As among
themselves, IPIX, on the one hand, and PictureWorks, on the other hand, shall
each be liable for one-half of such amounts. The foregoing indemnification and
agreements to hold harmless shall survive the termination of this Agreement.
(c) Certain Acknowledgements. Each of IPIX and PictureWorks
acknowledges and agrees that the Escrow Agent (i) shall not be responsible for
any of the agreements referred to or described herein (including without
limitation the Merger Agreement), or for determining or compelling compliance
therewith, and shall not otherwise be bound thereby, and (ii) shall be
obligated only for the performance of such duties as are expressly and
specifically set forth in this Escrow Agreement on its part to be performed,
and no implied duties or obligations of any kind shall be read into this
Agreement against or on the part of the Escrow Agent.
<PAGE> 7
8. Termination. This Agreement shall terminate upon the distribution
by the Escrow Agent of all of the Escrow Funds in accordance with this
Agreement; provided that the provisions of Section 7 shall survive such
termination.
9. Notices. All notices, instructions and other communications given
hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent either (i) by registered or
certified mail, return receipt requested, postage prepaid, or (ii) via a
reputable nationwide overnight courier service, in each case to the address set
forth below. Any such notice, instruction or communication shall be deemed to
have been delivered two business days after it is sent by registered or
certified mail, return receipt requested, postage prepaid, or one business day
after it is sent via a reputable nationwide overnight courier service;
provided, however, that in no event shall any notice, instruction or
communication be deemed to have been received by the Escrow Agent unless and
until actually received by it.
If to IPIX: Internet Pictures Corporation
Attention: James M. Phillips,
Chairman and Chief Executive Officer
1009 Commerce Park Drive
Oak Ridge, Tennessee 37830
Fax: (423) 482-6755
with copies to:
Internet Pictures Corporation
Attention: Matthew S. Heiter, Esq.,
General Counsel and Corporate Secretary
165 Madison Avenue
Memphis, Tennessee 38103
Fax: (901) 577-0737
and
Baker, Donelson, Bearman & Caldwell, P.C.
Attention: Desiree M. Franklin, Esq.
165 Madison Avenue, Suite 2000
Memphis, Tennessee 38103
Fax: (901) 577-0730
<PAGE> 8
If to PictureWorks:
PictureWorks Technology, Inc.
Attention: Donald W. Strickland,
President and Chief Executive Officer
649 San Ramon Valley Blvd.
Danville, California 94526
Fax: (408) 741-4981
and
Stanley B. Fry
69 Pine Street
Peterborough, New Hampshire 03458
Fax: (603) 924-8473
with a copy to:
Latham & Watkins
Attention: Anthony J. Richmond, Esq.
135 Commonwealth Drive
Menlo Park, California 94025
Fax: (650) 463-2600
If to the Escrow Agent:
First Tennessee Bank National Association
Attention: Dennis D. Gillespie
4385 Poplar Avenue
Memphis, Tennessee 38117
Fax: (901) 681-2450
Any party may give any notice, instruction or communication in
connection with this Agreement using any other means (including personal
delivery, telecopy, electronic mail or ordinary mail), but no such notice,
instruction or communication shall be deemed to have been delivered unless and
until it is actually received by the party to whom it was sent. Any party may
change the address to which notices, instructions or communications are to be
delivered by giving the other parties to this Agreement notice thereof in the
manner set forth in this Section 9.
10. Successor Escrow Agent. In the event the Escrow Agent becomes
unavailable or unwilling to continue in its capacity herewith, the Escrow Agent
may resign and be discharged from its duties or obligations hereunder by
delivering a resignation to the parties to this Escrow Agreement, not less than
60 days prior to the date when such resignation shall take effect. IPIX may
appoint a successor Escrow Agent without the consent of PictureWorks so long as
such successor is a bank with assets of at least $500 million, and may appoint
any other successor Escrow Agent with the consent of PictureWorks, which shall
not be
<PAGE> 9
unreasonably withheld. If, within such notice period, IPIX provides to the
Escrow Agent written instructions with respect to the appointment of a
successor Escrow Agent and directions for the transfer of any Escrow Funds then
held by the Escrow Agent to such successor, the Escrow Agent shall act in
accordance with such instructions and promptly transfer such Escrow Funds to
such designated successor. If no successor Escrow Agent is named as provided in
this Section 10 prior to the date on which the resignation of the Escrow Agent
is to properly take effect, the Escrow Agent may apply to a court of competent
jurisdiction for appointment of a successor Escrow Agent.
11. General.
(a) Governing Law; Assigns. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware without
regard to conflict-of-law principles and shall be binding upon, and inure to
the benefit of, the parties hereto and their respective successors and assigns.
Each party irrevocably and unconditionally (i) agrees that any suit, action or
legal proceeding arising out of or relating to this Agreement shall be brought
in the courts of record of the State of California in Santa Clara County, or,
if applicable, the federal district court serving Santa Clara County,
California, and that any ADR Procedure (as defined in the Merger Agreement)
shall be brought in Santa Clara County, California, (ii) consents to the
jurisdiction of each such court in any suit, action or proceeding, and (iii)
waives any objection which it may have to the laying of venue of any such ADR
Procedure in Santa Clara County, California and of any such suit, action or
proceeding in any of such courts.
(b) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(c) Entire Agreement. Except for those provisions of the Merger
Agreement referenced herein, this Agreement constitutes the entire
understanding and agreement of the parties with respect to the subject matter
of this Agreement and supersedes all prior agreements or understandings,
written or oral, between the parties with respect to the subject matter hereof.
(d) Waivers. No waiver by any party hereto of any condition or of any
breach of any provision of this Escrow Agreement shall be effective unless in
writing. No waiver by any party of any such condition or breach, in any one
instance, shall be deemed to be a further or continuing waiver of any such
condition or breach or a waiver of any other condition or breach of any other
provision contained herein.
(e) Amendment. This Agreement may be amended only with the written
consent of IPIX, PictureWorks and the Escrow Agent.
(f) Dispute Resolution. It is understood and agreed that should any
dispute arise with respect to the delivery, ownership, right of possession,
and/or disposition of the Escrow Funds, or should any claim be made upon the
Escrow Agent or the Escrow
<PAGE> 10
Funds by a third party, the Escrow Agent upon receipt of notice of such dispute
or claim is authorized and shall be entitled (at its sole option and election)
to retain in its possession without liability to anyone, all or any of the
Escrow Funds until such dispute shall have been settled either by the mutual
written agreement of the parties involved or by a final order, decree or
judgment of a court in the United States of America, the time for perfection of
an appeal of such order, decree or judgment having expired. The Escrow Agent
may, but shall be under no duty whatsoever to, institute or defend any legal
proceedings which relate to Escrow Funds.
(g) Binding Effect. This Agreement shall be binding upon the
respective parties hereto and their heirs, executors, successors and assigns.
(Remainder of page intentionally left blank)
<PAGE> 11
IN WITNESS WHEREOF, the parties have caused this Funding Obligation
Agreement to be duly executed and delivered as of the date first set forth
above.
PICTUREWORKS TECHNOLOGY, INC.
By /s/ Donald Strickland
-----------------------------------------
Donald Strickland
Chief Executive Officer
INTERNET PICTURES CORPORATION
By /s/ James M. Phillips
-----------------------------------------
James M. Phillips
Chairman and Chief Executive Officer
FIRST TENNESSEE BANK NATIONAL ASSOCIATION
By /s/ Dennis D. Gillespie
-----------------------------------------
Dennis D. Gillespie
Vice President
Corporate Trust Department
<PAGE> 1
Editorial Contacts: EXHIBIT 99.1
Corey Cutler/Peter Molineaux
Media: Eileen King/Emily Brunner
Morgen-Walke Associates, Inc.
(212) 850-5600
Ed Lewis
iPIX
(423) 482-3000
[email protected]
Stu Roberson
PictureWorks Technology
(925) 855-2001 x181
[email protected]
IPIX TO ACQUIRE PICTUREWORKS TECHNOLOGY, INC. TO FORM END-
TO-END INTERNET IMAGING SOLUTIONS COMPANY
$175 Million Acquisition to Create Industry Leader in B2B and B2C Visual
Content Infrastructure--Building the "Imaging Infranet" to Drive E-commerce
OAK RIDGE, Tenn. and PALO ALTO, Calif. (3/8/00)--Internet Pictures Corporation
(Nasdaq: IPIX, "iPIX"), a leader in visual content infrastructure solutions for
the Internet, and PictureWorks Technology, a leader in digital media solutions
which enable end-users to easily publish still photos and other rich media
content to the Web, announced today that they have signed a definitive
agreement for iPIX to acquire PictureWorks in a stock-for-stock transaction
valued at approximately $175 million. The combined companies and their
technologies will create the first "Imaging Infranet," an extensive global
infrastructure of services, networks, and content delivery systems for visual
content. This combination of robust infrastructure and services will make iPIX
the choice for one-stop Internet imaging solutions in the real estate,
e-retail, travel, publishing, entertainment, consumer online auctions,
architecture/engineering/construction and insurance markets.
Upon closing, this acquisition will position iPIX as the only end-to-end
provider of visual content solutions including:
- Full-service virtual tours provided by iPIX's photographer
network
- Self-service 360 by 360 degree virtual tours using iPIX
camera kits
- Instant publishing of still photos to Web sites using
PictureWorks' Rimfire solution
- iPIX interactive WebCams
- iPIX Movies
- Transformation and enhancement (watermarking, annotation,
PhotoMovies(TM), SurroundView(TM), etc.) of user-supplied
images using Rimfire
- Visual content hosting and distribution to leading Web sites
across the Internet
"By combining with PictureWorks, we will create the leading provider of visual
content solutions for e-commerce applications on the Internet," said Jim
Phillips, chairman and CEO of iPIX. "PictureWorks' industry leading technology
and proven track record, together with iPIX's innovative technology and global
visual content infrastructure, will create a winning and complementary imaging
solution. This merger will solidify iPIX's position as the leader in imaging
for the Internet and will provide our B2B and B2C customers with the most
comprehensive, end-to-end content acquisition and delivery solution in the
market today."
Under terms of the agreement, iPIX will acquire all of the outstanding shares
of PictureWorks stock in exchange for iPIX common stock. iPIX will issue
5,367,670 shares of iPIX Common Stock to the PictureWorks stockholders. The
agreement provides that if the average closing price of iPIX Common
<PAGE> 2
Stock is more than $37.06, then the PictureWorks stockholders will receive
4,668,106 shares of iPIX Common Stock, and if the average price of iPIX Common
Stock is less than $27.39, then the PictureWorks stockholders will receive
6,240,981 shares of iPIX Common Stock. The merger will be effected on a
tax-free basis to iPIX stockholders and will be accounted for as a purchase.
The acquisition is subject to certain closing conditions and is expected to
close during March 2000.
The combined companies will continue to extend their highly scalable `Imaging
Infranet' solutions by leveraging relationships with Akamai and Exodus, and
will support emerging streaming media formats and all leading digital camera
manufacturers including Kodak, Nikon, Olympus, Epson, and Sony. The companies
will have over 1,000 customers, including AOL, Homestore.com, Discovery.com,
Microsoft, CNN, General Motors, IBM, NBC, Travelocity, Disney, Viacom, ADP,
Auctions.com and Polaroid plus a network of more than 500 iPIX photographers
covering over 5,500 cities around the globe.
NEW MARKET OPPORTUNITIES IN AUCTIONS, A/E/C AND INSURANCE
iPIX, which provides imaging solutions for e-commerce applications, will
combine its visual content infrastructure with PictureWorks' Rimfire Internet
media services and infrastructure. PictureWorks' Rimfire services will enable
iPIX to capture media including still photos, sound, audio and video directly
from end-users and host and distribute it using iPIX's back-end content
distribution and management system. This acquisition allows iPIX to enhance its
offering to the real estate industry as well as new markets requiring
large-scale visual content management including consumer online auctions,
architecture/engineering/construction and insurance.
"PictureWorks and iPIX are rapidly building market share and penetration of
their Internet imaging solutions," said Alexis Gerard, president of digital
imaging advisors, Future Image. "The combined services and visual content
infrastructure of the two companies provides a complete turnkey Internet imaging
solution for numerous markets, including real estate, insurance, travel, and
auctions. That includes a full service photographer network, and do-it-yourself
support for the over ten million digital camera owners using the Internet today.
This is a combination that will be hard for competitors to match."
By acquiring PictureWorks, iPIX believes it will be best positioned in the
market to offer B2B and B2C imaging Infranet solutions to leading e-commerce
providers. With the addition of PictureWorks' services and infrastructure to
iPIX's visual content infrastructure, iPIX adds easy-to-use media collection
and transformation services that allow e-commerce sites to deploy large-scale
online visual content. Using a content management solution from the combined
companies, consumers can drag and drop still photos and other user-created
media including sound, audio and video into a Web based client/server solution
that collects, formats and distributes the data.
"By joining forces with an organization of iPIX's caliber, we can truly empower
businesses with the broadest range of visual content solutions and
infrastructure available. Our combined company will create the de facto standard
for B2B and B2C imaging technologies and services for the Internet," said Don
Strickland, CEO of PictureWorks Technologies. "The benefit to our combined and
future customers is one-stop outsourcing of all imaging requirements for the
Internet."
This acquisition allows iPIX to enhance its offering to the real estate industry
with still photo submission, management and distribution in addition to the iPIX
Virtual Tour. Homestore.com recently selected PictureWorks' Rimfire solution to
provide "Instant Photo Submission" for adding multiple photos to real estate
listings. Using Rimfire, real estate professionals have the ability to instantly
and easily enhance their property listings with additional photos. It allows the
simple drag and drop of images from any digital camera, scanner, CD, or floppy
disk directly into the Rimfire-enabled Web page. Rimfire automatically previews,
resizes and formats the photos, saving time for the user.
THE `IMAGING INFRANET'
"With the acquisition of PictureWorks, iPIX is positioned to be a leading
provider of B2B imaging for the Internet," said Kristy Holch, principal,
InfoTrends Research Group. "The addition of Rimfire to iPIX's end-to-end visual
content infrastructure will provide businesses robust, easy-to-use and highly
scaleable imaging solutions for e-commerce applications."
<PAGE> 3
The combined companies offer an end-to-end visual content infrastructure:
- - Visual Content Capture and Processing - Meeting business and consumer
demand for full-service and do-it-yourself imaging solutions, the
combined company provides the easiest to use content creation tools
and applications in addition to a global network of photographers
covering over 5,500 cities around the world and full service image
processing centers.
- - Visual Content Management and Hosting - Integrating PictureWorks
Rimfire, an industry leading drag-and-drop media submission,
management and delivery infrastructure with iPIX's advanced visual
content hosting solution provides businesses and consumers a high
performance and scaleable digital media management infrastructure.
- - Visual Content Distribution - Offering the broadest range of
end-to-end visual content solutions, iPIX seamlessly distributes
visual content to many of the Internet's most trafficked sites and
iPIX View Always technology enables users to view images on multiple
platforms from personal computers to wireless, handheld devices.
The company's headquarters will remain in Oak Ridge, Tennessee and Palo Alto,
California, and will include offices in Atlanta, Chicago, Danville, London, Los
Angeles, New York, and Tokyo.
ABOUT IPIX
iPIX (NASDAQ: IPIX) provides global visual content infrastructure solutions for
leading e-commerce and new media Web sites. The iPIX end-to-end solutions
enable the creation, hosting and distribution of rich visual content to
thousands of Internet sites. A broad array of industries, including real
estate, e-retail, automotive, travel, publishing and entertainment are
capitalizing on iPIX visual content to give viewers more information, more
interaction and a richer online experience. The company is headquartered in Oak
Ridge, Tennessee with co-headquarters in Palo Alto, California
ABOUT PICTUREWORKS TECHNOLOGY
PictureWorks Technology, Inc. is an award-winning developer and marketer of
pioneering Internet imaging technologies. The company provides media
infrastructure and services to web sites requiring high volumes of
user-supplied content. Their Internet services make it easy for customers to
collect, transform, and deploy millions of media objects in just seconds.
PictureWorks currently markets its services to the online auctions, real
estate, classifieds, insurance and A/E/C industries. Founded in 1994,
PictureWorks is a privately held company headquartered in Danville, California.
###
IPIX, Interactive Pictures, iPIX, Internet Pictures and bamboo.com are
trademarks of Internet Pictures Corporation. Infranet(R) is the trademark of
Portal Software Inc.
This press release contains forward-looking information within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, and is subject to the safe harbors created by those
sections. Statements concerning the implementation of Internet Pictures
Corporation's services and the benefits expected to result from those services
constitute forward-looking statements and are based on current expectations.
Actual results may differ materially from those projected in the
forward-looking statements. Factors that could cause actual results to differ
include the failure of Internet Pictures Corporation to complete the merger,
and the failure to successfully integrate PictureWorks' business and operations
into its own. The matters discussed in this press release also involve risks
and uncertainties described from time to time in Internet Pictures
Corporation's filings with the Securities and Exchange Commission (SEC). In
particular, see "Risk Factors" in the proxy statement included in the
Registration Statement for bamboo.com, Inc. (now known as Internet Pictures
Corporation) on Form S-4 declared effective by the SEC on December 16, 1999
(www.sec.gov). <http://www.sec.gov>.
