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EXHIBIT 2.3
FUNDING OBLIGATION AGREEMENT
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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.
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"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
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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).
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(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
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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.
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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: Xxxxx X. Xxxxxxxx,
Chairman and Chief Executive Officer
0000 Xxxxxxxx Xxxx Xxxxx
Xxx Xxxxx, Xxxxxxxxx 00000
Fax: (000) 000-0000
with copies to:
Internet Pictures Corporation
Attention: Xxxxxxx X. Xxxxxx, Esq.,
General Counsel and Corporate Secretary
000 Xxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxx 00000
Fax: (000) 000-0000
and
Baker, Donelson, Bearman & Xxxxxxxx, P.C.
Attention: Xxxxxxx X. Xxxxxxxx, Esq.
000 Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxxx 00000
Fax: (000) 000-0000
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If to PictureWorks:
PictureWorks Technology, Inc.
Attention: Xxxxxx X. Xxxxxxxxxx,
President and Chief Executive Officer
000 Xxx Xxxxx Xxxxxx Xxxx.
Xxxxxxxx, Xxxxxxxxxx 00000
Fax: (000) 000-0000
and
Xxxxxxx X. Xxx
00 Xxxx Xxxxxx
Xxxxxxxxxxxx, Xxx Xxxxxxxxx 00000
Fax: (000) 000-0000
with a copy to:
Xxxxxx & Xxxxxxx
Attention: Xxxxxxx X. Xxxxxxxx, Esq.
000 Xxxxxxxxxxxx Xxxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
Fax: (000) 000-0000
If to the Escrow Agent:
First Tennessee Bank National Association
Attention: Xxxxxx X. Xxxxxxxxx
0000 Xxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxx 00000
Fax: (000) 000-0000
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
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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 Xxxxx County, or,
if applicable, the federal district court serving Santa Xxxxx County,
California, and that any ADR Procedure (as defined in the Merger Agreement)
shall be brought in Santa Xxxxx 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 Xxxxx 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
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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)
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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/ Xxxxxx Xxxxxxxxxx
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Xxxxxx Xxxxxxxxxx
Chief Executive Officer
INTERNET PICTURES CORPORATION
By /s/ Xxxxx X. Xxxxxxxx
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Xxxxx X. Xxxxxxxx
Chairman and Chief Executive Officer
FIRST TENNESSEE BANK NATIONAL ASSOCIATION
By /s/ Xxxxxx X. Xxxxxxxxx
-----------------------------------------
Xxxxxx X. Xxxxxxxxx
Vice President
Corporate Trust Department
