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                                                                    EXHIBIT 10.1

                          INTERNET PICTURES CORPORATION

                          REGISTRATION RIGHTS AGREEMENT

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                          INTERNET PICTURES CORPORATION

                          REGISTRATION RIGHTS AGREEMENT

         THIS REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT") is entered into as
of the 14th day of May, 2001, by and among INTERNET PICTURES CORPORATION, a
Delaware corporation (the "COMPANY") and IMAGE INVESTOR PORTFOLIO, a separate
series of MEMPHIS ANGELS, LLC, a Delaware limited liability company (the
"INVESTOR").

                                    RECITALS

         A. The Investor is purchasing a Promissory Note and Warrants which are
convertible and exercisable, respectively, into shares of the Company's Series B
Convertible Preferred Stock (the "SERIES B PREFERRED STOCK") pursuant to that
certain Securities Purchase Agreement (the "PURCHASE AGREEMENT") of even date
herewith (the "FINANCING");

         B. The Series B Preferred Stock is convertible into the Company's
Common Stock;

         C. The obligations in the Purchase Agreement are conditioned upon the
execution and delivery of this Agreement; and

         D. In connection with the consummation of the Financing, the parties
desire to enter into this Agreement in order to grant registration rights and
other rights to the Investors as set forth below.

         NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree hereto as follows:

SECTION 1. GENERAL.

         1.1 DEFINITIONS. As used in this Agreement the following terms shall
have the following respective meanings:

                  (a) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.

                  (b) "FORM S-3" means such form under the Securities Act as in
effect on the date hereof or any successor or similar registration form under
the Securities Act subsequently adopted by the SEC which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.

                  (c) "HOLDER" means any person owning of record Registrable
Securities that have not been sold to the public or any assignee of record of
such Registrable Securities in accordance with Section 2.11 hereof.

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                  (d) "PROMISSORY NOTE" shall mean that certain convertible
promissory note convertible into Series B Preferred Stock issued in connection
with the Purchase Agreement, dated as of the date hereof.

                  (e) "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement or document.

                  (f) "REGISTRABLE SECURITIES" means (a) Common Stock of the
Company issued or issuable upon conversion of the Shares and (b) any Common
Stock of the Company issued as (or issuable upon the conversion or exercise of
any warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, such
above-described securities. Notwithstanding the foregoing, Registrable
Securities shall not include any securities sold by a person to the public
either pursuant to a registration statement or Rule 144 of the Securities Act
sold in a private transaction in which the transferor's rights under Section 2
of this Agreement are not assigned.

                  (g) "REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the
number of shares determined by calculating the total number of shares of the
Company's Common Stock that are Registrable Securities and either (a) are then
issued and outstanding or (b) are issuable pursuant to then exercisable or
convertible securities.

                  (h) "REGISTRATION EXPENSES" shall mean all expenses incurred
by the Company in complying with Sections 2.2, 2.3, 2.4 and 2.5 hereof,
including, without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel for the Company, reasonable fees and
disbursements, not to exceed $25,000 of a single special counsel for the
Holders, blue sky fees and expenses and the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in any event by the
Company).

                  (i) "SEC" or "COMMISSION" means the United States Securities
and Exchange Commission.

                  (j) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.

                  (k) "SELLING EXPENSES" shall mean all underwriting discounts
and selling commissions applicable to the sale.

                  (l) "SHARES" shall mean the Company's Series B Preferred Stock
issuable upon conversion of the Promissory Note and exercise of the Warrants.

                  (m) "SPECIAL REGISTRATION STATEMENT" shall mean (i) a
registration statement relating to any employee benefit plan or (ii) with
respect to any corporate reorganization or transaction under Rule 145 of the
Securities Act, including any registration statements related to the resale of
securities issued in such a transaction or (iii) a registration related to stock
issued upon conversion of debt securities other than the Promissory Note.

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                  (n) "WARRANTS" shall mean those certain warrants to purchase
Series B Preferred Stock issued in connection with the Purchase Agreement, dated
as of the date hereof.

SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER.

         2.1 RESTRICTIONS ON TRANSFER.

                  (a) Each Holder agrees not to make any disposition of all or
any portion of the Shares or Registrable Securities unless and until:

                           (i) There is then in effect a registration statement
under the Securities Act covering such proposed disposition and such disposition
is made in accordance with such registration statement; or

                           (ii) (a) such Holder shall have notified the Company
of the proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (B) if
reasonably requested by the Company, such Holder shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such shares under the
Securities Act. It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144.

                           (iii) Notwithstanding the provisions of paragraphs
(i) and (ii) above, no such registration statement or opinion of counsel shall
be necessary for a transfer by a Holder that is (A) a partnership transferring
to its partners or former partners in accordance with partnership interests, (B)
a corporation transferring to a wholly owned subsidiary or a parent corporation
that owns all of the capital stock of the Holder, (C) a limited liability
company transferring to its members or former members in accordance with their
interest in the limited liability company, or (D) an individual transferring to
the Holder's family member or trust for the benefit of an individual Holder.

                  (b) Each certificate representing Shares or Registrable
Securities shall (unless otherwise permitted by the provisions of the Agreement)
be stamped or otherwise imprinted with a legend substantially similar to the
following (in addition to any legend required under applicable state securities
laws):

                  THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
                  UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE
                  OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR
                  HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR
                  UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
                  SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH
                  REGISTRATION IS NOT REQUIRED.

                  (c) The Company shall be obligated to reissue promptly
unlegended certificates at the request of any Holder thereof if the Holder shall
have obtained an opinion of counsel (which counsel may be counsel to the

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Company) reasonably acceptable to the Company to the effect that the securities
proposed to be disposed of may lawfully be so disposed of without registration,
qualification or legend.

                  (d) Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer instructions with respect
to such securities shall be removed upon receipt by the Company of an order of
the appropriate blue sky authority authorizing such removal.

         2.2 REQUIRED REGISTRATION STATEMENTS.

                  (a) The Company shall (i) file within twenty (20) days of each
of the Second Closing (as defined in the Purchase Agreement) and Third Closing
(as defined in the Purchase Agreement) a registration statement covering the
resale of the Registrable Securities (each a "REQUIRED REGISTRATION STATEMENT")
and (ii) have each such Required Registration Statement declared effective by
the SEC within the earlier of (A) ninety (90) days of the Second Closing and
Third Closing, as the case may be, or (ii) ten (10) days of being informed by
the staff of the SEC of a "no review" status for such filed Required
Registration Statement.

                  (b) Subject to Section 2.7(a), each Required Registration
Statement shall remain continuously in effect until all Registrable Securities
can be sold within a ninety (90) day period in accordance with Rule 144 under
the Securities Act.

                  (c) To the extent practicable, the Registrable Securities
related to the Third Closing shall be registered with the first Required
Registration Statement, prior to its effectiveness.

                  (d) Failure of the Company to comply with the terms of this
Section 2.2 shall be deemed an "EVENT OF Default" under the Promissory Note
which Event of Default shall continue until cured by the applicable filing or
effectiveness of the Required Registration Statement.

         2.3 DEMAND REGISTRATION.

                  (a) Subject to the conditions of this Section 2.3, if the
Company shall receive a written request from the Holders of a majority of the
Registrable Securities (the "INITIATING HOLDERS") that the Company file a
registration statement under the Securities Act covering the registration of at
least a majority of the Registrable Securities then outstanding (or a lesser
percent if the anticipated aggregate offering price, net of underwriting
discounts and commissions, would exceed $1,000,000), then the Company shall,
within thirty (30) days of the receipt thereof, give written notice of such
request to all Holders, and subject to the limitations of this Section 2.3,
effect, as expeditiously as reasonably possible, the registration under the
Securities Act of all Registrable Securities that the Holders request to be
registered.

                  (b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 2.3 or any request pursuant to Section 2.5 and the Company shall
include such information in the written notice referred to in Section 2.3(a) or
Section 2.5(a), as applicable. In such event, the right of any Holder to include

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its Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by a majority in interest of the
Initiating Holders (which underwriter or underwriters shall be reasonably
acceptable to the Company). Notwithstanding any other provision of this Section
2.3 or Section 2.5, if the underwriter advises the Company that marketing
factors require a limitation of the number of securities to be underwritten
(including Registrable Securities) then the Company shall so advise all Holders
of Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares that may be included in the underwriting shall be
allocated to the Holders of such Registrable Securities and the other
stockholders of the Company listed on EXHIBIT A with registration rights (the
"OTHER HOLDERS") on a PRO RATA basis based on the number of Registrable
Securities held by all such Holders and Other Holders (including the Initiating
Holders); PROVIDED, HOWEVER, that the number of shares of Registrable Securities
to be included in such underwriting and registration shall not be reduced unless
all other securities of the Company (other than an Other Holder) are first
entirely excluded from the underwriting and registration. Any Registrable
Securities excluded or withdrawn from such underwriting shall be withdrawn from
the registration.

                  (c) The Company shall not be required to effect a registration
pursuant to this Section 2.3:

                           (i) after the Company has effected three (3)
registrations pursuant to this Section 2.3, and such registrations have been
declared or ordered effective by the SEC; or

                           (ii) in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.

         2.4 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders of
Registrable Securities in writing at least twenty (20) days prior to the filing
of any registration statement under the Securities Act for purposes of a public
offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding Special Registration Statements) and will afford each
such Holder an opportunity to include in such registration statement all or part
of such Registrable Securities held by such Holder. Each Holder desiring to
include in any such registration statement all or any part of the Registrable
Securities held by it shall, within ten (10) days after the above-described
notice from the Company, so notify the Company in writing. Such notice shall
state the intended method of disposition of the Registrable Securities by such
Holder. If a Holder decides not to include all of its Registrable Securities in
any registration statement thereafter filed by the Company, such Holder shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent registration statement or registration statements as may be filed
by the Company with respect to offerings of its securities, all upon the terms
and conditions set forth herein.

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                  (a) UNDERWRITING. If the registration statement under which
the Company gives notice under this Section 2.4 is for an underwritten offering,
the Company shall so advise the Holders of Registrable Securities. In such
event, the right of any such Holder to be included in a registration pursuant to
this Section 2.4 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company including lock-up agreements
regarding the Holders disposition of any Shares for a period of no more than 180
days, if requested by the underwriter. Notwithstanding any other provision of
this Agreement, if the underwriter determines in good faith that marketing
factors require a limitation of the number of shares to be underwritten, the
number of shares that may be included in the underwriting shall be allocated,
first, to the Company; second, to the Holders and the Other Holders on a PRO
RATA basis based on the total number of Registrable Securities held by the
Holders and such Other Holders; and third, to any shareholder of the Company
(other than a Holder or Other Holder) on a PRO RATA basis. If any Holder
disapproves of the terms of any such underwriting, such Holder may elect to
withdraw therefrom by written notice to the Company and the underwriter,
delivered at least ten (10) business days prior to the effective date of the
registration statement. Any Registrable Securities excluded or withdrawn from
such underwriting shall be excluded and withdrawn from the registration. For any
Holder which is a partnership or corporation, the partners, retired partners and
shareholders of such Holder, or the estates and family members of any such
partners and retired partners and any trusts for the benefit of any of the
foregoing person shall be deemed to be a single "Holder," and any PRO RATA
reduction with respect to such "Holder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "Holder," as defined in this sentence.

                  (b) RIGHT TO TERMINATE REGISTRATION. The Company shall have
the right to terminate or withdraw any registration initiated by it under this
Section 2.4 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration. The Registration
Expenses of such withdrawn registration shall be borne by the Company in
accordance with Section 2.6 hereof.

         2.5 FORM S-3 REGISTRATION. In case the Company shall receive from any
Holder or Holders of Registrable Securities a written request or requests that
the Company effect a registration on Form S-3 (or any successor to Form S-3) or
any similar short-form registration statement and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by
such Holder or Holders, the Company will:

                  (a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders of Registrable
Securities; and

                  (b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Holder's
or Holders' Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given

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within fifteen (15) days after receipt of such written notice from the Company;
PROVIDED, HOWEVER, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 2.5:

                           (i) if Form S-3 is not available for such offering by
the Holders, or

                           (ii) if the Holders, together with the holders of any
other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public of less than one million dollars ($1,000,000), or

                           (iii) in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.

                  (c) Subject to the foregoing, the Company shall file a Form
S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt of
the requests of the Holders. Registrations effected pursuant to this Section 2.5
shall not be counted as demands for registration or registrations effected
pursuant to Section 2.3.

         2.6 EXPENSES OF REGISTRATION. Except as specifically provided herein,
all Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 2.3 or any registration under
Sections 2.2, 2.4 or 2.5 herein shall be borne by the Company. All Selling
Expenses incurred in connection with any registrations hereunder, shall be borne
by the holders of the securities so registered PRO RATA on the basis of the
number of shares so registered.

         2.7 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible (except in the case of a Required Registration Statement,
subject to the filing timing requirements of Section 2.2(a)):

                  (a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use all reasonable efforts to
cause such registration statement to become effective, and, keep such
registration statement continuously in effect until the Holder or Holders have
completed the distribution related thereto or all Registrable Securities can be
sold within a ninety (90) day period in accordance with Rule 144 under the
Securities Act; PROVIDED, HOWEVER, that at any time, upon written notice to the
participating Holders and for a period not to exceed sixty (60) days thereafter
(the "SUSPENSION PERIOD"), the Company may delay the filing or effectiveness of
any registration statement or suspend the use or effectiveness of any
registration statement (and the Holders hereby agree not to offer or sell any
Registrable Securities pursuant to such registration statement during the
Suspension Period) if the Company reasonably believes that the Company may, in
the absence of such delay or suspension hereunder, be required under state or
federal securities laws to disclose any corporate development the disclosure of
which could reasonably be expected to have an adverse effect upon the Company,
its shareholders, a potentially significant transaction or event involving the

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Company, or any negotiations, discussions, or proposals directly relating
thereto. No more than one (1) such Suspension Period shall occur in any twelve
(12) month period. The Company may extend the Suspension Period for an
additional consecutive thirty (30) days with the consent of the holders of
two-thirds of the Registrable Securities proposed to be sold by the Initiating
Holders, which consent shall not be unreasonably withheld. If so directed by the
Company, the Holders participating in such registration shall use their best
efforts to deliver to the Company (at the Company's expense) all copies, other
than permanent file copies then in such Holders' possession, of the prospectus
relating to such Registrable Securities current at the time of receipt of such
notice. Notwithstanding anything contrary in this Agreement, no Suspension
Period shall apply to a Required Registration Statement.

                  (b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement for the period set forth in
paragraph (a) above.

                  (c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.

                  (d) Use its reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders; PROVIDED that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.

                  (e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.

                  (f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing. The Company will use reasonable efforts to amend or supplement such
prospectus in order to cause such prospectus not to include any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances then existing.

                  (g) Use its reasonable efforts to furnish, on the date that
such Registrable Securities are delivered to the underwriters for sale, if such
securities are being sold through underwriters, (i) an opinion, dated as of such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in

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an underwritten public offering, addressed to the underwriters, if any, and (ii)
a letter, dated as of such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering addressed to the underwriters.

         2.8 TERMINATION OF REGISTRATION RIGHTS. A Holder's registration rights
shall expire if all Registrable Securities held by and issuable to such Holder
(and its affiliates) may be sold under Rule 144 during any ninety (90) day
period.

         2.9 FURNISHING INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Section 2.2, 2.3, 2.4
or 2.5 that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them and the intended
method of disposition of such securities as shall be required to effect the
registration of their Registrable Securities.

         2.10 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 2.2, 2.3, 2.4 or 2.5:

                  (a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the partners, officers and directors of each
Holder, any underwriter (as defined in the Securities Act) for such Holder and
each person, if any, who controls such Holder or underwriter within the meaning
of the Securities Act or the Exchange Act, against any losses, claims, damages,
or liabilities (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any of the following statements, omissions or violations
(collectively a "VIOLATION") by the Company: (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law in connection with the offering
covered by such registration statement; and the Company will pay as incurred to
each such Holder, partner, officer, director, underwriter or controlling person
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
PROVIDED HOWEVER, that the indemnity agreement contained in this Section 2.10(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company, which consent shall not be unreasonably withheld, nor shall the Company
be liable in any such case for any such loss, claim, damage, liability or action
to the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by such Holder, partner, officer,
director, underwriter or controlling person of such Holder; PROVIDED FURTHER,
that the indemnity contained in this Section 2.10(a) shall not inure to the
benefit of any Holder, or any partner, officer, director, underwriter or
controlling person of such Holder, from whom the person asserting any claim

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purchased the Registrable Securities that are the subject thereof (or to the
benefit of any person controlling such person) (i) with respect to a preliminary
prospectus, if the untrue statement or omission of material fact contained in
the preliminary prospectus was corrected in the prospectus, as then amended or
supplemented, if such prospectus was timely made available by the Company
pursuant to Section 2.7(b) and (c), and the Holder, or any partner, officer,
director, underwriter or controlling person of such Holder was promptly advised
in writing not to use the incorrect prospectus prior to the use giving rise to a
violation and such Holder, or any partner, officer, director, underwriter or
controlling person of such Holder, notwithstanding such advise, used it or
failed to deliver the correct prospectus as required by the 1933 Act and such
correct prospectus was timely made available pursuant to Section 2.7(b) and (c),
or (ii) if such claim is based on a failure of any person to deliver or cause to
be delivered the prospectus made available by the Company, including a corrected
prospectus, if such prospectus or corrected prospectus was timely made available
by the Company pursuant to Section 2.7(b) and (c).

                  (b) To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration qualifications or compliance is being effected,
indemnify and hold harmless the Company, each of its directors, its officers and
each person, if any, who controls the Company within the meaning of the
Securities Act, any underwriter and any other Holder selling securities under
such registration statement or any of such other Holder's partners, directors or
officers or any person who controls such Holder, against any losses, claims,
damages or liabilities (joint or several) to which the Company or any such
director, officer, controlling person, underwriter or other such Holder, or
partner, director, officer or controlling person of such other Holder may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder under an
instrument duly executed by such Holder and stated to be specifically for use in
connection with such registration; and each such Holder will pay as incurred any
legal or other expenses reasonably incurred by the Company or any such director,
officer, controlling person, underwriter or other Holder, or partner, officer,
director or controlling person of such other Holder in connection with
investigating or defending any such loss, claim, damage, liability or action if
it is judicially determined that there was such a Violation; PROVIDED, HOWEVER,
that the indemnity agreement contained in this Section 2.10(b) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Holder, which
consent shall not be unreasonably withheld; PROVIDED FURTHER, that in no event
shall any indemnity under this Section 2.10 exceed the net proceeds from the
offering received by such Holder.

                  (c) Promptly after receipt by an indemnified party under this
Section 2.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; PROVIDED, HOWEVER, that an indemnified party shall
have the right to retain its own counsel, with the reasonable fees and expenses
to be paid by the indemnifying party, if representation of such indemnified

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party by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential differing interests between such indemnified party
and any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 2.10, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section
2.10.

                  (d) If the indemnification provided for in this Section 2.10
is held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any losses, claims, damages or liabilities referred to
herein, the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; PROVIDED, that in no event shall any contribution by a
Holder hereunder exceed the net proceeds from the offering received by such
Holder.

                  (e) The obligations of the Company and Holders under this
Section 2.10 shall survive completion of any offering of Registrable Securities
in a registration statement and the termination of this Agreement. No
indemnifying party, in the defense of any such claim or litigation, shall,
except with the consent of each indemnified party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation.

         2.11 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to this Section 2 may be assigned by
a Holder to a Permitted Transferee (as defined in the Purchase Agreement);
PROVIDED, HOWEVER, (i) such Permitted Transferee must obtain Registrable
Securities at the time of such assignment with a value equal to at least
$250,000, based upon a valuation of $.25 per share of Common Stock, (ii) the
transferor shall, within ten (10) days after such transfer, furnish to the
Company written notice of the name and address of such transferee or assignee
and the securities with respect to which such registration rights are being
assigned and (iii) such transferee shall agree to be subject to all restrictions
set forth in this Agreement.

         2.12 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. The Company shall
not, without the prior written consent of the Holders of at least two-thirds of
the Registrable Securities then outstanding, enter into any agreement with any
holder or prospective holder of any securities of the Company that would grant

                                       11
<PAGE>   13

such holder registration rights senior to those granted to the Holders
hereunder, other than the right to a Special Registration Statement.

         2.13 RULE 144 REPORTING. With a view to making available to the Holders
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees to use its best efforts to:

                  (a) Make and keep public information available, as those terms
are understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date of
the first registration filed by the Company for an offering of its securities to
the general public;

                  (b) File with the SEC, in a timely manner, all reports and
other documents required of the Company under the Exchange Act; and

                  (c) So long as a Holder owns any Registrable Securities,
furnish to such Holder forthwith upon request: a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144 of
the Securities Act, and of the Exchange Act (at any time after it has become
subject to such reporting requirements); a copy of the most recent annual or
quarterly report of the Company; and such other reports and documents as a
Holder may reasonably request in availing itself of any rule or regulation of
the SEC allowing it to sell any such securities without registration.

SECTION 3. MISCELLANEOUS.

         3.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of DELAWARE as applied to agreements among Delaware
residents entered into and to be performed entirely within Delaware.

         3.2 SURVIVAL. The covenants and agreements made herein shall survive
any investigation made by any Holder and the closing of the transactions
contemplated hereby. All statements as to factual matters contained in any
certificate or other instrument delivered by or on behalf of the Company
pursuant hereto in connection with the transactions contemplated hereby shall be
deemed to be representations and warranties by the Company hereunder solely as
of the date of such certificate or instrument.

         3.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time;
PROVIDED, HOWEVER, that prior to the receipt by the Company of adequate written
notice of the transfer of any Registrable Securities specifying the full name
and address of the transferee, the Company may deem and treat the person listed
as the holder of such shares in its records as the absolute owner and holder of
such shares for all purposes, including the payment of dividends or any
redemption price.

         3.4 ENTIRE AGREEMENT. This Agreement and the Exhibit hereto, the
Purchase Agreement, the Promissory Note and the other Documents (as defined in
the Purchase Agreement) delivered pursuant thereto constitute the full and

                                       12
<PAGE>   14

entire understanding and agreement between the parties with regard to the
subjects hereof and no party shall be liable or bound to any other in any manner
by any representations, warranties, covenants and agreements except as
specifically set forth herein and therein.

         3.5 SEVERABILITY. In the event one or more of the provisions of this
Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.

3.6 AMENDMENT AND WAIVER.

                  (a) This Agreement may be amended or modified only upon the
written consent of the Company and the holders of at least one-half of the
Registrable Securities.

                  (b) Except as otherwise expressly provided, the obligations of
the Company and the rights of the Holders under this Agreement may be waived
only with the written consent of the holders of at least one-half of the
Registrable Securities.

                  (c) For the purposes of determining the number of Holder or
Investors entitled to vote or exercise any rights hereunder, the Company shall
be entitled to rely solely on the list of record holders of its stock as
maintained by or on behalf of the Company.

         3.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent, or approval of any kind or character on
any Holder's part of any breach, default or noncompliance under the Agreement or
any waiver on such Holder's part of any provisions or conditions of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not
alternative.

         3.8 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed electronic mail or facsimile if
sent during normal business hours of the recipient; if not, then on the next
business day, (c) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (d) one (1) day
after deposit with a nationally recognized overnight courier, specifying next
day delivery, with written verification of receipt. All communications shall be
sent to the party to be notified at the address as set forth on the signature
pages hereof or at such other address as such party may designate by ten (10)
days advance written notice to the other parties hereto.

         3.9 ATTORNEYS' FEES. In the event that any suit or action is instituted
to enforce any provision in this Agreement, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this

                                       13
<PAGE>   15

Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.

         3.10 TITLES AND SUBTITLES. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.

         3.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.

                      [THIS SPACE INTENTIONALLY LEFT BLANK]

                                       14
<PAGE>   16

         IN WITNESS WHEREOF, the parties hereto have executed this REGISTRATION
RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.

COMPANY:                               INVESTOR:

INTERNET PICTURES CORPORATION,         IMAGE INVESTOR PORTFOLIO,
a Delaware corporation                 a separate series of

                                       MEMPHIS ANGELS, LLC,
By: /s/ James Phillips                 a Delaware limited liability company
-----------------------------
Name: James Phillips
Title: Chairman and Chief
       Executive Officer               By:      PARADIGM CAPITAL EQUITY
                                                PARTNERS, LLC,
                                                its Manager

                                                By:      PARADIGM HOLDINGS,
                                                         its Managing Member

                                                By: /s/ Frank McGrew
                                                ----------------------------
                                                Name: Frank McGrew
                                                Title: Managing Partner

                                       15<PAGE>   1
                                                                    EXHIBIT 10.2

                SEPARATION OF EMPLOYMENT AND CONSULTING AGREEMENT

         THIS SEPARATION OF EMPLOYMENT AND CONSULTING AGREEMENT ("Agreement") is
made and entered into as of May 14, 2001, to be effective as of the later of the
Effective Date or the Separation Date (as those terms are hereinafter defined),
by and between INTERNET PICTURES CORPORATION, a Delaware corporation ("Company")
and JAMES M. PHILLIPS ("Phillips").

                                    RECITALS

         WHEREAS, Phillips and the Company executed an "Executive Employment
Agreement" dated as of January 24, 1997 ("Employment Agreement"), pursuant to
which Phillips has served as the Company's chief executive officer and a member
of its board of directors; and

         WHEREAS, the parties have subsequently entered into various written
amendments to such Employment Agreement, including an amendment extending its
term through December 31, 2004; and

         WHEREAS, Phillips' Employment Agreement, and the amendments thereto,
contemplate the payment of severance and other benefits to Phillips in the event
his employment terminates before December 31, 2004; and

         WHEREAS, Phillips and the Company have mutually agreed to terminate
their employment relationship pursuant to the terms hereof; and

         WHEREAS, in consideration of Phillips' agreement to terminate the
Employment Agreement, and his employment and benefits thereunder, the Company
intends to provide the severance and other benefits provided herein to Phillips
as a result of his termination, and the parties agree that Phillips shall be
retained for a period of time in the capacity of a consultant to assist with
strategic matters as well as the transition of his functions; and

         WHEREAS, the Company believes that the terms of Phillips' separation
from employment and consulting agreement set forth herein are in the best
interests of the Company and its shareholders;

         NOW, THEREFORE, in consideration of the mutual promises and
understandings set forth herein, the parties agree as follows:

                                    AGREEMENT

         1. DATE OF TERMINATION FROM EMPLOYMENT. Contingent upon, and subject
to, the occurrence of the Second closing, hereinafter defined, Phillips shall
resign his employment with the Company, and shall resign his position as an
officer and a member of the board of directors of the Company and each of its
subsidiaries, effective as of the occurrence of the Second Closing (being the
date, as defined in that certain Securities Purchase Agreement of even date
between the Company and Image Investor Portfolio, a separate series of the

                                       1
<PAGE>   2

Memphis Angels, LLC (the "Purchase Agreement") on which the Second Disbursement
(as defined in the Purchase Agreement) of approximately $7,000,000 occurs)
("Separation Date").

         2. ACCRUED SALARY AND VACATION. On the Separation Date, the Company
shall pay Phillips all accrued salary through the Separation Date, and shall pay
him for all accrued and unused vacation time earned through the Separation Date,
subject to standard payroll deductions and withholdings. Phillips shall not be
entitled to any unpaid bonus with respect to his period of employment prior to
the Separation Date or in respect of his services as a consultant during the
Consulting Period.

         3. CONSULTING AGREEMENT. Phillips agrees to serve as a consultant to
the Company under the terms specified below. This consulting relationship shall
commence on the Separation Date and shall continue until December 31, 2001,
unless terminated earlier as specified below ("Consulting Period").

                  (a) CONSULTING SERVICES. During the Consulting Period, as a
consultant to the Company, Phillips shall have a title of Chairman Emeritus,
Founder. In that capacity, Phillips' duties shall include, but not be limited
to, assisting the Company with its relationships with potential financial
investors, providing strategic planning assistance, developing outside strategic
partners, assisting in the development of the Company's entertainment division,
providing management transition, and any other similar consulting services as
reasonably requested by the Company's board of directors. During the Consulting
Period, Phillips shall report directly to the Company's board of directors, and
shall be entitled to retain the use of his present office and secretarial
assistant. In connection with the performance of the consulting services
hereunder, Phillips agrees to utilize his expertise and creative talents in
performing his services hereunder in a manner reasonably believed by Phillips to
be in the interests of the Company. Phillips agrees to make himself generally
available to perform such consulting services throughout the Consulting Period,
but shall not be required to provide such services on a full-time basis. The
performance of his services hereunder shall not require extended absences from
home or to relocation to an office outside of the Knoxville, Tennessee
metropolitan area. Phillips shall not be prohibited from accepting other
employment, or providing services to other organizations, during the Consulting
Period subject to compliance with his non-compete restrictions herein and the
other provisions of this Agreement. Phillips shall promptly notify the Company
of any such relationship and agrees to provide information to the Company
concerning the business and scope of services.

                  (b) CONSULTING FEES AND BENEFITS.

                           (i) CONSULTING FEES. During the Consulting Period,
Phillips shall receive a consulting fee of $35,416.66 per month ("Consulting
Fee"), payable semi-monthly (and adjusted on a pro rata basis for any month that
Phillips consults less than a full month).

                           (ii) INDEPENDENT CONTRACTOR RELATIONSHIP. During the
Consulting Period, Phillips' relationship with the Company will be that of an
independent contractor and nothing in this Agreement is intended, or shall be
construed, to create a partnership, joint venture, employer-employee or other
relationship other than that of independent parties. Phillips is not the agent
of the Company and is not authorized to make, or enter into, any contract or

                                       2
<PAGE>   3

commitment on behalf of, or binding upon, the Company except as approved by the
Board. Phillips will not be entitled to any of the benefits which the Company
may make available to its employees, such as group insurance, profit-sharing or
retirement benefits, except as provided herein.

                           (iii) TAXES AND WITHHOLDING. As a consultant, the
Company will not withhold from the Consulting Fees any amount for taxes, social
security or other payroll deductions. The Company will issue Phillips an IRS
Form 1099 with respect to such Consulting Fees. Phillips shall be responsible
for all income/withholding and other taxes (including one-half (1/2) of
self-employment taxes) payable by Phillips in accordance with applicable law on
all payments or benefits paid or provided to Phillips under this Agreement, and
the Consulting Fees paid hereunder. The Company agrees to reimburse Phillips for
one-half (1/2) of the amount of self employment tax payable with respect to the
Consulting Fees hereunder (taking into accounting social security taxes paid or
withheld by the Company during his employment period prior to the Separation
Date).

                           (iv) COUNTRY CLUB MEMBERSHIPS. Phillips' existing
country club memberships (Fox Den Country Club and Club Le Conte) monthly dues
(approximately $400 per month) will continue to be paid by the Company through
the Consulting Period. The Company agrees to transfer or release to Phillips any
rights to club membership, if the membership is in Phillips' name currently, if
such a transfer can be effectuated at no cost to the Company, and if club rules
relating to transfer of memberships so permit. There is no requirement on the
Company's part to transfer or release a corporate membership. After the
Consulting Period, the payment of all monthly dues related to such clubs shall
be Phillips' sole responsibility.

                           (v) SECRETARIAL SUPPORT. Michelle Wood will be
retained as Phillips' secretarial assistant through the Consulting Period, and
remain an employee of the Company at her current annual salary. In Phillips'
discretion, Wood will be eligible for a bonus potential for up to 10% of her
equivalent annual salary, consistent with prior practice.

                           (vi) OTHER BENEFITS. Phillips shall be provided
similar travel, lodging, office, car allowance, and wireless communications
arrangements as were provided to Phillips as Chairman/CEO of the Company prior
to the date hereof, to be paid or advanced by the Company consistent with past
practice. Phillips shall not incur travel and lodging expenses except incident
to travel as requested or approved by the Board, or member thereof designated by
the Board, and shall comply with all travel and expense reporting policies of
the Company.

                  (c) TERMINATION OF CONSULTING RELATIONSHIP. The Consulting
Period, and Phillips' consulting services hereunder, are terminable either (i)
on the date following sixty (60) days written notice of termination, which may
be given at any time by the Company to Phillips for any reason, or (ii) on the
date following twenty (20) days written notice of termination, which may be
given at any time by Phillips to the Company. Except as otherwise provided
herein, upon the termination of Phillips' consulting relationship, the Company
shall have no further financial obligation to him for the payment of Consulting
Fees, club dues, or any other benefits noted herein related to his service as a
consultant.

                                       3
<PAGE>   4

         4. SEVERANCE PAYMENTS. The Company shall pay Phillips, as further
consideration for this Agreement and the termination of his Employment
Agreement, and his rights and benefits thereunder, and severance in connection
with his termination from employment, the sum of one million three hundred
thousand dollars ($1,300,000), subject to standard payroll deductions and
withholdings (the "Severance Payment").

                  (a) PAYMENT SCHEDULE. The Severance Payment will be paid as
follows: (i) $200,000 upon the Separation Date, (ii) $200,000 on September 1,
2001, (iii) $200,000 on or before January 1, 2002, (iv) $200,000 on or before
June 1, 2002, (v) $200,000 on or before January 1, 2003, (vi) $200,000 on or
before June 1, 2003, and (vii) $100,000 on or before September 1, 2003. These
payments shall not be subject to any contingencies.

                  (b) LETTERS OF CREDIT. To guarantee the timely payment of the
September 1, 2001 and January 1, 2002 installments of the Severance Payment, on
the Separation Date the Company will (i) provide to Phillips an irrevocable bank
letter of credit ("LOC") for $400,000 in his favor, or (ii) escrow $400,000 with
an escrow agent chosen by Phillips. To guarantee the timely payment of the June
1, 2002, and January 1, 2003 installments of the Severance Payment, on or before
September 1, 2001, the Company will provide to Phillips a second LOC in the
amount of $400,000 in Phillips' favor. The LOC instructions, or escrow
instructions, if applicable, shall provide that, upon written notice by Phillips
to the issuing bank or escrow agent, as applicable, with copies to the Company,
that any installment of the Severance Payment covered by such LOC or escrow, as
applicable, has not been timely paid, the issuing bank or escrow agent, as
applicable, shall at the earliest possible time after receipt of such notice pay
to Phillips the amount of the installment not paid when due (net of 28% federal
income tax and 7.65% combined social security (OASDI/medicare) withholdings
(reduced to 1.45% medicare withholdings upon receipt of certification from
Phillips that his earned income for the applicable tax year has exceeded the
OASDI wage base) required under applicable law, which instructions shall further
provide that the escrow agent, in the case of funds held in escrow, shall remit
the amount of such withholdings to the Company concurrent with remittance to
Phillips of the amounts due to him). The instructions shall not provide any
discretion to question or fail to honor notice on the part of the issuing bank
or escrow agent, and the issuing bank or escrow agent, as applicable, shall not
assume or be subject to any liability to the Company by complying the such
instructions. Phillips agrees to give timely notice to the Company and the
issuing bank or escrow agent, as applicable, after his earned income for any tax
year in which the above payments are secured by the LOC or escrow, as
applicable, has exceeded the applicable OASDI component of the social security
wage base for such tax year.

         5. HEALTH BENEFITS AND INSURANCE. The existing Company-paid life
insurance and medical, dental, hospitalization and disability benefits (which
shall include, where applicable, continuation coverage benefits under COBRA)
shall be continued at the company's expense through the Consulting Period and
the Non-compete Period (as defined below).

         6. SECURITY SYSTEM. After the Tranche A Second Closing, the Company
will no longer maintain the security system installed for Phillips during his
tenure as Chief Executive Officer of the Company. If owned by the Company, the
Company will transfer such system to Phillips.

                                       4
<PAGE>   5

         7. STOCK OPTIONS. In consideration for the severance benefits and the
grant of new stock options provided herein, Phillips shall surrender and forfeit
any outstanding stock options for Company common stock granted prior to the
Separation Date, including the option for 1,056,000 shares at the $2.688 per
share exercise price. Upon the termination of Phillips' employment on the
Separation Date, the Company shall grant Phillips new non-qualified stock
options covering 2,000,000 shares of the Company's common stock (the "Options").
The Options will have an exercise price as follows: (i) 1,000,000 shares at the
fair market value of the Company's common stock on the Separation Date, and (ii)
the remaining 1,000,000 shares at 15% above the fair market value of the
Company's common stock on the Separation Date. Fair market value for this
purpose shall be the closing price of the Company's common stock on the
Separation Date. The Options shall have a term of four (4) years and will
expire, to the extent not exercised prior thereto, on the fourth (4th)
anniversary of the Separation Date. The vesting of the 2,000,000 shares subject
to the Option is as follows: 650,000 shares will vest on the Separation Date;
650,000 shares will vest on December 31, 2001; 500,000 shares will vest on June
1, 2002; and 200,000 shares will vest on December 31, 2002. The exercise price
of the Options vesting on each vesting date will be pro-rata as to exercise
prices of the Options (i.e., one-half of the Options vesting on each vesting
date shall be at fair market value exercise price and one-half shall be at the
fair market value plus 15% exercise price, as aforesaid).

          Additional terms and conditions of the Options shall be established
and set forth in a separate stock option agreement consistent with the terms of
Phillips' existing non-qualified stock options, to the extent not inconsistent
herewith, which Phillips agrees to sign, and shall provide for exercise in whole
or in part, proportionate anti-dilution adjustments in the event of any increase
or decrease in the number of outstanding shares of common stock resulting from
stock splits, share dividends or similar events, and for exercise of the Options
by Phillips' estate, heirs or legal representatives in the case of the death or
disability of Phillips

         8. LOAN FORGIVENESS. As further consideration for this Agreement, on
the Separation Date, the Company shall cancel and forgive the repayment of any
disbursed principal and accrued interest under the line of credit established
for Phillips pursuant to Section 7(h) of his Employment Agreement, and Phillips
shall be released from any and all liability thereon, and shall have no further
obligation with respect thereto. The 13,519 shares of common stock currently
beneficially owned by Phillips shall no longer serve as collateral or security
for such line of credit, nor shall the Options granted herein, or any stock
issuable upon exercise thereof, constitute collateral for the line of credit.
The parties further acknowledge that the line of credit shall be cancelled on
the Separation Date.

         9. OTHER COMPENSATION OR BENEFITS. Phillips acknowledges that, except
as expressly provided in this Agreement, he shall not receive any additional
compensation, severance or benefits after the Separation Date.

         10. PROFESSIONAL ADVISOR FEES. The Company shall pay Phillips'
attorneys' fees at standard hourly rates and any financial counseling fees
incurred in connection with his separation of service, and the negotiation of
this Agreement, in an amount not to exceed $25,000. Phillips shall provide the
Company with a copy of the bill from his advisors.

                                       5
<PAGE>   6

         11. DIRECTORS AND OFFICERS INSURANCE AND INDEMNITY. The Company shall
continue to provide coverage for Phillips under the existing directors and
officers insurance policy under the terms of such policy, or provide equivalent
coverage if a new policy is obtained. All indemnification or contribution
agreements of the Company applicable to officers and directors of the Company
shall continue to apply to Phillips as a former officer or director in
accordance with the terms of such agreements.

         12. PRESS RELEASE. Subject to the Company's obligations to provide all
required or appropriate disclosures to governmental and regulatory agencies, the
parties shall use reasonable efforts to agree upon the content of a dignified,
appropriate, mutually agreeable press release relating to Phillips' change of
responsibilities, title and role with the Company.

         13. RETURN OF COMPANY PROPERTY. On or before the termination of the
Consulting Period, Phillips shall return to the Company all tangible Company
property in his possession (including, but not limited to, computers, credit
cards, entry cards, identification badges and keys), and all confidential,
proprietary Company documents ("Confidential Information" ), including, but not
limited to, Company files, notes, drawings, records, business plans and
forecasts, financial information, specifications, computer-recorded information,
and any materials of any kind that contain or embody any proprietary or
confidential information of the Company (and all reproductions thereof), other
than personal documents of Phillips which do not contain any Confidential
Information; provided, however, Phillips may purchase the Company Sony laptop
computer and home desktop computer provided for his use at their respective
depreciated value and, subject to the provisions of Sections 14 and 18 below,
may retain copies of e-mails, presentations and images for his personal use.

         14. PROPRIETARY INFORMATION OBLIGATIONS. Except as appropriate in
connection with the performance of Phillips' consulting services hereunder,
Phillips shall refrain from any unauthorized use or disclosure of any
Confidential Information of the Company and acknowledges his continuing
obligations not to use or disclose any Confidential Information of the Company
without prior written authorization from a duly authorized representative of the
Company.

         15. NONDISPARAGEMENT. Both Phillips and the Company agree not to
publicly disparage the other party, and the other party's officers, directors,
employees, shareholders and agents, in any manner likely to be harmful to them
or their business, business reputation or personal reputation; provided that the
foregoing shall not prohibit Phillips or the Company from responding accurately
and fully to any question, inquiry or request for information when required by
legal process. The Company shall take reasonable steps to inform its officers,
directors and members of senior management of the Company's obligations under
this section.

         16. ARBITRATION. All claims, disputes and controversies arising out of,
relating to, or in connection with Phillips' employment, benefits, consulting
services, or this Agreement, or the breach thereof ("Dispute"), shall be
resolved by final and binding arbitration before the American Arbitration
Association ("AAA") in accordance with the commercial arbitration rules of the
AAA then in effect. The AAA arbitration shall be conducted in Knoxville,
Tennessee, by three AAA arbitrators to be selected by the parties to the

                                       6
<PAGE>   7

Dispute. If the parties are not able to agree on the selection of the AAA
arbitrators, they shall follow the AAA's arbitrator selection process. In either
event, except in the case of a request for injunctive relief under the expedited
procedures below, the AAA arbitrators shall be selected no later than thirty
days following the filing of Claimant's demand for arbitration.

         In the event of a request for injunctive relief, the parties agree that
the AAA shall be entitled to appoint a single arbitrator to provide the parties
with a hearing on such claims at the earliest practicable time (within 1 to 3
business days). The parties shall be entitled to submit affidavits in connection
with such injunctive relief hearing and, if deemed appropriate by such
injunctive relief arbitrator, submit oral testimony at a telephonic hearing. The
injunctive relief arbitrator shall endeavor to issue a ruling on injunctive
relief requests at the earliest practicable time and such ruling shall remain in
effect until the full panel has had an opportunity to hold a hearing on the
issue injunctive relief issue or to hold a hearing on the entire dispute (in the
event other issues are involved).

          The AAA arbitrators shall make detailed written findings to support
their final award and such final award shall be delivered to the parties no
later than thirty calendar days following the conclusion of the Hearing.
Judgment upon the final arbitration award may be entered in any court having
jurisdiction. The prevailing party in any Dispute between the parties shall be
entitled to an award of attorneys fees against the other party.

           The parties' obligations under Sections 4, 5, 7, 11, 13, 14, 15, 16,
18, 19 and 20 of this Agreement are of a unique character that gives them
particular value; breach of any of such obligations will result in irreparable
and continuing damage to Phillips or the Company, as the case may be, for which
there will be no adequate remedy at law; and, in the event of such breach, the
Company or Phillips, as the case may be, will be entitled to injunctive relief
and/or a decree for specific performance, and such other and further relief as
may be proper (including monetary damages if appropriate).

         17. NO SOLICITATION OF EMPLOYEES, CONSULTANTS, CONTRACTORS OR
CUSTOMERS. Phillips agrees that through the Non-Compete Period (defined below),
Phillips shall not, either directly or through others, (i) solicit or attempt to
solicit any employee of the Company to end their relationship with the Company;
or (ii) solicit any consultant, contractor, or customer or prospective customer
of the Company to diminish or materially alter its relationship with the
Company.

         18. NON-COMPETE PROVISION. Phillips agrees that during the Consulting
Period and through the later of December 31, 2002 or one year after the
cessation of his consulting relationship with the Company (the "Non-Compete
Period"), except as provided below, Phillips will not compete with, or provide
services (whether as employee, consultant or other capacity) to any Competing
Business (as defined below) with the Business (as defined below) of the Company
or its subsidiaries within any state, province, or similar political unit in
which the Company or any of its subsidiaries has conducted business or provides
or solicits products or services. The parties acknowledge that the Company
provides or solicits products and services, and has or solicits employees,
consultants, contractors and customers, through the Internet and wireless
technology, and that the geographic scope of this provision is therefore
co-extensive with the geographic scope of the Company's business through the
Internet and wireless technology. The parties agree that the geographic scope of

                                       7
<PAGE>   8

the noncompete is reasonable in light of the geographically broad scope of doing
business through the Internet and wireless technology.

        As used herein, the term "Business" of the Company and its subsidiaries
shall have the meaning set forth on Exhibit A attached hereto and incorporated
herein. The term "Competing Business" shall mean any person or entity which
provides similar products or services in competition with the Business of the
Company. The parties understand that the scope and nature of the Company's
business, products or services may change as the Company develops. The parties
agree that the scope of this provision will change to cover any changes in the
Company's business, products or services, during the Consulting Period, but only
to the extent that Phillips is directly or materially involved in such changes.
Notwithstanding the foregoing, it is acknowledged and agreed that this provision
shall not prohibit Phillips from seeking or obtaining employment with any
division or subsidiary of a Competing Business, which division or subsidiary is
not in competition with the Business of the Company provided (i) Phillips is not
employed by, provides services to or in connection with, or is involved, whether
directly or indirectly, with the business or activities of any division or
subsidiary of any such Competing Business which is in competition with the
Business of the Company, and (ii) nothing in the foregoing clause (i) shall
relieve Phillips of his obligations with respect to non-disclosure or use of
Confidential Information under Section 14 hereof.

         19. PROHIBITION ON HIRING. Phillips shall not hire any Company
employees prior to the expiration of the Non-Compete Period, except that he may
hire (i) Ed Lewis or, after the Consulting Period, his assistant, Michelle Wood,
(ii) other employees following six months after the termination of employment of
any such employee, and (iii) any terminated or former employees (subject to the
general non-solicitation provision above) upon request to the Board of
Directors, approval of which request shall not be unreasonably withheld.

         20. RELEASE. Except for claims arising out of or related to the
Company's obligations under this Agreement, including Phillips' rights to
indemnification and contribution related to his service as an officer or
director of the Company, or as otherwise set forth in this Agreement, Phillips
hereby releases, acquits and forever discharges the Company, its parents and
subsidiaries, and their officers, directors, agents, servants, employees,
attorneys, shareholders, successors, assigns and affiliates, of and from any and
all claims, liabilities, demands, causes of action, costs, expenses, attorneys
fees, damages, indemnities and obligations of every kind and nature, in law,
equity, or otherwise, known and unknown, suspected and unsuspected, disclosed
and undisclosed, arising out of or in any way related to or in any way connected
with Phillips employment with the Company, the termination of Phillips'
Employment Agreement, or the termination of that employment; claims or demands
related to salary, bonuses, commissions, stock, stock options, or any other
ownership interests in the Company, vacation pay, fringe benefits, expense
reimbursements, severance pay, or any other form of compensation; claims
pursuant to any federal, state or local law, statute, or cause of action
including, but not limited to, the federal Civil Rights Act of 1964, as amended;
the federal Americans with Disabilities Act of 1990; the federal Age
Discrimination in Employment Act of 1967, as amended ("ADEA"); tort law;
contract law; wrongful discharge; discrimination; harassment; fraud; defamation;
emotional distress; and breach of the implied covenant of good faith and fair
dealing.

                                       8
<PAGE>   9

         PHILLIPS ACKNOWLEDGES THAT HE IS KNOWINGLY AND VOLUNTARILY WAIVING AND
RELEASING ANY RIGHTS HE MAY HAVE UNDER THE ADEA, AS AMENDED. PHILLIPS ALSO
ACKNOWLEDGES THAT THE CONSIDERATION GIVEN FOR THE WAIVER AND RELEASE IN THE
PRECEDING PARAGRAPH HEREOF IS IN ADDITION TO ANYTHING OF VALUE TO WHICH HE WAS
ALREADY ENTITLED. PHILLIPS FURTHER ACKNOWLEDGES THAT HE HAS BEEN ADVISED BY THIS
WRITING, AS REQUIRED BY THE ADEA, THAT: (A) HIS WAIVER AND RELEASE DO NOT APPLY
TO ANY RIGHTS OR CLAIMS THAT MAY ARISE AFTER THE EXECUTION DATE OF THIS
AGREEMENT; (B) HE HAS BEEN ADVISED HEREBY THAT HE SHALL HAVE THE RIGHT TO
CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING THIS AGREEMENT; (C) HE HAS
TWENTY-ONE (21) DAYS TO CONSIDER THIS AGREEMENT (ALTHOUGH HE NEED NOT TAKE ALL
21 DAYS AND MAY CHOOSE TO VOLUNTARILY EXECUTE THIS AGREEMENT EARLIER); (D) HE
HAS SEVEN (7) DAYS FOLLOWING THE EXECUTION OF THIS AGREEMENT BY THE PARTIES TO
REVOKE THE AGREEMENT; AND (E) THIS AGREEMENT WILL NOT BE EFFECTIVE UNTIL THE
DATE UPON WHICH THE REVOCATION PERIOD HAS EXPIRED (THE "EFFECTIVE DATE"), WHICH
WILL BE THE EIGHTH DAY AFTER THIS AGREEMENT IS EXECUTED BY HIM.

         The Company acknowledges and affirms to Philips that the Company has no
present knowledge of any claim, demand or cause of action against Phillips
arising out of or related to his past or present employment with the Company.
The Company further agrees that, in the event the Company shall hereafter assert
a claim against Phillips arising out of or related to his past or present
employment the foregoing release shall not (i) prevent Phillips from asserting
any defense to, or raising any matter in defense of, such claim in any
proceeding relating thereto, or (ii) except with respect to claims related to
alleged breaches of fiduciary duty as an officer or director of the Company for
which Phillips is not, or is determined to be not, entitled to indemnification
or contribution by the Company under Delaware law and the Company's officer and
director indemnification policies and E & O insurance, be effective with respect
to any claims (except for claims under ADEA) asserted by Phillips as a
counter-claim in any proceeding relating to any claims brought by the Company.

         21. MISCELLANEOUS. This Agreement constitutes the complete, final and
exclusive embodiment of the entire agreement between Phillips and the Company
with regard to this subject matter. It is entered into without reliance on any
promise or representation, written or oral, other than those expressly contained
herein, and it supersedes any other such promises, warranties or
representations. This Agreement supersedes the Employment Agreement between
Phillips and the Company, and all amendments thereto. This Agreement may not be
modified or amended except in a writing signed by both Phillips and a duly
authorized officer of the Company. This Agreement will bind the heirs, personal
representatives, successors and assigns of both Phillips and the Company, and
inure to the benefit of both Phillips and the Company, their heirs, successors
and assigns. If any provision of this Agreement is determined to be invalid or
unenforceable, in whole or in part, this determination will not affect any other
provision of this Agreement and the provision in question will be modified by
the court so as to be rendered enforceable. This Agreement will be deemed to
have been entered into and will be construed and enforced in accordance with the
laws of Tennessee as applied to contracts made and to be performed entirely
within Tennessee without giving effect to its conflicts of laws doctrine. This
Agreement may be executed in multiple counterparts, or counterpart signature
pages, each of which shall be deemed an original, and all of which taken
together shall constitute one and the same instrument; and may be delivered by
one party to the other by delivery of an executed signature page by facsimile.

                                       9
<PAGE>   10

                                 SIGNATURE PAGE
                                       to
                SEPARATION OF EMPLOYMENT AND CONSULTING AGREEMENT

INTERNET PICTURES CORPORATION

By: /s/ Donald W. Strickland
   -------------------------------------------------
     Name: Donald W. Strickland
     Title: President and Chief Operating Officer

/s/ James M. Phillips
----------------------------------------------------
James M. Phillips

                                       10
<PAGE>   11

                                    EXHIBIT A

As used in the Separation and Consulting Agreement to which this Exhibit A is
attached, the term Business of the Company shall mean the provision of immersive
images and digital media formatting and infrastructure products and services
presently offered by the Company and its subsidiaries. As examples for purposes
of clarification, such products and services include:

         1.       camera kits and wide angle lenses (having a field of view
                  greater than 120 degrees), for still and/or video capture,

         2.       software and services for dewarping and perspectively
                  correcting images taken with wide angle lenses, for still
                  and/or video capture,

         3.       software and services for seaming images together taken with
                  wide angle lenses, for still and/or video capture,

         4.       iPIX Video image capture and production services, and

         5.       the "Rimfire" system that services eBay, Polaroid, Homestore
                  and other customers.

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