EXHIBIT 99.5
ESCROW AGREEMENT
This Agreement is made this 8th day of August, 2001, by and between Xxxxx
Xxxxxxxxx (the "Executive"), eMachines, Inc. (the "Company") and First Republic
Bank DBA First Republic Trust Company ("Escrow Holder"), with regard to the
following matters.
Recitals
The Company and the Executive desire to establish an escrow account with
Escrow Holder into which certain monies will be deposited and held in escrow on
the terms and conditions contained herein. This Agreement concerns the holding
and disbursement of the escrowed funds.
Escrow Holder agrees to establish the escrow account and to maintain the
monies in escrow according to the terms and conditions of this Agreement, and
hereby consents to act as the Escrow Holder.
1. Deposits. The amount of $1,000,000 (the "Escrow Amount") shall be
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deposited by the Company in an account entitled First Republic Bank, Escrow
Holder for Xxxxx Xxxxxxxxx and eMachines, Inc. (the "Escrow Account"). The
Escrow Amount shall be used to secure payment to Executive of the bonus (the
"Bonus") provided for under Section 3(c) of the Employment Agreement entered
into as of April 1, 2001 by and between the Company and the Executive (the
"Employment Agreement").
2. Interest on Deposited Funds. All funds deposited with Escrow Holder
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shall be deposited into an interest bearing account or such other investment as
the Chief Executive Officer of the Company (the "CEO") or the Chief Financial
Officer of the Company (the "CFO") shall direct (or if the Company does not have
a CEO or CFO, the next highest ranking executive officer below the CEO excluding
the Executive). The Company hereby assumes responsibility for any interest
forfeiture penalties for early withdrawal which result from the disbursement of
funds from the Escrow Account prior to the maturity of any investment selected
for the Escrow Account by the Company. All interest earned on deposited funds in
the Escrow Account shall be deemed for the benefit of the Company.
The Company shall obtain W-9s for interest reporting and shall be
responsible for reporting any such interest on 1099 year-end interest
statements.
3. Collected Funds. In no event shall Escrow Holder be required to release
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any amounts until it has received collected funds. Collected funds shall mean
all funds received by Escrow Holder which have cleared normal banking channels
and for which Escrow Holder shall have received final settlement.
4. Authorization of Disbursement. The signatures of the Executive and the
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CEO or CFO (or if the Company does not have a CEO or CFO, the next highest
ranking executive officer below the CEO excluding the Executive) shall serve as
authorization to Escrow Holder to make a
sole disbursement from the Escrow Account to Executive on behalf of the Company
(the "Authorization"). In the event that the CEO or CFO (or if the Company does
not have a CEO or CFO, the next highest ranking executive officer below the CEO
excluding the Executive) shall not be available to sign the Authorization, then
the board of directors of the Company or its successor-in-interest may select
such other representative as it shall deem appropriate. The Authorization shall
state the amount of funds to be released from the Escrow Account, and shall
contain the representation that the conditions to the disbursement under the
Employment Agreement have been met (the portion of the Employment Agreement
setting forth such conditions is attached hereto as Exhibit A). The Escrow
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Holder shall not have any duty to ascertain whether such conditions have been
met, and in making the disbursement or determining the amount of the
disbursement may rely solely upon the representations in the Authorization.
5. Term and Refund. The term of the Escrow Account shall not extend beyond
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the earliest of the following: (i) the date of the sole disbursement to the
Executive; (ii) the date on which the Executive first ceases to be employed by
the Company; or (iii) March 31, 2003. Upon the earliest of such dates, any
portion of the Escrow Account not paid to the Executive under the terms of this
Agreement shall be paid to the Company. In ascertaining whether (ii) has
occurred, the Escrow Holder shall rely solely upon a representation to that
effect by the CEO or CFO (or if the Company does not have a CEO or CFO, the next
highest ranking executive officer below the CEO excluding the Executive) or
other duly appointed representative of the Company.
6. Resolution of Conflicts; Arbitration. The Executive and the Company
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shall in good faith attempt to agree on the issuance and amount of the
Authorization. If no such agreement can be reached after good faith negotiation,
either the Executive or the Company may demand arbitration of the matter, as set
forth in Section 15 of the Employment Agreement. Except as specifically provided
otherwise in this Escrow Agreement, or in any subsequent agreement signed by and
between the Executive and the Company, arbitration shall be the sole and
exclusive remedy of the parties hereto for any dispute arising out of this
Escrow Agreement.
7. Escrow Holder Not a Trustee or Fiduciary. Nothing contained in this
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Agreement shall constitute the Escrow Holder as trustee or fiduciary for any
party hereto, or impose on the Escrow Holder any duties or obligations other
than those for which there is an express provision herein. Except as provided
herein, Escrow Holder shall have no responsibility or liability for delivery of
the funds in the Escrow Account.
For all purposes of this Agreement, Escrow Holder shall be entitled to
assume that the parties hereto are exclusively entitled to their share of the
escrow funds in accordance with the terms and conditions of this Agreement, and
any further instructions given pursuant hereto, and are fully authorized and
empowered, without affecting the rights of any third parties, to appoint the
Escrow Holder as the Escrow Holder in accordance with the terms and provisions
hereof.
The Escrow Holder shall be obliged to render statements of account only
with respect to the escrow funds deposited to the account of the parties
referred to herein and the Escrow Holder shall not be under any obligation to
render statements of account to any third parties unless Escrow Holder so
consents in writing.
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8. Indemnity. The Company, irrevocably and unconditionally, agrees to
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reimburse and indemnify the Escrow Holder and its shareholders or partners, and
their respective directors, officers, employees, agents, successors and assigns
(collectively, the "Indemnified Parties"), for, and to hold them harmless
against any claim, damage, loss, liability or expense of any kind or nature
whatsoever whether arising at law or in equity, known or unknown or direct or
indirect, including, but not limited to, reasonable attorneys' fees, incurred
without willful misconduct or gross negligence on the part of the Escrow Holder
or any of the Indemnified Parties, arising out of or in connection with the
acceptance of, or the performance of the Escrow Holder's duties and obligations
under, this Escrow Agreement as well as the reasonable costs and expenses of
defending against any claim or liability arising out of or relating to this
Agreement other than as a result of either the Escrow Holder's or any of the
Indemnified Parties' willful misconduct or gross negligence.
9. Limitations on Liability.
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(a) It is understood and agreed that the Escrow Holder shall incur no
liability (except for acts of gross negligence or willful misconduct by it or
any other Indemnified Parties) and be under no obligation to take any actions
(whether by commencement of legal proceedings or otherwise) to insure that any
funds are actually received by the Escrow Holder.
(b) None of the provisions hereof shall be construed so as to require
the Escrow Holder to expend or risk any of its own funds or otherwise incur any
liability (except for customary expenses) in the performance of its duties under
this Agreement and it shall be under no obligation to make any payment from the
Escrow Account except out of the funds received by it.
(c) If it becomes illegal or impossible for the Escrow Holder to
carry out any of the provisions hereof, the Escrow Holder shall incur no
liability as a consequence of the enforceability or lack thereof of any
agreements referred to herein.
(d) The Escrow Holder shall not be liable to any party hereto in
acting upon any written notice, request, waiver, consent, receipt or other paper
or document reasonably believed by the Escrow Holder to be signed by the proper
party or parties. The Escrow Holder will be entitled to treat as genuine and as
the document it purports to be any letter, paper, telex, or other document
furnished or caused to be furnished to the Escrow Holder by Executive or the
Company, and reasonably believed by the Escrow Holder to be genuine and to have
been transmitted by the proper party or parties. The Escrow Holder shall have no
liability with respect to any good faith action taken or allowed by it
hereunder.
(e) The Escrow Holder shall not be liable for any error of judgment
or for any act done or step taken or omitted by it in good faith or for any
mistake of fact or law in connection herewith (except, in each case, for any
acts of gross negligence or willful misconduct by it and the other Indemnified
Parties), except as otherwise provided in this Agreement, and the Escrow Holder
shall have no duties to the parties hereto.
(f) The Escrow Holder may consult with legal counsel in the event of
any dispute or questions as to the interpretation or construction of this
Agreement or the Escrow Holder's duties hereunder, and the Escrow Holder shall
incur no liability and shall be fully protected in acting in
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accordance with the opinion and instructions of counsel. Any fees or costs so
incurred shall be borne by the parties hereto, other than the Escrow Holder.
(g) In the event of any disagreement between the parties hereto or
any person or persons named in this Agreement, and any other person, resulting
in adverse claims and demands being made in connection with or for any money
involved herein or affected hereby, the Escrow Holder shall be entitled, at its
option, to refuse to comply with any such claims or demands for so long as such
disagreement shall continue, and in so doing the Escrow Holder shall not be or
become liable for damages or interest to the parties hereto or any of them, or
to any person named in this Agreement, for the Escrow Holder's refusal to comply
with such conflicting or adverse demands; and the Escrow Holder shall be
entitled to continue so to refrain and refuse to act until:
(1) the rights of the adverse claimants have been finally
adjudicated in a court or by arbitration having jurisdiction
of the parties and the money involved herein and affected
hereby; or
(2) all differences have been resolved by agreement and the
Escrow Holder has been notified thereof in writing by all of
the persons interested; or
(3) in the event of such disagreement, the Escrow Holder, in its
discretion, may file suit in interpleader or for declaratory
relief for the purpose of having the respective rights of
the claimants adjudicated, and deposit with the court all
documents and property held hereunder, and all reasonable
costs and reasonable counsel fees incurred by the Escrow
Holder in such action shall be included in the judgment of
any such action.
10. Modification, Amendment, Rescission. No modification, amendment,
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rescission supplement or change of this Agreement shall be valid, binding or
effective unless notice thereof is given to the Escrow Holder in writing by all
parties hereto and accepted by the Escrow Holder.
11. Resignation of the Escrow Holder. The Escrow Holder reserves the right
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to resign as the Escrow Holder at any time by giving five (5) business days
written notice thereof to all parties at the last known address of each such
party. Upon notice or resignation by the Escrow Holder, the undersigned agree
that the Escrow Holder may deliver the deposited funds, upon payment in full of
all fees due the Escrow Holder to such replacement Escrow Holder. If no notice
is promptly received from the undersigned and the replacement Escrow Holder, the
Escrow Holder may petition any court of competent jurisdiction for disposition
of the assets held pursuant to this Agreement and the Escrow Holder shall
thereby by released from any and all responsibility and liability to the parties
hereto.
12. Escrow Holder Fee. Escrow Holder shall be paid $2,500 upon the
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execution of the Agreement. This fee is to be paid by Executive to Escrow
Holder.
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13. Successors and Assigns. Unless contrary to an express provision of
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this Agreement or the Employment Agreement, the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
legal representatives, heirs, successors and assigns. The provisions hereof in
favor of the Escrow Holder shall survive the termination of the Escrow Account.
14. Counterparts. This Agreement may be signed in several counterparts,
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each of which shall be deemed an original and all such counterparts shall
constitute one and the same instrument.
15. Governing Law. This Agreement shall be governed by and construed in
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accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws. Each
of the parties hereto irrevocably consents to the exclusive jurisdiction and
venue of any court within Orange County, State of California, in connection with
any matter based upon or arising out of this Agreement or the matters
contemplated herein, agrees that process may be served upon them in any manner
authorized by the laws of the State of California for such persons and waives
and covenants not to assert or plead any objection which they might otherwise
have to such jurisdiction, venue and such process.
16. Notices. All notices, instructions and other communication under this
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Agreement shall be in writing and shall be deemed given to the Escrow Holder
only upon the Escrow Holder's actual receipt of same at the following address
(or to such other address or addresses as the Escrow Holder may designate to the
parties in writing):
First Republic Trust Company
Attn: Xxxxx X. Xxxxxxxx, Xx.
000 Xxxx Xxxxxx, 0/xx/ Xxxxx
Xxx Xxxxxxxxx, XX 00000
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/s/ Xxxxx Xxxxxxxxx
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Xxxxx Xxxxxxxxx
eMACHINES, INC.
By: /s/ Xxxx X. Xxxxxxxx
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Name: Xxxx X. Xxxxxxxx
Title: Senior Vice President and Chief Operating
Officer
FIRST REPUBLIC BANK
By: /s/ Xxxxx X. Xxxxxxxx
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Name: Xxxxx X. Xxxxxxxx
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Title: SVP
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Exhibit A
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Excerpt from Xxxxx Xxxxxxxxx Employment Agreement
Dated April 1, 2001
* * *
Bonus. The Company shall pay Executive a bonus equal to either (the "BONUS
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AMOUNT"): (x) if Executive is employed by the Company on the Full-Term Date or
in the Event of a Liquidation Event $1,000,000, or (y) if Executive is
terminated by the Company for other than Cause prior to the Full-Term Date or if
Executive terminates this Agreement for Good Reason prior to the Full-Term Date,
$1,000,000 multiplied by a fraction equal to the number of months that have
elapsed between the Effective Date and the Part-Term Date (rounded down to the
nearest whole month) divided by 24, in each case subject to the following
conditions and as adjusted as set forth below:
(1) If on the Full-Term Date or on the Part-Term Date, as
applicable, the Company's Common Stock is not traded on a
national securities exchange (a "NATIONAL SECURITIES
EXCHANGE") registered under Section 6 of the Securities
Exchange Act of 1934, as amended, and is not reported through
either the Nasdaq National Market or Nasdaq SmallCap Market,
then the Company shall, on such date, pay Executive the Bonus
Amount; provided, however, that the Bonus Amount shall be
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reduced by an amount equal to the product of (A) the number of
shares of Common Stock subject to the Option that the
Executive has sold prior to the Full-Term Date or the Part-
Term Date, as applicable, and (B) the difference between the
sales price of such Common Stock and the per share exercise
price of the Option; provided, further, that payment of the
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Bonus Amount is subject to Executive's continued employment
with the Company on the Full-Term Date or the Part-Term Date,
as applicable, and that no Bonus Amount shall be paid to
Executive pursuant to this Section 3(c)(i) if a Liquidation
Event (as defined below) occurs prior to the Full-Term Date or
the Part-Term Date, as applicable.
(2) If (A) on the Full-Term Date or the Part-Term Date, as
applicable, the Company's Common Stock is traded on a National
Securities Exchange or is reported through the Nasdaq National
Market or Nasdaq SmallCap Market and (B) the average of the
closing prices of the Company's Common Stock as quoted in the
Wall Street Journal (the "AVERAGE CLOSING PRICE") over the 30-
day period ending three days prior to the Full-Term Date or
the Part-Term Date, as applicable, is less than the Target
Price (as defined below), then the Company shall pay Executive
the Bonus Amount; provided, however, that if the Average
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Closing Price exceeds the per share exercise price of the
Option, the Bonus Amount shall be reduced by an amount equal
to the product of (w) the maximum number of shares of Common
Stock subject to the Option that can be sold by Executive on
such date under the volume limitations set forth in Rule
144(e) promulgated under the Securities Act, and (x) the
difference between the Average Closing Price and the per share
exercise price
of the Option; provided, further, that the Bonus Amount shall be reduced by
an amount equal to the product of (y) the number of shares of Common Stock
subject to the Option that the Executive has sold prior to the Full-Term
Date or the Part-Term Date, as applicable, and (z) the difference between
the sales price of such Common Stock and the per share exercise price of
the Option; provided, further, that payment of the Bonus Amount is subject
to Executive's continued employment with the Company on the Full-Term Date
or the Part-Term Date, as applicable, and that no Bonus Amount shall be
paid to Executive pursuant to this Section 3(c)(ii) if a Liquidation Event
occurs prior to the Full-Term Date or the Part-Term Date, as applicable.
For purposes of this Section 3(c)(ii), the "TARGET PRICE" shall mean an
amount equal to the sum of $0.50 and the per share exercise price of the
Option. The calculations in this Section 3(c)(ii) shall be proportionately
adjusted to reflect the effect of any stock split, reverse stock split,
stock dividend, stock distribution, combination or reclassification of the
Company's Common Stock.
(3) In the event of a Liquidation Event prior to the Full-Term Date or the
Part-Term Date, as applicable, then Executive shall, on the date of the
Liquidation Event, be entitled to receive the Bonus Amount less: (A) an
amount equal to the difference between (w) the fair market value of all
cash and Liquid Securities that the Executive received or would be entitled
to receive, directly or indirectly, in the future as a result of the
Liquidation Event for the Option and the shares of Common Stock issued or
issuable upon the exercise of the Option (determined as if the Option was
fully vested at such date and including any distribution on such shares
reasonably anticipated as a result, directly or indirectly, of such
Liquidation Event) and (x) the sum of the total exercise price paid by
Executive for the shares of Common Stock subject to the Option that are
then held by Executive and the total exercise price that would be required
to be paid to exercise such Option to the extent such Option has not been
exercised (determined as if the Option was fully vested at such date), and
(B) an amount equal to the product of (y) the number of shares of Common
Stock subject to the Option that the Executive has sold prior to the
Liquidation Event and (z) the difference between the sales price of such
Common Stock and the per share exercise price of the Option; provided,
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however, that payment of the Bonus Amount is subject to Executive's
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continued employment with the Company on the date of the Liquidation Event.
For purposes of this Section 3(c), a "LIQUIDATION EVENT" shall include any
event of liquidation, dissolution, or winding up of the Company, either
voluntary or involuntary; provided, that none of the foregoing shall be
deemed a Liquidation Event where the event has been preceded by a sale of
all or substantially all of the assets or business of the Company and the
successor corporation has assumed all of the obligations under this
Agreement. For purposes of this Section 3(c), "LIQUID SECURITIES" shall
include securities traded on a National Securities Exchange or reported
through the Nasdaq National Market or Nasdaq SmallCap Market, or other
similar Non-U.S. stock exchange.
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(4) In no event shall the amounts paid to Executive under this Section 3(c)
exceed the Bonus Amount, as adjusted pursuant to the applicable
subparagraph above, and in no event shall Executive be required to pay the
Company any amounts under this Section 3(c). The Bonus Amount shall only be
paid once and then only pursuant to the first to occur of the conditions
set forth in the preceding subparagraphs 3(c)(i), 3(c)(ii) and 3(c)(iii).
Once paid the Employee shall not be entitled to any further amounts
pursuant to this Section 3(c).
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