EXHIBIT 10.18
eMachines, Inc.
XXXXXX XX XXXXX EMPLOYMENT AGREEMENT
This Agreement is entered into as of the Effective Date (as hereafter
defined) by and between eMachines, Inc. (the "Company"), and Xxxxxx Xx Xxxxx
(the "Executive").
WHEREAS, upon the effectiveness of the merger (the "Effective Date") of
eMachines Acquisition Corp, a wholly owned subsidiary of the Company, with and
into FreePC, Inc. (the "Merger"), FreePC, Inc. ("FreePC") will become a wholly
owned subsidiary of the Company;
WHEREAS, Executive was employed by FreePC, Inc. ("FreePC") prior to the
Merger;
WHEREAS, the Company desires to employ Executive in the capacity of
Executive Vice President, Strategy and Business Development of the Company, and
Executive desires to accept such employment; and
WHEREAS the parties desire and agree to enter into an employment
relationship by means of this Agreement;
NOW THEREFORE in consideration of the promises and mutual covenants herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, it is mutually covenanted and
agreed by and among the parties as follows:
1. Duties and Scope of Employment.
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(a) Positions and Duties. Effective as of the Effective Date,
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Executive will serve as Executive Vice President, Strategy and Business
Development of the Company. Executive will render such business and professional
services in the performance of his duties, consistent with Executive's position
within the Company, as shall reasonably be assigned to him by the Chief
Executive Officer of the Company and the Company's Board of Directors (the
"Board") and shall include, but not be limited to, being responsible for all
aspects of corporate strategy, marketing, Internet sales, business development,
international expansion and legal. The period of Executive's employment under
this Agreement is referred to herein as the "Employment Term."
(b) Obligations. During the Employment Term, Executive will perform
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his duties faithfully and to the best of his ability and will devote his full
business efforts and time to the Company. Executive will be permitted to serve
on up to two (2) Boards of Directors, provided such services does not interfere
with the performance of Executive's duties hereunder nor create or involve a
conflict of interest with respect to the Company. Otherwise, for the duration of
the Employment Term, Executive agrees not to actively engage in any other
employment, occupation or consulting activity for any direct or indirect
remuneration without the prior approval of the Board.
2. At-Will Employment. The parties agree that the Executive's employment
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with the Company will be "at-will" employment and may be terminated at any time
with or without cause or notice. Executive understands and agrees that neither
his job performance nor promotions, commendations, bonuses or the like from the
Company give rise to or in any way serve as the basis for modification,
amendment, or extension, by implication or otherwise, of his employment with the
Company.
3. Compensation.
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(a) Base Salary. During the Employment Term, the Company will pay
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Executive as compensation for his services a base salary at the annualized rate
of $199,000 (the "Base Salary"). The Base Salary will be paid periodically in
accordance with the Company's normal payroll practices and be subject to the
usual, required withholding.
(b) Stock Option. As of the Effective Date, Executive will be granted
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a stock option, which will be, to the extent possible under the $100,000 rule of
Section 422(d) of the Internal Revenue Code of 1986, as amended (the "Code") an
"incentive stock option" (as defined in Section 422 of the Code), to purchase
250,000 shares of the Company's Common Stock at an exercise price to be
determined by the Company's Board of Directors on the date of grant (the
"Option"). The Option will vest as to 20% of the shares subject to the Option
one year after the date of grant, and as to 20% of the shares subject to the
Option each anniversary thereafter, so that the Option will be fully vested and
exercisable five (5) years from the date of grant, subject to Executive's
continued service to the Company on the relevant vesting dates. The Option will
be subject to the terms, definitions and provisions of the Company's Stock Plan
(the "Option Plan") and the stock option agreement by and between Executive and
the Company (the "Option Agreement"), both of which documents are incorporated
herein by reference.
4. Employee Benefits. During the Employment Term, Executive will be
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entitled to participate in the employee benefit plans currently and hereafter
maintained by the Company of general applicability to other senior executives of
the Company, including, without limitation, the Company's group medical, dental,
vision, disability, life insurance, and flexible-spending account plans. The
Company reserves the right to cancel or change the benefit plans and programs it
offers to its employees at any time.
5. Expenses. The Company will reimburse Executive for reasonable travel,
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entertainment or other expenses incurred by Executive in the furtherance of or
in connection with the performance of Executive's duties hereunder, in
accordance with the Company's expense reimbursement policy as in effect from
time to time.
6. Treatment of FreePC Options. Executive and the Company agree that
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FreePC's obligations under the Restricted Stock Purchase Agreement dated January
25, 1999 and the Option Agreement dated February 1, 1999 (the "Option Agreement"
and collectively with the Restricted Stock Purchase Agreements, the "Assumed
Agreements"), as limited and otherwise elaborated in this Section 6, with
respect to any options or restricted stock purchase rights granted by FreePC to
Executive prior to the Merger (the "FreePC Options") shall be assumed by the
Company on the Effective Date in accordance with and subject to the terms and
conditions of the Agreement and Plan
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of Reorganization dated November 24, 1999 by and among eMachines Acquisition
Corp., Inc., FreePC and the Company (the "Merger Agreement") entered into in
connection with the Merger.
(a) As consideration for this Agreement, Executive agrees to waive all
existing acceleration rights under the Assumed Agreements concerning the FreePC
Options, except as set forth in Sections 6(b) and 7 hereof and except that
Executive and the Company hereby agree that subject to the approval of holders
of more than 75% of the shares of Stock of FreePC outstanding prior to the
Merger, on the Effective Date the vesting of the FreePC Options shall accelerate
with respect to all of the 250,000 options provided for in the Option Agreement
and a total of 502,734 shares of FreePC Common Stock purchased pursuant to the
other Assumed Agreements, which number represents 3.25% of the shares for each
month that Executive was an employee of FreePC prior to December 31, 1999. On or
as promptly as practicable after the Effective Date, and if the Executive shall
exercise such FreePC Options on the Effective Date, such 752,734 shares of
FreePC Common Stock shall be exchanged in accordance with the terms of the
Merger Agreement into (i) the number of shares of Company Common Stock arrived
at by multiplying the product of 0.7 and the Exchange Ratio (as defined in the
Merger Agreement) by 752,734, and (ii) warrants to purchase the number of shares
of Company Common Stock arrived at by multiplying the product of 0.3 and the
Exchange Ratio (as defined in the Merger Agreement) by 752,734. Such warrants
shall be exercisable at the Warrant Price, during the period and otherwise as
set forth in the Merger Agreement and, if the Executive shall not elect and
notify the Company as set forth in Section 6(c) hereof, shall expire as set
forth in the Merger Agreement even with respect to shares that had not vested
prior to such expiration.
(b) After giving effect to Section 6(a) hereof, and subject to the
approval of holders of more than 75% of the shares of Stock of FreePC
outstanding prior to the Merger (in the absence of which approval on the
Effective Date the vesting of the FreePC Options shall accelerate with respect
to all of the Executive's FreePC Options), the unvested shares of Company Common
Stock exchanged in the Merger for Executive's unvested FreePC Options shall have
the same vesting schedule as is currently provided in the applicable Assumed
Agreement with the number of shares of Company Common Stock that vest upon each
vesting date such that the number of shares of Company Common Stock that vest
upon each vesting date shall be 72,266 shares of Company Common Stock multiplied
by the product of 0.7 and the Exchange Ratio. After giving effect to Section
6(a) hereof, and subject to the approval of holders of more than 75% of the
shares of Stock of FreePC outstanding prior to the Merger (in the absence of
which approval on the Effective Date the vesting of the FreePC Options shall
accelerate with respect to all of the Executive's FreePC Options), the warrants
to purchase shares of Company Common Stock exchanged in the Merger for
Executive's unvested FreePC Options shall have the same vesting schedule as is
currently provided in the applicable Assumed Agreement with the number of shares
of Company Common Stock that vest upon each vesting date such that the warrants
to purchase shares of Company Common Stock that vest upon each vesting date
shall be 72,266 shares of Company Common Stock multiplied by the product of 0.3
and the Exchange Ratio; provided, however, that if the Executive shall not elect
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and notify the Company as set forth in Section 6(c) hereof, the warrants shall
expire as set forth in the Merger Agreement and the Executive shall have no
right thereafter to purchase any shares of Company Common Stock not purchased by
exercise of the warrants prior to such expiration, even with respect to shares
that had not vested prior to such expiration.
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(c) As soon as practicable after the Effective Date, the Company shall
deliver to the Executive an appropriate notice stating that the expiration date
of the warrants issued to Executive pursuant to the Merger Agreement with
respect to the FreePC Options exchanged as aforesaid shall be extended, if the
Executive so elects and so notifies the Company, to the dates which are, in the
case of each warrant or portion thereof, one month following the vesting of each
FreePC Option exchanged therefor. If the Executive does not make such election,
rights to purchase shares of Company Common Stock obtained by Executive in the
Merger may be irretrievably lost without compensation.
7. Severance.
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(a) Involuntary Termination. If Executive's employment with the
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Company terminates as a result of an "Involuntary Termination" (as defined
herein) at any time within twelve (12) months of the Effective Date or at any
time within twelve (12) months after a "Change of Control" (as defined herein),
then (i) all unvested shares of Company Common Stock exchanged for Executive's
FreePC Options in the Merger shall become fully vested, (ii) all Company Common
Stock subject to a right of repurchase by the Company (or its successor) that
was purchased by Executive pursuant to the Assumed Agreements and exchanged for
FreePC Options in the Merger shall have such right of repurchase lapse with
respect to all of the shares, and (iii) all warrants to purchase shares of
Company Common Stock exchanged in the Merger for Executive's unvested FreePC
Options shall become fully vested.
(b) Other Termination. If Executive's employment with the Company
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terminates voluntarily by Executive, or other than as described in Section 7(a)
at any time, then (i) all vesting of the Company Common Stock and warrants to
purchase Company Common Stock exchanged in the Merger for FreePC Options will
terminate immediately and all payments of compensation by the Company to
Executive hereunder will terminate immediately (except as to amounts already
earned) and (ii) Executive will only be eligible for severance benefits in
accordance with the Company's established policies as then in effect.
8. Definitions.
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(a) Cause. For purposes of this Agreement, "Cause" is defined as (i)
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misappropriation or embezzlement of Company funds or an act of fraud upon the
Company made by Executive in connection with Executive's responsibilities as an
employee under this Agreement, (ii) Executive's conviction of, or plea of
nolo contendere to, a felony (iii) Executive's gross misconduct in connection
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with Executive's responsibilities as an employee under this Agreement or (iv)
Executive's continued willful failure to substantially perform his employment
duties under this Agreement or any other continued failure to substantially
perform his duties under this Agreement that causes material harm to the
Company, but only in each case, after Executive has received a written demand
for performance from the Company which specifically sets forth the factual basis
for the Company's belief that Executive has not substantially performed his
duties under this Agreement and after Executive has had thirty (30) days after
receipt of such written demand to cure such nonperformance.
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(b) Change of Control. For purposes of this Agreement, "Change of
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Control" of the Company is defined as: (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing 50% or more of
the total voting power represented by the Company's then outstanding voting
securities; or (ii) a change in the composition of the Board occurring within a
two-year period, as a result of which fewer than a majority of the directors are
Incumbent Directors. "Incumbent Directors" will mean directors who either (A)
are directors of the Company as of the date hereof, or (B) are elected, or
nominated for election, to the Board with the affirmative votes of at least a
majority of the Incumbent Directors at the time of such election or nomination
(but will not include an individual whose election or nomination is in
connection with an actual or threatened proxy contest relating to the election
of directors to the Company); or (iii) the date of the consummation of a merger
or consolidation of the Company with any other corporation that has been
approved by the stockholders of the Company, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company; or (iv)
the date of the consummation of the sale or disposition by the Company of all or
substantially all the Company's assets.
(c) Involuntary Termination. "Involuntary Termination" shall mean (i)
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without the Executive's express written consent, a reduction of the Executive's
duties, position or responsibilities relative to the Executive's duties,
position or responsibilities in effect immediately prior to such reduction, or
the removal of the Executive from such position, duties and responsibilities,
unless the Executive is provided with comparable duties, position and
responsibilities; provided, however, that a reduction in duties, position or
responsibilities solely by virtue of the Company being acquired and made part of
a larger entity (as, for example, when the Chief Financial Officer of the
Company remains as such following a Change of Control but is not made the Chief
Financial Officer of the acquiring corporation) shall not constitute an
"Involuntary Termination;"; (ii) without the Executive's express written
consent, a material reduction of the facilities and perquisites (including
office space and location) available to the Executive immediately prior to such
reduction; (iii) a reduction by the Company of the Executive's base salary as in
effect immediately prior to such reduction; (iv) any reduction by the Company in
the kind or level of employee benefits to which the Executive is entitled
immediately prior to such reduction with the result that the Executive's overall
benefits package is reduced; (v) without the Executive's express written
consent, the relocation of the Executive to a facility or a location more than
fifty (50) miles from his current location; (vi) any purported termination of
the Executive by the Company which is not effected for Cause; (vii) without
Executive's prior written consent, Executive is required to report to any
officer, employee or representative other than the CEO of the Company; or (viii)
if Xxxxxxx Xxxxxx is neither the President or CEO of the Company.
9. Confidential Information. Executive agrees to enter into the Company's
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standard Confidential Information and Invention Assignment Agreement (the
"Confidential Information Agreement") upon commencing employment hereunder.
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10. Assignment. This Agreement will be binding upon and inure to the benefit
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of (a) the heirs, executors and legal representatives of Executive upon
Executive's death and (b) any successor of the Company. Any such successor of
the Company will be deemed substituted for the Company under the terms of this
Agreement for all purposes. For this purpose, "successor" means any person,
firm, corporation or other business entity which at any time, whether by
purchase, merger or otherwise, directly or indirectly acquires all or
substantially all of the assets or business of the Company. None of the rights
of Executive to receive any form of compensation payable pursuant to this
Agreement may be assigned or transferred except by will or the laws of descent
and distribution. Any other attempted assignment, transfer, conveyance or other
disposition of Executive's right to compensation or other benefits will be null
and void.
11. Notices. All notices, requests, demands and other communications called
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for hereunder shall be in writing and shall be deemed given (i) on the date of
delivery if delivered personally, (ii) one (1) day after being sent by a well
established commercial overnight service, or (iii) four (4) days after being
mailed by registered or certified mail, return receipt requested, prepaid and
addressed to the parties or their successors at the following addresses, or at
such other addresses as the parties may later designate in writing:
If to the Company:
eMachines, Inc.
00000 Xxxxxx Xxxx, Xxxxx 000
Xxxxxx, Xxxxxxxxxx 00000-0000
Attn: Chief Executive Officer
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Fax: (000)-000-0000
If to Executive:
Xxxxxx X. Xx Xxxxx
0000 X. Xxxxxx Xxx. #000
Xxx Xxxxxxx, XX 00000
12. Severability. In the event that any provision hereof becomes or is
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declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement will continue in full force and effect without said
provision.
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13. Arbitration.
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(a) Executive agrees that any dispute or controversy arising out of,
relating to, or in connection with this Agreement, or the interpretation,
validity, construction, performance, breach, or termination thereof, shall be
settled by binding arbitration to be held in , California in accordance with the
National Rules for the Resolution of Employment Disputes then in effect of the
American Arbitration Association (the "Rules"). The arbitrator may grant
injunctions or other relief in such dispute or controversy. The decision of the
arbitrator will be final, conclusive and binding on the parties to the
arbitration. Judgment may be entered on the arbitrator's decision in any court
having jurisdiction. Unless otherwise required by law, the losing party in any
arbitration proceeding shall pay all of the arbitrator's fees and costs.
(b) The arbitrator(s) will apply California law to the merits of any
dispute or claim, without reference to rules of conflicts of law. The
arbitration proceedings will be governed by federal arbitration law and by the
Rules, without reference to state arbitration law. The Executive hereby consents
to the personal jurisdiction of the state and federal courts located in
California for any action or proceeding arising from or relating to this
Agreement or relating to any arbitration in which the parties are participants.
(c) EXECUTIVE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES
ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EXECUTIVE
AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH
THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE,
BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION
CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO
THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THIS AGREEMENT.
14. Integration. This Agreement, together with the Option Plan, Option
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Agreement, the Confidential Information Agreement and the Merger Agreement
represents the entire agreement and understanding between the parties as to the
subject matter herein and supersedes all prior or contemporaneous agreements
whether written or oral. No waiver, alteration, or modification of any of the
provisions of this Agreement will be binding unless in writing and signed by
duly authorized representatives of the parties hereto.
15. Tax Withholding. All payments made pursuant to this Agreement will be
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subject to withholding of applicable taxes.
16. Governing Law. This Agreement will be governed by the laws of the
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State of California (with the exception of its conflict of laws provisions).
17. Acknowledgment. Executive acknowledges that he has had the oppor-
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tunity to discuss this matter with and obtain advice from his private attorney,
has had has had sufficient time to, and has carefully read and fully understands
all the provisions of this Agreement, and is knowingly and voluntarily entering
into this Agreement.
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IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by their duly authorized officers, as of the day and year
first above written.
eMachines, Inc.
By: /s/ Xxxxxxx Xxxxxx Date: 1/14/00
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Title: Chief Executive Officer
Xxxxxx X. Xx Xxxxx
/s/ Xxxxxx X. Xx Xxxxx Date: 1/14/00
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