EXHIBIT 10.1
SECURITY AGREEMENT
This Security Agreement is made as of June 10, 1999 between emachines,
Inc., a Delaware corporation (the "Pledgee"), ________________ (the "Pledgor"),
and Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, P.C., as escrow agent (the "Escrow Agent")
for the Pledgee and holder of the Securities pledged hereunder.
Recitals
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Pursuant to the Initial Capitalization Agreement, dated as of June 10, 1999
(the "Agreement"), between the Pledgor and the Pledgee, the Pledgor has
purchased _______________ shares of the Pledgee's Common Stock (the "Shares") at
a price of $0.20 per Share, for a total purchase price of $___________ (the
"Purchase Price"). The Pledgor has paid $___________ of the Purchase Price by
delivery to the Pledgee of a promissory note (the "Note").
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of
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the transfer of the Shares to the Pledgor under the Agreement, the Pledgor,
pursuant to the California Uniform Commercial Code, hereby pledges all of such
Shares (herein sometimes referred to as the "Collateral") represented by
certificate number __________, and herewith delivers said certificate to the
Escrow Agent, who shall hold said certificate on behalf of the Pledgee subject
to the terms and conditions of this Security Agreement.
The Shares (together with an executed blank stock assignment or
assignments) shall be held by the Escrow Agent on behalf of the Pledgee as
security for the repayment of the Note, and any extensions or renewals thereof,
to be executed by the Pledgor pursuant to the terms of the Agreement, and the
Escrow Agent shall not encumber or dispose of such Shares except in accordance
with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce the Pledgee to
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enter into this Security Agreement, the Pledgor represents and covenants to the
Pledgee, its successors and assigns, as follows:
(a) Payment of Indebtedness. The Pledgor will pay the principal
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sum of the Note secured hereby, and interest thereon, at the time and in the
manner provided in the Note.
(b) Encumbrances. The Shares are free of all other adverse claims,
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encumbrances, defenses and liens (other than restrictions on transfer imposed by
applicable securities laws), except for the pledge of the Shares hereunder as
security for payment of the Note, and the Pledgor will not further encumber the
Shares without the prior written consent of Pledgee.
(c) Margin Regulations. In the event that the Pledgee's Common
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Stock is now or later becomes margin-listed by the Federal Reserve Board and the
Pledgee is classified as
a "lender" within the meaning of the regulations under Part 207 of Title 12 of
the Code of Federal Regulations ("Regulation G"), the Pledgor agrees to
cooperate with the Pledgee in making any amendments to the Note or providing any
additional collateral as may be necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all
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payments of principal and interest are made as they become due under the terms
of the Note, the Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge any
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stock dividend, reclassification, readjustment or other changes are declared or
made in the capital structure of the Pledgee, all new, substituted and
additional shares or other securities issued by reason of any such change shall
be delivered to and held by the Pledgee under the terms of this Security
Agreement in the same manner as the Shares originally pledged hereunder. In the
event of substitution of such securities, the Pledgor, the Pledgee and the
Escrow Agent shall cooperate and execute such documents as are reasonable so as
to provide for the substitution of such Collateral and, upon such substitution,
references to "Shares" in this Security Agreement shall include the substituted
shares of capital stock of the Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this pledge,
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subscription options or other rights or options shall be issued in connection
with the pledged Shares, such rights and options shall be the property of the
Pledgor and, if exercised by the Pledgor, all new stock or other securities so
acquired by the Pledgor as it relates to the pledged Shares then held by the
Escrow Agent shall be immediately delivered to the Escrow Agent, to be held
under the terms of this Security Agreement in the same manner as the Shares
pledged.
6. Default. The Pledgor shall be deemed to be in default of the Note
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and of this Security Agreement in the event:
Payment of principal or interest on the Note shall be delinquent for a
period of 10 days or more; or
The Pledgor fails to perform any of the covenants set forth in this
Security Agreement for a period of 10 days after written notice thereof from the
Pledgee; or
A bankruptcy or insolvency proceeding is instituted by or against the
Pledgor, or if a receiver is appointed for the property of the Pledgor; or
(a) The Pledgor makes an assignment for the benefit of creditors.
In the case of a default, as set forth above, the Pledgee shall have the
right to accelerate payment of the entire amount on the Note, and the Pledgee
shall thereafter be entitled to pursue its remedies under the California Uniform
Commercial Code.
7. Foreclosure. In the event of any foreclosure of the security interest,
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the Company may sell the applicable Shares at a private sale and may itself
repurchase any or all of the applicable Shares. The parties acknowledge that,
prior to the establishment of a public market for the Shares of the Company, the
securities laws applicable to the sale of the Shares make a
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public sale of the Shares commercially unreasonable. The parties agree that the
repurchasing of the Shares by the Company, or by any person to whom the Company
may have assigned its rights hereunder, is commercially reasonable if made at
any of the following prices: (A) a price determined by the Board of Directors in
its discretion, fairly exercised, representing what would be the fair market
value of the Shares diminished by any limitation on transferability, whether due
to the size of the block of Shares or the restrictions of applicable securities
laws, or (B) the book value per Share as recorded on the Company's books at the
end of the last fiscal quarter prior to the date of sale of the Shares upon
foreclosure (whether or not such book value per share is unaudited and subject
to adjustment), or (C) the price at which the Shares were originally purchased
by the Purchaser.
8. Prepayment. In the event that the Pledgor prepays all or a portion of
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the Note, in accordance with the provisions thereof, the Escrow Agent, on behalf
of the Pledgee, will release from collateral the applicable Shares represented
by the portion of the Note so repaid.
9. Full Payment. Upon full payment by the Pledgor of all amounts due
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on the Pledgor's Note, the Escrow Agent shall deliver to the Pledgor the
certificate or certificates representing the Shares in the Escrow Agent's
possession belonging to the Pledgor, the blank stock assignment and the executed
original of the Note marked "canceled" by the Company, and the Escrow Agent
shall be discharged of all further obligations hereunder; provided, however,
that the Escrow Agent shall nevertheless retain said certificate or certificates
and stock assignment as escrow agent if so required pursuant to other
restrictions imposed pursuant to this Agreement.
10. Release of Collateral. Subject to any applicable contrary rules under
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Regulation G, there shall be released from this pledge a portion of the pledged
Shares held by the Escrow Agent hereunder upon payments of the principal of the
Note. The number of the pledged Shares which shall be released shall be that
number of full Shares which bears the same proportion to the initial number of
Shares pledged hereunder as the payment of principal bears to the initial full
principal amount of the Note. Notwithstanding the foregoing, upon any release
of pledged Shares hereunder any such Shares which shall not be so released shall
continue to be held in escrow pursuant to Sections 3 and 6 of the Agreement.
11. Withdrawal or Substitution of Collateral. The Pledgor shall not sell,
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withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of the Pledgee.
12. Term. The within pledge of Shares shall continue until the payment
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of all indebtedness secured hereby, subject to the provisions for prior release
of a portion of the Collateral as provided in paragraph 7 above.
13. Escrow Agent Liability.
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(a) The Escrow Agent shall not be liable to any party for any of his
acts, or omissions to act, as the Escrow Agent unless the Escrow Agent is proved
to have acted in bad faith. Any act done or omitted pursuant to the advice of
legal counsel, other than an act or
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omission involving gross or willful negligence, shall be deemed to be done or
omitted in good faith.
(b) The Escrow Agent shall be entitled to employ such legal counsel
and other experts as the Escrow Agent may deem necessary properly to advise the
Escrow Agent in connection with its obligations hereunder, and the Escrow Agent
may rely upon the advice of such counsel. Such counsel's reasonable fees and
costs shall be borne by the Pledgor.
(c) It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by the Escrow Agent hereunder, the Escrow Agent is authorized
and directed to retain in the Escrow Agent's possession as agent of the Pledgee
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but the Escrow Agent shall be under no duty whatsoever to
institute or defend any such proceedings.
In addition, upon any dispute the Escrow Agent should be entitled to
engage legal counsel, whose fees and expenses shall be borne by the Pledgee.
14. Invalidity of Particular Provisions. The Pledgor and the Pledgee agree
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that the enforceability or invalidity of any provision or provisions of this
Security Agreement shall not render any other provision or provisions herein
contained unenforceable or invalid.
15. Successors or Assigns. The Pledgor and the Pledgee agree that all of
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the terms of this Security Agreement shall be binding on their respective
successors and assigns, and that the term "Pledgor" and the term "Pledgee" as
used herein shall be deemed to include, for all purposes, the respective
designees, successors, assigns, heirs, executors and administrators.
16. Governing Law. This Security Agreement shall be interpreted and
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governed under the laws of the State of California.
17. Counterparts. This Agreement may be executed in any number of
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counterparts, each of which shall be deemed an original, all of which together
shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
PLEDGOR
By:____________________________
Name:
Date:
PLEDGEE
emachines, Inc.
By:____________________________
Name:
Title:
Date:
ESCROW AGENT
XXXXXX XXXXXXX XXXXXXXX & XXXXXX, P.C.
By:____________________________
Name:
Title:
Date:
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