EXHIBIT 99.1
SETTLEMENT AGREEMENT AND RELEASE
--------------------------------
RECITALS
--------
This Severance Agreement and Release ("Agreement") is made by and between
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ("Employee") and eMachines, Inc. ("Company"), collectively
referred to as the "Parties".
WHEREAS, Employee is employed by the Company;
WHEREAS, the Company and Employee have entered into an Employment Agreement
dated December 18, 2000 (the "Employment Agreement");
WHEREAS, the Company and Employee have entered into a Securities Account
Pledge Agreement dated February 1, 2001 (the "Securities Agreement") as well as
a Pledged Collateral Account Control Agreement (the "Pledged Collateral
Agreement"), and Employee has executed a Note in favor of the Company dated
February 1, 2001 (the "Note");
WHEREAS, Employee resigned as Executive Vice President and Chief Financial
Officer of the Company as of July 20, 2001 (the "Resignation Date") and received
his Base Salary (as defined below) through such date and his accrued but unused
paid time off, less applicable withholdings and deductions;
WHEREAS, the Parties wish to release each other from any claims arising
from or related to the employment relationship;
WHEREAS, the Parties, and each of them, wish to resolve any and all
disputes, claims, complaints, grievances, charges, actions, petitions and
demands that the Employee may have against the Company as defined herein,
including, but not limited to, any and all claims arising or in any way related
to Employee's employment with, or separation from, the Company;
NOW THEREFORE, in consideration of the promises made herein, the Parties
hereby agree as follows:
COVENANTS
---------
1. Consideration. In consideration for the execution by Employee of this
-------------
Agreement, the Company agrees to pay Employee severance within eight (8) days
after execution of this Agreement (provided, that Employee has not revoked this
Agreement) as follows:
(a) At Employee's option: (1) a lump sum payment equivalent to
Employee's annual base salary of Three Hundred Fifty Thousand Dollars ($350,000)
as set forth in the Employment Agreement ("Base Salary") from the Resignation
Date through December 18, 2003, discounted at five percent (5%) per year, or
Eight Hundred Twenty-Four Thousand Seven Hundred Forty Dollars
and Seventy-Four Cents ($824,740.74), less applicable withholdings and
deductions (using a twenty-seven and one half percent (27.5%) federal
withholding, a six percent (6%) California withholding and any other standard
withholding that may apply), or (2) payment of the Base Salary as if Employee
were still employed with the Company through December 18, 2003, in accordance
with normal payroll practices and less applicable withholdings and deduction.
Employee agrees that this shall satisfy the obligations of the Company under the
Employment Agreement section 3(a). If Employee does not expressly elect either
(1) or (2) above in writing at the time this Agreement is fully executed, then
the Company will automatically select (2) above.
(b) An amount equal to fifty thousand dollars ($50,000), less
applicable withholdings and deductions (using a twenty-seven and one half
percent (27.5%) federal withholding, a six percent (6%) California withholding
and any other standard withholding that may apply). Employee agrees that this
shall satisfy the obligations of the Company under the Employment Agreement
section 3(b).
2. Stock. Employee shall be entitled to exercise his options to purchase
-----
his vested stock in accordance with the terms of the stock option agreement
entered into between Employee and the Company and the stock option plan
governing such stock options.
3. Note. Within eight (8) days of execution of this Agreement, Employee
----
shall be required to repay the full principal amount of the Note that is due and
owing to the Company. The Parties agree that they shall execute a letter,
attached hereto as Exhibit A, to the Trustee of the funds referenced in the Note
instructing the Trustee to distribute the principal to the Company and any
earnings to Employee. However, in the event that the Company does not receive
payment in full for the principal amount of the Note on or prior to the date set
forth immediately above, Employee expressly consents to have the balance of the
Note deducted from the payments set forth in Section 1(a) and/or Section 1(b) of
this Agreement. If the Company makes such deduction, the Company agrees to
immediately pay the principal amount of the Note to Employee when the Company
receives the distribution of such principal from the Trustee.
4. Confidential Information. Employee shall continue to maintain the
------------------------
confidentiality of all confidential and proprietary information of the Company
and shall continue to comply with the terms and conditions of the
Confidentiality Agreement between Employee and the Company. Employee shall
return all of the Company's property and confidential and proprietary
information in his possession to the Company on the Effective Date of this
Agreement.
5. Payment of Salary. Aside from the payment set forth in this Agreement,
-----------------
Employee acknowledges and represents that the Company has paid all salary,
wages, bonuses, accrued vacation, commissions and any and all other benefits due
to Employee.
6. Release of Claims. Employee agrees that the foregoing consideration
-----------------
represents settlement in full of all outstanding obligations owed to Employee by
the Company. Employee, on his own behalf, and on behalf of his respective
heirs, family members, executors, and assigns, hereby fully and forever releases
the Company and its officers, directors, employees, investors, shareholders,
administrators, affiliates, divisions, subsidiaries, predecessor and successor
corporations, and assigns, from, and agree not to ▇▇▇ concerning, any claim,
duty, obligation or cause of action relating to any matters of any kind, whether
presently known or unknown, suspected
-2-
or unsuspected, that Employee may possess arising from any omissions, acts or
facts that have occurred up until and including the Effective Date of this
Agreement including, without limitation:
(a) any and all claims relating to or arising from Employee's
employment relationship with the Company and the termination of that
relationship;
(b) any and all claims relating to, or arising from, Employee's right
to purchase, or actual purchase of shares of stock of the Company, including,
without limitation, any claims for fraud, misrepresentation, breach of fiduciary
duty, breach of duty under applicable state corporate law, and securities fraud
under any state or federal law;
(c) any and all claims under the law of any jurisdiction including,
but not limited to, wrongful discharge of employment; constructive discharge
from employment; termination in violation of public policy; discrimination;
breach of contract, both express and implied; breach of a covenant of good faith
and fair dealing, both express and implied; promissory estoppel; negligent or
intentional infliction of emotional distress; negligent or intentional
misrepresentation; negligent or intentional interference with contract or
prospective economic advantage; unfair business practices; defamation; libel;
slander; negligence; personal injury; assault; battery; invasion of privacy;
false imprisonment; and conversion;
(d) any and all claims for violation of any federal, state or
municipal statute, including, but not limited to, Title VII of the Civil Rights
Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment
Act of 1967, the Americans with Disabilities Act of 1990, the Fair Labor
Standards Act, the Employee Retirement Income Security Act of 1974, The Worker
Adjustment and Retraining Notification Act, Older Workers Benefit Protection
Act; the California Fair Employment and Housing Act, and Labor Code section 201,
et seq. and section 970, et seq.;
(e) any and all claims for violation of the federal, or any state,
constitution;
(f) any and all claims arising out of any other laws and regulations
relating to employment or employment discrimination;
(g) any claim for any loss, cost, damage, or expense arising out of
any dispute over the non-withholding or other tax treatment of any of the
proceeds received by Employee as a result of this Agreement; and
(h) any and all claims for attorneys' fees and costs.
The Company on its own behalf, and on behalf of its respective officers,
directors, employees, investors, shareholders, administrators, affiliates,
divisions, subsidiaries, heirs, executors, predecessors, successors and assigns,
hereby fully and forever releases the Employee and his administrators,
executors, successors and assigns, from, and agree not to ▇▇▇ concerning, any
claim, duty, obligation or cause of action relating to any matters of any kind
relating to or arising from Employee's employment relationship with the Company
and the termination of that relationship, whether presently known or unknown,
suspected or unsuspected, that the Company may possess arising from any
omissions, acts or facts that have occurred up until and including the Effective
Date of this Agreement.
-3-
The Company and Employee agree that the releases set forth in this section
shall be and remain in effect in all respects as a complete general release as
to the matters released. This release does not extend to any obligations
incurred under this Agreement.
The Parties acknowledge and agree that any breach of any provision of this
Agreement shall constitute a material breach of this Agreement and, if the
breach is by Employee, shall entitle the Company immediately to recover and
cease the severance benefits provided to Employee under this Agreement. The
breaching party shall also be responsible to the other party for all costs,
attorneys' fees and any and all damages incurred by the other party (a)
enforcing the obligation, including the bringing of any suit to recover the
monetary consideration, and (b) defending against a claim or suit brought or
pursued by the breaching party in violation of this provision.
7. Acknowledgement of Waiver of Claims Under ADEA. Employee acknowledges
----------------------------------------------
that he is waiving and releasing any rights he may have under the Age
Discrimination in Employment Act of 1967 ("ADEA") and that this waiver and
release is knowing and voluntary. Employee and the Company agree that this
waiver and release does not apply to any rights or claims that may arise under
ADEA after the Effective Date of this Agreement. Employee acknowledges that the
consideration given for this waiver and release Agreement is in addition to
anything of value to which Employee was already entitled. Employee further
acknowledges that he has been advised by this writing that
(a) he should consult with an attorney prior to executing this
-----
Agreement;
(b) he has up to twenty-one (21) days within which to consider this
Agreement;
(c) he has seven (7) days following his execution of this Agreement to
revoke the Agreement;
(d) this Agreement shall not be effective until the revocation period
has expired; and
(e) nothing in this Agreement prevents or precludes Employee from
challenging or seeking a determination in good faith of the validity of this
waiver under the ADEA, nor does it impose any condition precedent, penalties or
costs for doing so, unless specifically authorized by federal law.
8. Unknown Claims. The Parties represent that they are not aware of any
--------------
claim by either of them other than the claims that are released by this
Agreement. Employee and the Company acknowledge that they have been advised by
legal counsel and are familiar with the legal principle which provides as
follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
-4-
Employee and the Company agree to expressly waive any rights to this
effect, as well as under any other statute or common law principles of similar
effect.
9. No Pending or Future Lawsuits. The Parties represent to each other
-----------------------------
that they have no lawsuits, claims, or actions pending in his name, or on behalf
of any other person or entity, against the other or any other person or entity
referred to herein. The Parties also represents that they does not intend to
bring any claims on their own behalf or on behalf of any other person or entity
against the other or any other person or entity referred to herein.
10. Confidentiality. The Parties acknowledge that Employee's agreement to
---------------
keep the terms and conditions of this Agreement confidential was a material
factor on which all parties relied in entering into this Agreement. Employee
hereto agrees to use his best efforts to maintain in confidence the existence of
this Agreement, the contents and terms of this Agreement, the consideration for
this Agreement, and any allegations relating to the Company or its officers or
employees, his employment with the Company except as otherwise provided for in
this Agreement (hereinafter collectively referred to as "Severance
Information"). Employee agrees to take every reasonable precaution to prevent
disclosure of any Severance Information to third parties, and agrees that there
will be no publicity, directly or indirectly, concerning any Severance
Information. Employee agrees to take every precaution to disclose Severance
Information only to those attorneys, accountants, governmental entities, and
family members who have a reasonable need to know of such Severance Information.
The Parties agree that disputes arising under this provision shall be arbitrated
pursuant to Paragraph 18 of this Agreement and that, if Company proves that
Employee breached this Confidentiality provision, it shall be entitled to an
award of its costs spent enforcing this provision, including all reasonable
attorneys' fees associated with the enforcement action, without regard to
whether the Company can establish actual damages from the breach by Employee.
11. No Cooperation. Employee agrees he will not act in any manner that
--------------
might damage the business of the Company. Employee agrees that he will not
counsel or assist any attorneys or their clients in the presentation or
prosecution of any disputes, differences, grievances, claims, charges, or
complaints by any third party against the Company and/or any officer, director,
employee, agent, representative, shareholder or attorney of the Company, unless
under a subpoena or other court order to do so. Employee further agrees both to
immediately notify the Company upon receipt of any court order, subpoena, or any
legal discovery device that seeks or might require the disclosure or production
of the existence or terms of this Agreement, and to furnish, within three (3)
business days of its receipt, a copy of such subpoena or legal discovery device
to the Company.
12. Non-Disparagement. Each party agrees to refrain from any defamation,
-----------------
libel or slander of the other, or tortious interference with the contracts and
relationships of the other. The Company's obligations under this section extend
only to then current executives, officers, members of the Board of Directors,
and managing agents, and only for so long as those individuals are employees
and/or directors of the Company. After execution of this Agreement, the parties
hereto will agree on the wording of a public announcement, an internal
announcement , and a response to any request for references describing the
relationship between the Employee and the Company. All inquiries by potential
future employers of Plaintiff will be directed to the Company's legal
department.
-5-
13. Non-Solicitation. Employee agrees that for a period of twelve (12)
----------------
months immediately following the Effective Date of this Agreement, Employee
shall not either directly or indirectly solicit, induce, recruit or encourage
any of the Company's employees to leave their employment, or take away such
employees, or attempt to solicit, induce, recruit, encourage, take away or hire
employees of the Company, either for himself or any other person or entity.
14. No Admission of Liability. The Parties understand and acknowledge
-------------------------
that this Agreement constitutes a compromise and settlement of disputed claims.
No action taken by the Parties hereto, or either of them, either previously or
in connection with this Agreement shall be deemed or construed to be:
(a) an admission of the truth or falsity of any claims heretofore
made or
(b) an acknowledgment or admission by either party of any fault or
liability whatsoever to the other party or to any third party.
15. No Knowledge of Wrongdoing. Employee represents that he has no
--------------------------
knowledge of any wrongdoing involving improper or false claims against a federal
or state governmental agency, or any other wrongdoing that involves Employee or
other present or former Company employees.
16. Costs. The Parties shall each bear their own costs, expert fees,
-----
attorneys' fees and other fees incurred in connection with this Agreement.
17. Indemnification. The Parties agree to indemnify and hold harmless the
---------------
other from and against any and all loss, costs, damages or expenses, including,
without limitation, attorneys' fees or expenses incurred by the non-breaching
party arising out of the breach of this Agreement by the other party, or from
any false representation made herein by the other party, or from any action or
proceeding which may be commenced, prosecuted or threatened by the breaching
party or for the breaching party's benefit, upon the breaching party's
initiative, or with the breaching party's aid or approval, contrary to the
provisions of this Agreement. The Parties further agrees that in any such
action or proceeding, this Agreement may be pled by the non-breaching as a
complete defense, or may be asserted by way of counterclaim or cross-claim.
18. Arbitration. The Parties agree that any and all disputes arising out
-----------
of the terms of this Agreement, their interpretation, and any of the matters
herein released, shall be subject to binding arbitration in Orange County before
the American Arbitration Association under its National Rules for the Resolution
of Employment Disputes, or by a judge to be mutually agreed upon. The Parties
agree that the prevailing party in any arbitration shall be entitled to
injunctive relief in any court of competent jurisdiction to enforce the
arbitration award. The Parties agree that the prevailing party in any
arbitration shall be awarded its reasonable attorneys' fees and costs. The
Parties hereby agree to waive their right to have any dispute between them
resolved in a court of law by a judge or jury. This Section 18 will not prevent
either party from seeking injunctive relief (or any other provisional remedy)
from any court having jurisdiction over the parties and the subject matter of
their dispute relating to Employee's obligations under this Agreement and the
agreements incorporated herein by reference. Any action at law, suit in equity,
or other judicial proceedings for the enforcement of an arbitration award,
related to any provision of this Agreement, shall be instituted only in courts
with venue in the County of Orange, State of California, except that the
-6-
Company and Employee may seek injunctive relief in any court having jurisdiction
for any claim relating to the alleged misuse or misappropriation of the
Company's trade secrets or confidential or proprietary information.
19. Authority. The Company represents and warrants that the undersigned
---------
has the authority to act on behalf of the Company and to bind the Company and
all who may claim through it to the terms and conditions of this Agreement.
Employee represents and warrants that he has the capacity to act on his own
behalf and on behalf of all who might claim through him to bind them to the
terms and conditions of this Agreement. Each party warrants and represents that
there are no liens or claims of lien or assignments in law or equity or
otherwise of or against any of the claims or causes of action released herein.
20. No Representations. Each party represents that it has had the
------------------
opportunity to consult with an attorney, and has carefully read and understands
the scope and effect of the provisions of this Agreement. Neither party has
relied upon any representations or statements made by the other party hereto
which are not specifically set forth in this Agreement.
21. Severability. In the event that any provision hereof becomes or is
------------
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision so long as the remaining provisions remain intelligible and continue
to reflect the original intent of the Parties.
22. Entire Agreement. This Agreement, and the agreements incorporated
----------------
herein by reference to the extent they are consistent with this Agreement,
constitute the entire agreement and understanding between the Parties concerning
the subject matter of this Agreement and supersede and replace all prior
representations, understandings, and agreements concerning the subject matter of
this Agreement.
23. No Waiver. The failure of any party to insist upon the performance of
---------
any of the terms and conditions in this Agreement, or the failure to prosecute
any breach of any of the terms and conditions of this Agreement, shall not be
construed thereafter as a waiver of any such terms or conditions. This entire
Agreement shall remain in full force and effect as if no such forbearance or
failure of performance had occurred.
24. No Oral Modification. Any modification or amendment of this
--------------------
Agreement, or additional obligation assumed by either party in connection with
this Agreement, shall be effective only if placed in writing and signed by both
Parties or by authorized representatives of each party. No provision of this
Agreement can be changed, altered, modified, or waived except by an executed
writing by the Parties.
25. Governing Law. This Agreement shall be deemed to have been executed
-------------
and delivered within the State of California, and it shall be construed,
interpreted, governed, and enforced in accordance with the laws of the State of
California, without regard to conflict of law principles.
26. Attorneys' Fees. In the event that either Party brings an action to
---------------
enforce or effect its rights under this Agreement, the prevailing party shall be
entitled to recover its costs and expenses,
-7-
including the costs of mediation, arbitration, litigation, court fees, plus
reasonable attorneys' fees, incurred in connection with such an action.
27. Effective Date. This Agreement is effective after it has been signed
--------------
by both parties and after eight (8) days have passed since Employee has signed
the Agreement (the "Effective Date"), unless revoked by Employee within seven
(7) days after the date the Agreement was signed by Employee.
28. Counterparts. This Agreement may be executed in counterparts, and
------------
each counterpart shall have the same force and effect as an original and shall
constitute an effective, binding agreement on the part of each of the
undersigned.
29. Voluntary Execution of Agreement. This Agreement is executed
--------------------------------
voluntarily and without any duress or undue influence on the part or behalf of
the Parties hereto, with the full intent of releasing all claims. The Parties
acknowledge that:
(a) They have read this Agreement;
(b) They have been represented in the preparation, negotiation, and
execution of this Agreement by legal counsel of their own choice or that they
have voluntarily declined to seek such counsel;
(c) They understand the terms and consequences of this Agreement and
of the releases it contains; and
(d) They are fully aware of the legal and binding effect of this
Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement on the
respective dates set forth below.
eMachines, Inc.
Dated: 7/17/01 By /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------- ----------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President and Chief
Executive Officer
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, an individual
Dated: 7/16/01 /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
------------- -------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-8-