<PAGE>
As filed with the Securities and Exchange Commission on February 24, 2000
Registration No. 333-86219
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------
eMachines, Inc.
(Exact Name of Registrant as Specified in its Charter)
-----------
<TABLE>
<C> <C> <S>
Delaware 3571 943311182
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
14350 Myford Road, Suite 100
Irvine, California 92606
(714) 481-2828
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
-----------
Stephen A. Dukker
Chief Executive Officer
14350 Myford Road, Suite 100
Irvine, California 92606
(714) 481-2828
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-----------
Copies to:
<TABLE>
<S> <C>
John A. Fore, Esq. William D. Sherman, Esq.
Paul W. Hartzel, Esq. Stephen J. Schrader, Esq.
Laura A. Malinasky, Esq. Justin L. Bastian, Esq.
Wilson Sonsini Goodrich & Rosati Morrison & Foerster LLP
Professional Corporation 755 Page Mill Road
650 Page Mill Road Palo Alto, California 94304
Palo Alto, California 94304 (650) 813-5600
(650) 493-9300
</TABLE>
-----------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] _________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] _________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] _________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall hereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to such
Section 8(a), may determine.
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by eMachines in connection with
the sale of Common Stock being registered. All amounts are estimates except the
SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................... $ 55,600
NASD filing fee................................................ 20,500
Nasdaq National Market listing fee............................. *
Printing and engraving costs................................... 300,000
Legal fees and expenses........................................ *
Accounting fees and expenses................................... *
Blue Sky fees and expenses..................................... 5,000
Transfer Agent and Registrar fees.............................. 5,000
Miscellaneous expenses......................................... *
--------
Total........................................................ $
========
</TABLE>
- ---------------------
*To be filed by amendment.
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law permits a corporation to
indemnify officers, directors and third parties acting on behalf of the
Registrant if such person acted in good faith and in a manner reasonably
believed to be in and not opposed to the best interest of the Registrant, and,
with respect to any criminal action or proceeding, the indemnified party had no
reasonable cause to believe his or her conduct was unlawful. Section 145 also
permits a corporation to include in its charter documents, and in agreements
between the corporation and its directors and officers, provisions expanding
the scope of indemnification beyond that specifically provided by the current
law.
Article X of the Registrant's Amended and Restated Certificate of
Incorporation provides for the indemnification of directors to the fullest
extent permissible under Delaware law.
Article VI of the Registrant's Bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of the Registrant.
The Registrant has entered into indemnification agreements with its officers
and directors, in addition to indemnification provided for in the Registrant's
Amended and Restated Certificate of Incorporation and in its Bylaws.
Item 15. Recent Sales of Unregistered Securities
During the past three years, the Registrant has issued unregistered
securities as described below.
(a) On June 10, 1999, the Registrant issued 77,600,000 shares of its common
stock at $0.03 per share in exchange for cash and notes to TriGem Corporation,
Korea Data Systems America, Inc. and the Registrant's directors. These
securities have been issued in a transaction exempt from registration under the
Securities Act of 1933 in reliance upon Section 4(2) of the Securities Act of
1933.
(b) During the period from August 18, 1999 through September 1999, the
Registrant issued an aggregate of 24,279,369 shares of Series A convertible
preferred stock to 36 investors at $6.384 per share. These securities have been
issued in a transaction exempt from registration under the Securities Act of
1933 in reliance upon Section 4(2) of the Securities Act of 1933 and Rule 506
of Regulation D thereunder.
II-1
<PAGE>
(c) On August 18, 1999, the Registrant issued 419,538 shares of its common
stock to Korea Data Systems America pursuant to an agreement (amending
trademark assignment). These securities have been issued in a transaction
exempt from registration under the Securities Act of 1933 in reliance upon
Section 4(2) of the Securities Act of 1933.
(d) On August 18, 1999, the Registrant issued a warrant to purchase shares
of its common stock to America Online at an aggregate exercise price of $3.6
million in connection with a marketing agreement. The Registrant issued an
additional warrant to purchase shares of its common stock at an aggregate
exercise price of $8.9 million on September 15, 1999. The maximum number of
shares issuable, subject to anti-dilution adjustments, upon exercise of the
warrants is 1,566,219. These securities have been issued in a transaction
exempt from registration under the Securities Act of 1933 in reliance upon
Section 4(2) of the Securities Act of 1933.
(e) On January 14, 2000, pursuant to an Agreement and Plan of Reorganization
between the Registrant and FreePC, the Registrant issued to the stockholders of
FreePC: 3,995,656 shares of common stock; warrants to purchase an additional
9,269,724 shares of common stock; 10,175,516 shares of Series B preferred stock
and 7,458,379 shares of Series C preferred stock. In addition, the Registrant
assumed options exercisable for (i) an aggregate of 2,891,275 shares of common
stock; and (ii) warrants to purchase an aggregate of 1,239,067 shares of common
stock. These securities have been issued in transactions exempt from
registration under the Securities Act of 1933 in reliance upon Section 4(2) of
the Securities Act of 1933.
(f) Through December 31, 1999, the Registrant granted, pursuant to its stock
option plan and outside of its stock option plan, options to purchase an
aggregate of 1,313,097 shares of common stock. The options granted under the
stock option plan were issued to the Registrant's officers and employees at
exercise prices ranging from $0.025 to $8.00. The options granted outside of
the stock option plan were granted to its officers, directors, employees and
consultants at prices ranging from $1.61 to $3.75. A significant portion of
these options were issued pursuant to the Registrant's stock option plan. These
securities have been issued in transactions exempt from registration under the
Securities Act of 1933 in reliance upon Rule 701 promulgated under the
Securities Act of 1933. Where Rule 701 has not been available, the securities
have been issued in transactions exempt from registration under the Securities
Act of 1933 in reliance upon Section 4(2) of the Securities Act of 1933.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
1.1** Form of Underwriting Agreement
2.1* Agreement and Plan of Reorganization by and among the Registrant,
eMachines Acquisition Corp. and FreePC, Inc. dated as of November 24,
1999
3.1* Restated Certificate of Incorporation of the Registrant
3.2** Form of Amended and Restated Certificate of Incorporation of the
Registrant to be filed upon the closing of the offering
3.3* Amended and Restated Bylaws
3.4** Amended and Restated Bylaws of the Registrant to be in effect after
the closing of the offering
4.1** Specimen Common Stock Certificate
5.1** Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
10.1* Form of Security Agreement entered into between the Registrant and
each of Chul Chung, Stephen A. Dukker, Lap Shun Hui, Dae Soo Koh, Jung
Koh, Hong Soon Lee and Hong Sun Lee dated as of June 10, 1999
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
10.2* Form of Promissory Note from each of Chul Chung, Stephen A. Dukker,
Lap Shun Hui, Dae Soo Koh, Jung Koh, Hong Soon Lee and Hong Sun Lee
dated as of June 10, 1999
10.3* Amended and Restated Rights and Restrictions Agreement dated as of
August 18, 1999
10.4* Subordinated Promissory Note dated as of June 7, 1999 for TriGem
Corporation
10.5* Subordinated Promissory Note dated as of June 7, 1999 for Korea Data
Systems America, Inc.
10.6* Form of Indemnification Agreement between the Registrant and each of
its directors and executive officers
10.7 1998 Stock Plan (as amended and restated) and form of agreements
thereunder
10.8+ Marketing Agreement between the Registrant and America Online dated as
of June 17, 1999
10.9* Amended and Restated Employment Agreement dated as of August 18, 1999
for Stephen Dukker
10.10* Trademark Assignment Agreement dated as of June 10, 1999
10.11* Agreement (Amending Trademark Assignment) dated as of August 16, 1999
10.12* Industrial Lease between the Registrant and the Irvine Company dated
as of November 30, 1998
10.13* Common Stock Purchase Warrant issued on August 18, 1999 to America
Online, Inc.
10.14* Option to Purchase Common Stock issued on August 18, 1999 to Stephen
Dukker
10.15* Rights and Restrictions Agreement dated January 14, 2000
10.16* Agreement of sublease between FreePC, Inc. and Bill Gross' idealab!
dated as of June 29, 1999
10.17* FreePC, Inc. 1999 Stock Plan and form of agreements thereunder
10.18** Employment Agreement dated as of January 14, 2000 for Donald La Vigne
10.19** Employment Agreement dated as of January 14, 2000 for Audrey Finci
10.20+ Original Design Manuafacturer Agreement between TriGem Computer, Inc.
and the Registrant dated as of January 24, 2000
10.21** Employment Agreement dated as of January 14, 2000 for Steve Chadima
10.22** Employment Agreement dated as of January 14, 2000 for James
Weissenborn
10.23 Common Stock Purchase Warrant issued in September 1999 to America
Online, Inc.
10.24 Form of Warrant to Purchase Shares of Common Stock issued pursuant to
the Acquisition of FreePC, Inc.
10.25 2000 Employee Stock Purchase Plan
10.26 Form of Stand-Alone Stock Option Agreement
22.1* List of Subsidiaries
23.1* Consent of Deloitte & Touche, LLP, Independent Accountants
23.2* Consent of Ernst & Young, LLP Independent Auditors
23.3** Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(see Exhibit 5.1)
24.1* Power of Attorney
24.2* Power of Attorney (see page II-6)
27.1** Financial Data Schedules
</TABLE>
- ---------------------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment has been requested for certain portions of this
exhibit pursuant to Rule 406 under the Securities Act of 1933, as amended.
The omitted portions of this agreement have been separately filed with the
Commission.
II-3
<PAGE>
(b) Financial Statement Schedules
Schedule
--------
II - Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by a
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
. For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
. For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 3 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Irvine, State of California, on the 24th day of February, 2000.
eMachines, Inc.
/s/ Stephen A. Dukker
By: _________________________________
Stephen A. Dukker
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Stephen A. Dukker President, Chief Executive February 24, 2000
____________________________________ Officer and Director
(Stephen A. Dukker) (Principal Executive
Officer)
/s/ Steven H. Miller Vice President and Chief February 24, 2000
____________________________________ Financial Officer
(Steven H. Miller) (Principal Financial and
Accounting Officer)
* Director February 24, 2000
____________________________________
(Lap Shun Hui)
* Director February 24, 2000
____________________________________
(Jung Koh)
* Director February 24, 2000
____________________________________
(Hong Soon Lee)
* Director February 24, 2000
____________________________________
(Nathan Morton)
* Director February 24, 2000
____________________________________
(C. Toms Newby, III)
* Director February 24, 2000
____________________________________
(Bill Gross)
* Director February 24, 2000
____________________________________
(Michael Hong)
</TABLE>
/s/ Steven H. Miller
*By: _____________________
(Steven H. Miller)
Attorney-in-fact
II-5
<PAGE>
SCHEDULE II
eMachines, Inc.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Balance Additions Balance
at charged to at end
beginning costs and of
Description of period expenses Deductions period
----------- --------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
receivable and sales returns:
Period from September 18
(inception), 1998 to December 31,
1998............................... -- 239 -- 239
Year ended December 31, 1999........ 239 2,394 (473)(a) 2,160
Inventory reserve for lower of cost or
market
Period from September 18
(inception), 1998 to December 31,
1998............................... -- -- -- --
Year ended December 31, 1999........ -- 533 (31)(b) 502
</TABLE>
- ---------------------
(a) Decrease due to changes in estimate
(b) Decrease due to inventory adjustments
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
1.1** Form of Underwriting Agreement
2.1* Agreement and Plan of Reorganization by and among the Registrant,
eMachines Acquisition Corp. and FreePC, Inc. dated as of November 24,
1999
3.1* Restated Certificate of Incorporation of the Registrant
3.2** Form of Amended and Restated Certificate of Incorporation of the
Registrant to be filed upon the closing of the offering
3.3* Amended and Restated Bylaws
3.4** Amended and Restated Bylaws of the Registrant to be in effect after
the closing of the offering
4.1** Specimen Common Stock Certificate
5.1** Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
10.1* Form of Security Agreement entered into between the Registrant and
each of Chul Chung, Stephen A. Dukker, Lap Shun Hui, Dae Soo Koh, Jung
Koh, Hong Soon Lee and Hong Sun Lee dated as of June 10, 1999
10.2* Form of Promissory Note from each of Chul Chung, Stephen A. Dukker,
Lap Shun Hui, Dae Soo Koh, Jung Koh, Hong Soon Lee and Hong Sun Lee
dated as of June 10, 1999
10.3* Amended and Restated Rights and Restrictions Agreement dated as of
August 18, 1999
10.4* Subordinated Promissory Note dated as of June 7, 1999 for TriGem
Corporation
10.5* Subordinated Promissory Note dated as of June 7, 1999 for Korea Data
Systems America, Inc.
10.6* Form of Indemnification Agreement between the Registrant and each of
its directors and executive officers
10.7 1998 Stock Plan (as amended and restated) and form of agreements
thereunder
10.8+ Marketing Agreement between the Registrant and America Online dated as
of June 17, 1999
10.9* Amended and Restated Employment Agreement dated as of August 18, 1999
for Stephen Dukker
10.10* Trademark Assignment Agreement dated as of June 10, 1999
10.11* Agreement (Amending Trademark Assignment) dated as of August 16, 1999
10.12* Industrial Lease between the Registrant and the Irvine Company dated
as of November 30, 1998
10.13* Common Stock Purchase Warrant issued on August 18, 1999 to America
Online, Inc.
10.14* Option to Purchase Common Stock issued on August 18, 1999 to Stephen
Dukker
10.15* Rights and Restrictions Agreement dated as of January 14, 2000
10.16* Agreement of sublease between FreePC, Inc. and Bill Gross' idealab!
dated as of June 29, 1999.
10.17* FreePC, Inc. 1999 Stock Plan and form of agreements thereunder
10.18** Employment Agreement dated as of January 14, 2000 for Donald La Vigne
10.19** Employment Agreement dated as of January 14, 2000 for Audrey Finci
10.20+ Original Design Manuafacturer Agreement between TriGem Computer, Inc.
and the Registrant dated as of January 24, 2000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
10.21** Employment Agreement dated as of January 14, 2000 for Steve Chadima
10.22** Employment Agreement dated as of January 14, 2000 for James
Weissenborn
10.23 Common Stock Purchase Warrant dated as of September 15, 1999 to
America Online, Inc.
10.24 Form of Warrant to Purchase Shares of Common Stock issued pursuant to
the Acquisition of FreePC, Inc.
10.25 2000 Employee Stock Purchase Plan
10.26 Form of Stand-Alone Stock Option Agreement
22.1* List of Subsidiaries
23.1* Consent of Deloitte & Touche, LLP, Independent Accountants
23.2* Consent of Ernst & Young LLP, Independent Auditors
23.3** Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(see Exhibit 5.1)
24.1* Power of Attorney
24.2* Power of Attorney
27.1** Financial Data Schedules
</TABLE>
- ---------------------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment has been requested for certain portions of this
exhibit pursuant to Rule 406 under the Securities Act of 1933, as amended.
The omitted portions of this agreement have been separately filed with the
Commission.
<PAGE>
EXHIBIT 10.7
EMACHINES, INC.
1998 STOCK PLAN
(as amended and restated)
1. Purposes of the Plan. The purposes of this 1998 Stock Plan are:
--------------------
. to attract and retain the best available personnel for positions of
substantial responsibility,
. to provide additional incentive to Employees, Directors and
Consultants, and
. to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall be
-------------
administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the administration
---------------
of stock option plans under U.S. state corporate laws, U.S. federal and state
securities laws, the Code, any stock exchange or quotation system on which the
Common Stock is listed or quoted and the applicable laws of any foreign country
or jurisdiction where Options or Stock Purchase Rights are, or will be, granted
under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a committee of Directors appointed by the Board in
---------
accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
------------
(g) "Company" means emachines, Inc., a Delaware corporation.
-------
(h) "Consultant" means any person, including an advisor, engaged by the
----------
Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
--------
<PAGE>
(j) "Disability" means total and permanent disability as defined in Section
----------
22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors, employed
--------
by the Company or any Parent or Subsidiary of the Company. A Service Provider
shall not cease to be an Employee in the case of (i) any leave of absence
approved by the Company or (ii) transfers between locations of the Company or
between the Company, its Parent, any Subsidiary, or any successor. For purposes
of Incentive Stock Options, no such leave may exceed ninety days, unless
reemployment upon expiration of such leave is guaranteed by statute or contract.
If reemployment upon expiration of a leave of absence approved by the Company is
not so guaranteed, on the 181st day of such leave any Incentive Stock Option
held by the Optionee shall cease to be treated as an Incentive Stock Option and
shall be treated for tax purposes as a Nonstatutory Stock Option. Neither
service as a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
(m) "Fair Market Value" means, as of any date, the value of Common Stock
-----------------
determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq National
Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market
Value shall be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such exchange or system for the last market
trading day prior to the time of determination, as reported in The Wall Street
Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common Stock, the
Fair Market Value shall be determined in good faith by the Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to qualify as
-------------------------
an Incentive Stock Option.
(p) "Notice of Grant" means a written or electronic notice evidencing
---------------
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
-2-
<PAGE>
(q) "Officer" means a person who is an officer of the Company within the
-------
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
------
(s) "Option Agreement" means an agreement between the Company and an
----------------
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding Options
-----------------------
are surrendered in exchange for Options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option or Stock
--------------
Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or Stock Purchase
--------
Right granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1998 Stock Plan.
----
(y) "Restricted Stock" means shares of Common Stock acquired pursuant to a
----------------
grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "Restricted Stock Purchase Agreement" means a written agreement between
-----------------------------------
Company and the Optionee evidencing the terms and restrictions applying to
stock purchased under a Stock Purchase Right. The Restricted Stock Purchase
Agreement is subject to the terms and conditions of the Plan and the Notice of
Grant.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
----------
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.
(bb) "Section 16(b) " means Section 16(b) of the Exchange Act.
-------------
(cc) "Service Provider" means an Employee, Director or Consultant.
----------------
(dd) "Share" means a share of the Common Stock, as adjusted in accordance
-----
with Section 13 of the Plan.
(ee) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "Subsidiary" means a "subsidiary corporation", whether now or hereafter
----------
existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
-------------------------
the Plan, the maximum aggregate number of Shares that may be optioned and sold
under the Plan is 5,000,000
-3-
<PAGE>
Shares, plus an annual increase to be added on the first day of the Company's
fiscal year beginning in 2001 equal to the lesser of (i) 2,000,000 shares, (ii)
4% of the outstanding shares on such date or (iii) a lesser amount determined by
the Board. The Shares may be authorized, but unissued, or reacquired Common
Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
--------
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. The Plan may be
------------------------------
administered by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the Administrator
--------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
----------
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above, the
--------------------
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
-4-
<PAGE>
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair Market
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined. All elections by an Optionee
to have Shares withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's decisions,
----------------------------------
determinations and interpretations shall be final and binding on all Optionees
and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may be
-----------
granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
-5-
<PAGE>
6. Limitations.
-----------
(a) Each Option shall be designated in the Option Agreement as either an
Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding
such designation, to the extent that the aggregate Fair Market Value of the
Shares with respect to which Incentive Stock Options are exercisable for the
first time by the Optionee during any calendar year (under all plans of the
Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be
treated as Nonstatutory Stock Options. For purposes of this Section 6(a),
Incentive Stock Options shall be taken into account in the order in which they
were granted. The Fair Market Value of the Shares shall be determined as of the
time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall confer
upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of the
Company, Options to purchase more than 1,000,000 Shares.
(ii) In connection with his or her initial service, a Service Provider
may be granted Options to purchase up to an additional 1,000,000 Shares which
shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted proportionately in
connection with any change in the Company's capitalization as described in
Section 13.
(iv) If an Option is cancelled in the same fiscal year of the Company
in which it was granted (other than in connection with a transaction described
in Section 13), the cancelled Option will be counted against the limits set
forth in subsections (i) and (ii) above. For this purpose, if the exercise price
of an Option is reduced, the transaction will be treated as a cancellation of
the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall become
------------
effective upon its adoption by the Board. It shall continue in effect for a
term of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
-6-
<PAGE>
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee described
in paragraph (A) immediately above, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with a
per Share exercise price of less than 100% of the Fair Market Value per Share on
the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is granted,
---------------------------------
the Administrator shall fix the period within which the Option may be exercised
and shall determine any conditions that must be satisfied before the Option may
be exercised.
(c) Form of Consideration. The Administrator shall determine the
---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
-7-
<PAGE>
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted
-----------------------------------------------
hereunder shall be exercisable according to the terms of the Plan and at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement. Unless the Administrator provides otherwise, vesting of
Options granted hereunder shall be tolled during any unpaid leave of absence. An
Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
-------------------------------------------------
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
-8-
<PAGE>
(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
-----------------
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If the
Option is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
-9-
<PAGE>
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
--------------------------------------------------------
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset
------------------------------------------------------------------------
Sale.
- ----
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously
-10-
<PAGE>
exercised, an Option or Stock Purchase Right will terminate immediately prior to
the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company with
--------------------
or into another corporation, or the sale of substantially all of the assets of
the Company, each outstanding Option and Stock Purchase Right shall be assumed
or an equivalent option or right substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the Option or Stock
Purchase Right, the Optionee shall fully vest in and have the right to exercise
the Option or Stock Purchase Right as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an Option
or Stock Purchase Right becomes fully vested and exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase Right
-------------
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall
be provided to each Optionee within a reasonable time after the date of such
grant.
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend, alter,
-------------------------
suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder approval
--------------------
of any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to
-11-
<PAGE>
exercise the powers granted to it hereunder with respect to Options granted
under the Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan, will
---------------------
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. The Plan shall be subject to approval by the
--------------------
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
-12-
<PAGE>
EMACHINES, INC.
1998 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number ________________________________
Date of Grant ________________________________
Vesting Commencement Date ________________________________
Exercise Price per Share $_______________________________
Total Number of Shares Granted ________________________________
Total Exercise Price $_______________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: ____________________________________
Vesting Schedule:
----------------
Subject to accelerated vesting as set forth below, this Option may be
exercised, in whole or in part, in accordance with the following schedule:
20% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and 20% of the Shares subject to the Option shall
vest each year thereafter, subject to the Optionee continuing to be a Service
Provider on such dates.
<PAGE>
Termination Period:
------------------
This Option may be exercised for three months after Optionee ceases to be a
Service Provider. Upon the death or Disability of the Optionee, this Option may
be exercised for twelve months after Optionee ceases to be a Service Provider.
In no event shall this Option be exercised later than the Term/Expiration Date
as provided above.
II. AGREEMENT
---------
A. Grant of Option.
---------------
The Plan Administrator of the Company hereby grants to the Optionee named
in the Notice of Grant attached as Part I of this Agreement (the "Optionee") an
option (the "Option") to purchase the number of Shares, as set forth in the
Notice of Grant, at the exercise price per share set forth in the Notice of
Grant (the "Exercise Price"), subject to the terms and conditions of the Plan,
which is incorporated herein by reference. Subject to Section 15(c) of the
Plan, in the event of a conflict between the terms and conditions of the Plan
and the terms and conditions of this Option Agreement, the terms and conditions
of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
B. Exercise of Option.
------------------
(a) Right to Exercise. This Option is exercisable during its term in
-----------------
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of an
------------------
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares
in respect of which the Option is being exercised (the "Exercised Shares"),
and such other representations and agreements as may be required by the
Company pursuant to the provisions of the Plan. The Exercise Notice shall
be completed by the Optionee and delivered to [Title] of the Company. The
Exercise Notice shall be accompanied by payment of the aggregate Exercise
Price as to all Exercised Shares. This Option shall be deemed to be
exercised upon receipt by the Company of such fully executed Exercise
Notice accompanied by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
-2-
<PAGE>
C. Method of Payment.
------------------
Payment of the aggregate Exercise Price shall be by any of the
following, or a combination thereof, at the election of the Optionee:
1. cash; or
2. check; or
3. consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan; or
4. surrender of other Shares which (i) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
(6) months on the date of surrender, and (ii) have a Fair Market Value on the
date of surrender equal to the aggregate Exercise Price of the Exercised Shares;
or
5. with the Administrator's consent, delivery of Optionee's promissory
note (the "Note") in the form attached hereto as Exhibit C, in the amount of the
aggregate Exercise Price of the Exercised Shares together with the execution and
delivery by the Optionee of the Security Agreement attached hereto as Exhibit B.
The Note shall bear interest at the "applicable federal rate" prescribed under
the Code and its regulations at time of purchase, and shall be secured by a
pledge of the Shares purchased by the Note pursuant to the Security Agreement;
or
6. to the extent permitted by the Administrator, delivery of a
properly executed exercise notice together with such other documentation as the
Administrator and the broker, if applicable, shall require to effect an exercise
of the Option and delivery to the Company of the sale proceeds required to pay
the Exercise Price.
D. Non-Transferability of Option.
------------------------------
This Option may not be transferred in any manner otherwise than by will
or by the laws of descent or distribution and may be exercised during the
lifetime of Optionee only by the Optionee. The terms of the Plan and this Option
Agreement shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
E. Term of Option.
---------------
This Option may be exercised only within the term set out in the Notice
of Grant, and may be exercised during such term only in accordance with the Plan
and the terms of this Option Agreement.
F. Tax Consequences.
-----------------
Some of the federal tax consequences relating to this Option, as of the
date of this Option, are set forth below. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE
SHOULD
-3-
<PAGE>
CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING
OF THE SHARES.
G. Exercising the Option.
----------------------
1. Nonstatutory Stock Option. The Optionee may incur regular federal
-------------------------
income tax liability upon exercise of a NSO. The Optionee will be treated as
having received compensation income (taxable at ordinary income tax rates) equal
to the excess, if any, of the Fair Market Value of the Exercised Shares on the
date of exercise over their aggregate Exercise Price. If the Optionee is an
Employee or a former Employee, the Company will be required to withhold from his
or her compensation or collect from Optionee and pay to the applicable taxing
authorities an amount in cash equal to a percentage of this compensation income
at the time of exercise, and may refuse to honor the exercise and refuse to
deliver Shares if such withholding amounts are not delivered at the time of
exercise.
2. Incentive Stock Option. If this Option qualifies as an ISO, the
----------------------
Optionee will have no regular federal income tax liability upon its exercise,
although the excess, if any, of the Fair Market Value of the Exercised Shares on
the date of exercise over their aggregate Exercise Price will be treated as an
adjustment to alternative minimum taxable income for federal tax purposes and
may subject the Optionee to alternative minimum tax in the year of exercise. In
the event that the Optionee ceases to be an Employee but remains a Service
Provider, any Incentive Stock Option of the Optionee that remains unexercised
shall cease to qualify as an Incentive Stock Option and will be treated for tax
purposes as a Nonstatutory Stock Option on the date three (3) months and one (1)
day following such change of status.
3. Disposition of Shares.
---------------------
(a) NSO. If the Optionee holds NSO Shares for at least one year,
---
any gain realized on disposition of the Shares will be treated as long-term
capital gain for federal income tax purposes.
(b) ISO. If the Optionee holds ISO Shares for at least one year
---
after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares. If the
-------------------------------------------------
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
-4-
<PAGE>
H. Entire Agreement; Governing Law.
--------------------------------
The Plan is incorporated herein by reference. The Plan and this Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Optionee with respect to the subject matter
hereof, and may not be modified adversely to the Optionee's interest except by
means of a writing signed by the Company and Optionee. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
California.
I. NO GUARANTEE OF CONTINUED SERVICE.
----------------------------------
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER
AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING
GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES
AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE
VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED
PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD,
FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT
ANY TIME, WITH OR WITHOUT CAUSE.
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE: EMACHINES, INC.
- ----------------------------- ------------------------------
Signature By
- ----------------------------- ------------------------------
Print Name Title
- -----------------------------
Residence Address
- -----------------------------
-5-
<PAGE>
CONSENT OF SPOUSE
-----------------
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
-----------------------------------
Spouse of Optionee
<PAGE>
EXHIBIT A
---------
EMACHINES, INC.
1998 STOCK PLAN
EXERCISE NOTICE
emachines, Inc.
14350 Myford Road, Ste. 100
Irvine, CA 92606
Attention: [Title]
1. Exercise of Option. Effective as of today, ________________, _____,
------------------
the undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of the Common Stock of emachines, Inc. (the "Company") under and
pursuant to the 1998 Stock Plan (the "Plan") and the Stock Option Agreement
dated, _____ (the "Option Agreement"). The purchase price for the Shares shall
be $_____, as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser
----------------------------
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
---------------------
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 13 of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
----------------
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
<PAGE>
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
-------------------------------
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
California.
Submitted by: Accepted by:
PURCHASER: EMACHINES, INC.
- --------------------------- ------------------------------
Signature By
- --------------------------- ------------------------------
Print Name Its
Address: Address:
- ------- -------
- -------------------------- emachines, Inc.
14350 Myford Road, Ste. 100
Irvine, CA 92606
------------------------------
Date Received
-2-
<PAGE>
EXHIBIT B
---------
SECURITY AGREEMENT
This Security Agreement is made as of __________, _____ between emachines,
Inc., a Delaware corporation ("Pledgee"), and _________________________
("Pledgor").
Recitals
--------
Pursuant to Pledgor's election to purchase Shares under the Option
Agreement dated ________ (the "Option"), between Pledgor and Pledgee under
Pledgee's 1998 Stock Plan, and Pledgor's election under the terms of the Option
to pay for such shares with his promissory note (the "Note"), Pledgor has
purchased _________ shares of Pledgee's Common Stock (the "Shares") at a price
of $________ per share, for a total purchase price of $__________. The Note and
the obligations thereunder are as set forth in Exhibit C to the Option.
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration
---------------------------------------------
of the transfer of the Shares to Pledgor under the Option Agreement, Pledgor,
pursuant to the Delaware Commercial Code, hereby pledges all of such Shares
(herein sometimes referred to as the "Collateral") represented by certificate
number ______, duly endorsed in blank or with executed stock powers, and
herewith delivers said certificate to the Secretary of Pledgee ("Pledgeholder"),
who shall hold said certificate subject to the terms and conditions of this
Security Agreement.
The pledged stock (together with an executed blank stock assignment
for use in transferring all or a portion of the Shares to Pledgee if, as and
when required pursuant to this Security Agreement) shall be held by the
Pledgeholder as security for the repayment of the Note, and any extensions or
renewals thereof, to be executed by Pledgor pursuant to the terms of the Option,
and the Pledgeholder 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 Pledgee to
---------------------------------------
enter into this Security Agreement, Pledgor represents and covenants to Pledgee,
its successors and assigns, as follows:
(a) Payment of Indebtedness. Pledgor will pay the principal sum of
-----------------------
the Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
(b) Encumbrances. The Shares are free of all other encumbrances,
------------
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written consent of Pledgee.
<PAGE>
(c) Margin Regulations. In the event that Pledgee's Common Stock is
------------------
now or later becomes margin-listed by the Federal Reserve Board and 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"), Pledgor agrees to
cooperate with 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
-------------
payments of principal and interest are made as they become due under the terms
of the Note, 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 stock dividend, reclassification, readjustment or other changes are
declared or made in the capital structure of 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, Pledgor, Pledgee and Pledgeholder
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 Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this
------------------
pledge, subscription Options or other rights or options shall be issued in
connection with the pledged Shares, such rights, Options and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. Default. Pledgor shall be deemed to be in default of the Note and of
-------
this Security Agreement in the event:
(a) Payment of principal or interest on the Note shall be delinquent
for a period of 10 days or more; or
(b) Pledgor fails to perform any of the covenants set forth in the
Option or contained in this Security Agreement for a period of 10 days after
written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall
have the right to accelerate payment of the Note upon notice to Pledgor, and
Pledgee shall thereafter be entitled to pursue its remedies under the Delaware
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules under
---------------------
Regulation G, there shall be released from this pledge a portion of the pledged
Shares held by Pledgeholder 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
-2-
<PAGE>
Shares pledged hereunder as the payment of principal bears to the initial full
principal amount of the Note.
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
----------------------------------------
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Shares shall continue until the payment
----
of all indebtedness secured hereby, at which time the remaining pledged stock
shall be promptly delivered to Pledgor, subject to the provisions for prior
release of a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
----------
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross
----------------------
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree 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.
13. Successors or Assigns. Pledgor and Pledgee agree that all of 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.
14. Governing Law. This Security Agreement shall be interpreted and
-------------
governed under the internal substantive laws, but not the choice of law rules,
of California.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
PLEDGOR _________________________________________
Signature
_________________________________________
Print Name
Address: ______________________________
______________________________
PLEDGEE emachines, Inc.,
a Delaware corporation
_________________________________________
Signature
_________________________________________
Print Name
_________________________________________
Title
PLEDGEHOLDER _________________________________________
Secretary of emachines, Inc.
-4-
<PAGE>
EXHIBIT C
---------
NOTE
$_______________ [City, State]
__________________,_____
FOR VALUE RECEIVED, _____________________ promises to pay to emachines,
Inc., a Delaware corporation (the "Company"), or order, the principal sum of
_______________________ ($_____________), together with interest on the unpaid
principal hereof from the date hereof at the rate of _______________ percent
(____%) per annum, compounded semiannually.
Principal and interest shall be due and payable on _______________, _____.
Payment of principal and interest shall be made in lawful money of the United
States of America.
The undersigned may at any time prepay all or any portion of the principal
or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of
________________. This Note is secured in part by a pledge of the Company's
Common Stock under the terms of a Security Agreement of even date herewith and
is subject to all the provisions thereof.
The holder of this Note shall have full recourse against the undersigned,
and shall not be required to proceed against the collateral securing this Note
in the event of default.
In the event the undersigned shall cease to be an employee, director or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
____________________________________
____________________________________
<PAGE>
EMACHINES, INC.
1998 STOCK PLAN
NOTICE OF GRANT OF STOCK PURCHASE RIGHT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Notice of Grant.
[Grantee's Name and Address]
You have been granted the right to purchase Common Stock of the Company,
subject to the Company's Repurchase Option and your ongoing status as a Service
Provider (as described in the Plan and the attached Restricted Stock Purchase
Agreement), as follows:
Grant Number _________________________
Date of Grant _________________________
Price Per Share $________________________
Total Number of Shares Subject _________________________
to This Stock Purchase Right
Expiration Date: _________________________
YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE OR
IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES. By
your signature and the signature of the Company's representative below, you and
the Company agree that this Stock Purchase Right is granted under and governed
by the terms and conditions of the 1998 Stock Plan and the Restricted Stock
Purchase Agreement, attached hereto as Exhibit A-1, both of which are made a
part of this document. You further agree to execute the attached Restricted
Stock Purchase Agreement as a condition to purchasing any shares under this
Stock Purchase Right.
GRANTEE: EMACHINES, INC.
________________________________ _____________________________________
Signature By
________________________________ __________________________________
Print Name Title
<PAGE>
EXHIBIT A-1
-----------
EMACHINES, INC.
1998 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Restricted Stock Purchase Agreement.
WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser") is an
Service Provider, and the Purchaser's continued participation is considered by
the Company to be important for the Company's continued growth; and
WHEREAS in order to give the Purchaser an opportunity to acquire an equity
interest in the Company as an incentive for the Purchaser to participate in the
affairs of the Company, the Administrator has granted to the Purchaser a Stock
Purchase Right subject to the terms and conditions of the Plan and the Notice of
Grant, which are incorporated herein by reference, and pursuant to this
Restricted Stock Purchase Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. Sale of Stock. The Company hereby agrees to sell to the Purchaser
-------------
and the Purchaser hereby agrees to purchase shares of the Company's Common Stock
(the "Shares"), at the per Share purchase price and as otherwise described in
the Notice of Grant.
2. Payment of Purchase Price. The purchase price for the Shares may be
-------------------------
paid by delivery to the Company at the time of execution of this Agreement of
cash, a check, or some combination thereof.
3. Repurchase Option.
-----------------
(a) In the event the Purchaser ceases to be a Service Provider for
any or no reason (including death or disability) before all of the Shares are
released from the Company's Repurchase Option (see Section 4), the Company
shall, upon the date of such termination (as reasonably fixed and determined by
the Company) have an irrevocable, exclusive option (the "Repurchase Option") for
a period of sixty (60) days from such date to repurchase up to that number of
shares which constitute the Unreleased Shares (as defined in Section 4) at the
original purchase price per share (the "Repurchase Price"). The Repurchase
Option shall be exercised by the Company by delivering written notice to the
Purchaser or the Purchaser's executor (with a copy to the Escrow Holder) AND, at
the Company's option, (i) by delivering to the Purchaser or the Purchaser's
executor a check in the amount of the aggregate Repurchase Price, or (ii) by
canceling an amount of the Purchaser's
<PAGE>
indebtedness to the Company equal to the aggregate Repurchase Price, or (iii) by
a combination of (i) and (ii) so that the combined payment and cancellation of
indebtedness equals the aggregate Repurchase Price. Upon delivery of such notice
and the payment of the aggregate Repurchase Price, the Company shall become the
legal and beneficial owner of the Shares being repurchased and all rights and
interests therein or relating thereto, and the Company shall have the right to
retain and transfer to its own name the number of Shares being repurchased by
the Company.
(b) Whenever the Company shall have the right to repurchase Shares
hereunder, the Company may designate and assign one or more employees, officers,
directors or shareholders of the Company or other persons or organizations to
exercise all or a part of the Company's purchase rights under this Agreement and
purchase all or a part of such Shares. If the Fair Market Value of the Shares to
be repurchased on the date of such designation or assignment (the "Repurchase
FMV") exceeds the aggregate Repurchase Price of such Shares, then each such
designee or assignee shall pay the Company cash equal to the difference between
the Repurchase FMV and the aggregate Repurchase Price of such Shares.
4. Release of Shares From Repurchase Option.
----------------------------------------
(a) _______________________ percent (______%) of the Shares shall be
released from the Company's Repurchase Option [one year] after the Date of Grant
--------
and __________________ percent (______%) of the Shares [at the end of each month
------------------------
thereafter], provided that the Purchaser does not cease to be a Service Provider
- ----------
prior to the date of any such release.
(b) Any of the Shares that have not yet been released from the
Repurchase Option are referred to herein as "Unreleased Shares."
(c) The Shares that have been released from the Repurchase Option
shall be delivered to the Purchaser at the Purchaser's request (see Section 6).
5. Restriction on Transfer. Except for the escrow described in Section 6
-----------------------
or the transfer of the Shares to the Company or its assignees contemplated by
this Agreement, none of the Shares or any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any way until such Shares
are released from the Company's Repurchase Option in accordance with the
provisions of this Agreement, other than by will or the laws of descent and
distribution.
6. Escrow of Shares.
----------------
(a) To ensure the availability for delivery of the Purchaser's
Unreleased Shares upon repurchase by the Company pursuant to the Repurchase
Option, the Purchaser shall, upon execution of this Agreement, deliver and
deposit with an escrow holder designated by the Company (the "Escrow Holder")
the share certificates representing the Unreleased Shares, together with the
stock assignment duly endorsed in blank, attached hereto as Exhibit A-2. The
Unreleased Shares and stock assignment shall be held by the Escrow Holder,
pursuant to the Joint Escrow Instructions of the Company and Purchaser attached
hereto as Exhibit A-3, until such time as the Company's
-2-
<PAGE>
Repurchase Option expires. As a further condition to the Company's obligations
under this Agreement, the Company may require the spouse of Purchaser, if any,
to execute and deliver to the Company the Consent of Spouse attached hereto as
Exhibit A-4.
(b) The Escrow Holder shall not be liable for any act it may do or
omit to do with respect to holding the Unreleased Shares in escrow while acting
in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises the Repurchase Option
hereunder, the Escrow Holder, upon receipt of written notice of such exercise
from the proposed transferee, shall take all steps necessary to accomplish such
transfer.
(d) When the Repurchase Option has been exercised or expires
unexercised or a portion of the Shares has been released from the Repurchase
Option, upon request the Escrow Holder shall promptly cause a new certificate to
be issued for the released Shares and shall deliver the certificate to the
Company or the Purchaser, as the case may be.
(e) Subject to the terms hereof, the Purchaser shall have all the
rights of a shareholder with respect to the Shares while they are held in
escrow, including without limitation, the right to vote the Shares and to
receive any cash dividends declared thereon. If, from time to time during the
term of the Repurchase Option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of the Purchaser's ownership of the Shares shall be immediately subject
to this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement and the Repurchase Option.
7. Legends. The share certificate evidencing
-------
the Shares, if any, issued hereunder shall be endorsed with the following
legend (in addition to any legend required under applicable state securities
laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
8. Adjustment for Stock Split. All references to the number of Shares
--------------------------
and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares that may be made by the Company after the date of this Agreement.
9. Tax Consequences. The Purchaser has reviewed with the Purchaser's
----------------
own tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. The Purchaser is
relying solely on such advisors and not on any statements or representations of
the Company or any of its agents. The Purchaser understands that
-3-
<PAGE>
the Purchaser (and not the Company) shall be responsible for the Purchaser's own
tax liability that may arise as a result of the transactions contemplated by
this Agreement. The Purchaser understands that Section 83 of the Internal
Revenue Code of 1986, as amended (the "Code"), taxes as ordinary income the
difference between the purchase price for the Shares and the Fair Market Value
of the Shares as of the date any restrictions on the Shares lapse. In this
context, "restriction" includes the right of the Company to buy back the Shares
pursuant to the Repurchase Option. The Purchaser understands that the Purchaser
may elect to be taxed at the time the Shares are purchased rather than when and
as the Repurchase Option expires by filing an election under Section 83(b) of
the Code with the IRS within 30 days from the date of purchase. The form for
making this election is attached as Exhibit A-5 hereto.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE PURCHASER'S BEHALF.
10. General Provisions.
------------------
(a) This Agreement shall be governed by the internal substantive
laws, but not the choice of law rules of California. This Agreement, subject to
the terms and conditions of the Plan and the Notice of Grant, represents the
entire agreement between the parties with respect to the purchase of the Shares
by the Purchaser. Subject to Section 15(c) of the Plan, in the event of a
conflict between the terms and conditions of the Plan and the terms and
conditions of this Agreement, the terms and conditions of the Plan shall
prevail. Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Agreement.
(b) Any notice, demand or request required or permitted to be given
by either the Company or the Purchaser pursuant to the terms of this Agreement
shall be in writing and shall be deemed given when delivered personally or
deposited in the U.S. mail, First Class with postage prepaid, and addressed to
the parties at the addresses of the parties set forth at the end of this
Agreement or such other address as a party may request by notifying the other in
writing.
Any notice to the Escrow Holder shall be sent to the Company's
address with a copy to the other party hereto.
(c) The rights of the Company under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by the
Company's successors and assigns. The rights and obligations of the Purchaser
under this Agreement may only be assigned with the prior written consent of the
Company.
(d) Either party's failure to enforce any provision of this Agreement
shall not in any way be construed as a waiver of any such provision, nor prevent
that party from thereafter enforcing any other provision of this Agreement. The
rights granted both parties hereunder are
-4-
<PAGE>
cumulative and shall not constitute a waiver of either party's right to assert
any other legal remedy available to it.
(e) The Purchaser agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
(f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS A SERVICE
PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED OR
PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT
THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE
SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT
ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE PURCHASER'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Purchaser agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Purchaser further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant.
DATED: __________________________
PURCHASER: EMACHINES, INC.
__________________________________ ___________________________
Signature By
__________________________________ ___________________________
Print Name Title
-5-
<PAGE>
EXHIBIT A-2
-----------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, _______________________________, hereby sell, assign
and transfer unto (__________) shares of the Common Stock
of emachines, Inc., standing in my name of the books of said corporation
represented by Certificate No. _____ herewith and do hereby irrevocably
constitute and appoint _____________________________________________ to transfer
the said stock on the books of the within named corporation with full power of
substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement (the "Agreement") between emachines, Inc. and the
undersigned dated ______________, _____.
Dated: _______________, _____
Signature:______________________________
INSTRUCTIONS: Please do not fill in any blanks other than the signature
line. The purpose of this assignment is to enable the Company to exercise the
Repurchase Option, as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE>
EXHIBIT A-3
-----------
JOINT ESCROW INSTRUCTIONS
__________________, ____
Corporate Secretary
emachines, Inc.
14350 Myford Road, Ste. 100
Irvine, CA 92606
Dear __________:
As Escrow Agent for both emachines, Inc., a Delaware corporation (the
"Company"), and the undersigned purchaser of stock of the Company (the
"Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Restricted Stock Purchase
Agreement ("Agreement") between the Company and the undersigned, in accordance
with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred
to collectively as the "Company") exercises the Company's Repurchase Option set
forth in the Agreement, the Company shall give to Purchaser and you a written
notice specifying the number of shares of stock to be purchased, the purchase
price, and the time for a closing hereunder at the principal office of the
Company. Purchaser and the Company hereby irrevocably authorize and direct you
to close the transaction contemplated by such notice in accordance with the
terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a shareholder of the Company while the
stock is held by you.
<PAGE>
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's Repurchase Option has been exercised, you
shall deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's Repurchase Option.
Within 90 days after Purchaser ceases to be a Service Provider, you shall
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's Repurchase
Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked only
by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties.
You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in
good faith, and any act done or omitted by you pursuant to the advice of your
own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree, you shall not
be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be an officer or agent of the Company or if you shall resign by
written notice to each party. In the event of any such termination, the Company
shall appoint a successor Escrow Agent.
-2-
<PAGE>
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. 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 you hereunder, you are authorized and directed to retain in your possession
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 you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: emachines, Inc.
14350 Myford Road, Ste. 100
Irvine, CA 92606
PURCHASER: ______________________________________
______________________________________
______________________________________
ESCROW AGENT: Corporate Secretary
emachines, Inc.
14350 Myford Road, Ste. 100
Irvine, CA 92606
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
-3-
<PAGE>
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the internal substantive laws, but not the
choice of law rules, of California.
Very truly yours,
EMACHINES, INC.
_____________________________________
By
_____________________________________
Title
PURCHASER:
_____________________________________
Signature
_____________________________________
Print Name
ESCROW AGENT:
_____________________________________
Corporate Secretary
-4-
<PAGE>
EXHIBIT A-4
-----------
CONSENT OF SPOUSE
I, _________________________, spouse of ________________________, have read
and approve the foregoing Restricted Stock Purchase Agreement (the "Agreement").
In consideration of the Company's grant to my spouse of the right to purchase
shares of emachines, Inc., as set forth in the Agreement, I hereby appoint my
spouse as my attorney-in-fact in respect to the exercise of any rights under the
Agreement and agree to be bound by the provisions of the Agreement insofar as I
may have any rights in said Agreement or any shares issued pursuant thereto
under the community property laws or similar laws relating to marital property
in effect in the state of our residence as of the date of the signing of the
foregoing Agreement.
Dated: ____________________, _____
_____________________________
Signature of Spouse
<PAGE>
EXHIBIT A-5
-----------
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation taxable to taxpayer
in connection with his or her receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election shares (the "Shares") of
the Common Stock of is made is described as follows: emachines, Inc. (the
"Company").
3. The date on which the property was transferred is: _________________,___.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, upon certain
events. This right lapses with regard to a portion of the Shares based on
the continued performance of services by the taxpayer over time.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is: $__________.
6. The amount (if any) paid for such property is: $___________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated:
_________________, ____ _______________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated:
_________________, ____ _______________________________________
Spouse of Taxpayer
<PAGE>
EXHIBIT 10.8
Confidential
MARKETING AGREEMENT*
--------------------
This Marketing Agreement (the "Agreement"), dated as of June 17, 1999 (the
"Effective Date"), is between America Online, Inc. ("AOL"), a Delaware
corporation, with offices at 22000 AOL Way, Dulles, Virginia 20166, and
eMachines, Inc. ("eMachines"), a Delaware corporation, with offices at 14350
Myford Drive, Suite 100, Irvine, California 92606. AOL and eMachines may be
referred to individually as a "Party" and collectively as "Parties."
INTRODUCTION
------------
AOL and eMachines each desires to enter into an marketing relationship
whereby eMachines will distribute and promote certain products and or services
that are owned, operated, distributed or authorized to be distributed by or
through AOL or any of its Affiliates pursuant to the terms and conditions
contained herein. Defined terms used but not defined in the body of the
Agreement will be as defined on Exhibit A attached hereto.
---------
TERMS
-----
1. eMachines Distribution of the AOL Software. eMachines shall distribute the
------------------------------------------
AOL Software through all Products, and any other products subsequently
agreed upon by the Parties. eMachines shall load the AOL Software onto each
Product (including, without limitation, any new builds of the Products
during the Term) by burning the AOL Software into the hard drive or other
applicable storage mechanism of such Products. The AOL Software to be loaded
shall include, in each case, the thencurrent version of the AOL Classic
Service, the CompuServe Service, Netscape Navigator Browser Software, AIM
Software, and ICQ Software (replacing, if necessary, any older versions of
such software contained in the online services folder or similar area on the
Products). The AOL Software for each respective AOL Service shall each be
fully installed in each Product (i.e., not in setup.exe file form),
provided, however, that eMachines' bundling obligations under this Section 1
shall not commence until eMachines' June 1999 product build cycle that is
scheduled for retail distribution in early August, 1999. eMachines shall use
best efforts, including but not limited to, making the necessary revisions
to software preloads in order to meet such schedule and in no event shall
the bundling obligations hereunder commence later than September, 1999. The
AOL Software combined with the Products is sometimes referred to herein as
the "Bundled Products".
- -------------------------
* CERTAIN CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
SEPARATELY FILED WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
2. eMachines Promotion of the AOL Software.
---------------------------------------
2.1 Desktop Icons. For each Bundled Product, eMachines shall include one
-------------
desktopicon (outside of, and in addition to the placements within, the
online services folder and ICW) for each AOL Service and prominent
shortcuts for the AOL Classic Service, the CompuServe Service, Netscape
Navigator Browser, AIM Service and ICQ Service from the "Start" menu
and, with respect to the AOL Classic Service and the CompuServe
Service, the "Task Bar" of the Bundled Products (including, with
respect to the desktop icon, any future items with similar
functionality).
2.2 Online Services Folder. The AOL Classic Service shall have the first
----------------------
position within the "online services folder" (or successor or
replacement product) on each Product. The CompuServe Service shall have
the second position within the "online services folder" (or successor
or replacement product) on each Product, provided that upon the launch
date of eMachines.Net, eMachines.Net shall have the first position
within the "online services folder", AOL Services shall have the second
position within the "online services folder", and the Compuserve
Service shall have the third position within the "online services
folder".
2.3 Packaging. eMachines shall prominently promote the AOL Services on and
---------
in the packaging of the Bundled Products through (a) insertion of the
documentation, brochures, and similar materials related to use of the
AOL Classic Service, the CompuServe Service, Netscape Navigator
Browser, AIM Service and ICQ Service which AOL will provide to
eMachines for distribution to end users of the Bundled Products (the
"Documentation"), (b) insertion of CD-ROM pack-ins containing the AOL
Classic Software and CompuServe Software which AOL will provide to
eMachines, and (c) display of AOL-supplied stickers on the Products
(e.g., on-box, on-package, on-monitor). AOL will provide said
materials, at its expense, delivered to the point of manufacture of the
Products.
2.4 Internet Connection Wizard. eMachines will include the AOL Classic
--------------------------
Service and the CompuServe Service within the Internet Connection
Wizard (or successor or replacement product) (the "ICW") on each
Bundled Product with the "most prominent and favorable promotion" (as
described below). For purposes of the preceding sentence, the term
"most prominent and favorable promotion" shall mean that (a) the AOL
Classic Service and the CompuServe Service shall have the first and
second positions, respectively, in any list of Interactive Services
which appears within the ICW on the Bundled Products, provided, that
after the launch date of eMachines.Net, eMachines.Net shall have the
first position in any list of Interactive Services and AOL Classic
Service and Compuserve Service will move to the second and third
positions, respectively, (b) until the launch date of eMachines.Net,
the AOL Classic Service shall be the default Interactive Service which
is automatically selected.
-2-
<PAGE>
when a user opens a page which contains a list of Interactive Services
(i.e., AOL shall be highlighted within the list of Interactive Services
and information regarding the AOL Classic Service, and no other
Interactive Service, shall appear in the adjacent window) and (c) no
information regarding any Interactive Service (other than the AOL
Classic Service, CompuServe Service, or eMachines.Net) shall appear
when one of such AOL Services is highlighted on a page within the ICW
which contains a list of Interactive Services.
2.5 Exclusivity; Preferred Placement. During the Exclusive Period,
--------------------------------
eMachines agrees that, other than eMachines.Net, the AOL Services shall
be the only Interactive Services to be bundled or otherwise distributed
with the Products; provided that notwithstanding the foregoing,
eMachines shall be permitted to distribute through the Products
Microsoft's Internet Explorer and any Interactive Services sponsored by
Microsoft only to the extent eMachines is so obligated under agreements
in connection with its use of Microsoft Windows and the license of the
Microsoft operating system (the "Microsoft Agreements"). In addition,
eMachines shall give AOL thirty (30) days written notice prior to a
review of the eMachines.Net connectivity provider (currently to be
provided by UUNet) (the "Connectivity Provider Review") and shall give
AOL the opportunity to bid on becoming the eMachines.Net connectivity
provider and shall otherwise allow AOL to participate in the
negotiations during the Connectivity Provider Review. With respect to
eMachines' obligations under the Microsoft Agreement to promote certain
other Interactive Services on the Products and with respect to
eMachines.Net, eMachines agrees that the AOL Services shall be promoted
no less favorably than such Interactive Services on the Products.
During the term of this Agreement or until otherwise addressed in
Section 19 of this Agreement, eMachines shall not change the default
portal of eMachines.Net (i.e. Netscape Netcenter) without the prior
written consent of AOL, such consent shall be in AOL's sole discretion.
Notwithstanding the provisions of this Section 2, eMachines obligations
under this Agreement are subject to the Microsoft Agreements, its
existing Agreement with UUNet, and its existing agreement with Trigem
and with regard to any future agreements between eMachines and
Microsoft Corporation, eMachines shall not subscribe to or make
available a Microsoft sponsored Interactive Service unless obligated to
do so under eMachines' license of the Microsoft operating system.
3. Trademark License. eMachines shall be entitled to use the Marks in
-----------------
connection with the fulfillment of its obligations hereunder.
4. Payments. AOL shall pay eMachines a fee of [*] for each Qualified New
--------
Member to the AOL Classic Service acquired through the distribution of
the Bundled Products. AOL shall pay eMachines a fee of [*] for each
Qualified New Member to the Compuserve Service acquired through the
distribution of the Bundled Products. AOL shall pay such amounts to
eMachines on a quarterly basis, within thirty (30) days of
[*] Confidential Information has been omitted and separately filed with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
-3-
<PAGE>
the end of each calendar quarter. For the purposes hereof, a "Qualified New
Member" shall mean any person or entity who registers for the AOL Classic
Service or the CompuServe Service during the Term using eMachines' special
promotion identifier and who pays the then-standard fees required for
membership to the AOL Classic Service or the CompuServe Service through at
least three (3) consecutive billing cycles (not including any standard free
trial period). Notwithstanding this Section 4, eMachines hereby agrees and
acknowledges that AOL shall have no bounty payment obligations with respect
to customers who subscribe to the Compuserve Service in connection with the
Consumer Rebate Offer described in Section 13.
5. Expenses. Except as otherwise expressly provided for herein, eMachines
--------
shall be responsible for the costs and expenses associated with its
marketing, promotion and distribution of the AOL Software through the
Bundled Products.
6. AOL Materials. AOL shall, at its expense, provide to eMachines the AOL
-------------
Software, documentation and related promotional materials to be included by
eMachines within the Bundled Products (the "AOL Deliverables") delivered at
AOL's expense, to the point of manufacture of the Products. The AOL
Software and the CompuServe Software will be delivered in the form of a
master diskette or CD-ROM to be pre-loaded by eMachines on each Product.
eMachines acknowledges and agrees that AOL requires at least thirty (30)
days to complete the preparation and delivery of the AOL Deliverables.
eMachines shall use commercially reasonable efforts to order sufficient
quantities of the AOL Deliverables and allow AOL at least thirty (30) days
lead-time to develop and deliver such orders. AOL shall use commercially
reasonable efforts to provide eMachines with the requested AOL Deliverables
within thirty (30) days of receiving an order for such AOL Deliverables
from eMachines.
7. Testing. eMachines shall test the AOL Software and shall notify AOL of its
-------
acceptance or rejection of such software within twenty (20) business days
of its receipt of such software, and shall cooperate with AOL on a timely,
priority basis in order to report and resolve issues associated with the
testing process. eMachines shall not distribute any Bundled Products
hereunder without AOL's prior written approval.
8. Reporting. From time to time upon AOL's request (but no more than once
---------
every quarter), eMachines shall provide AOL with a report, in a detailed
format reasonably satisfactory to AOL, setting forth (i) the total number
of Bundled Products distributed and sold, and (ii) future forecasts
regarding distribution and sales of Bundled Products. AOL shall provide
eMachines with quarterly reports setting forth the number of Qualified New
Members acquired by AOL through the distribution of the Bundled Products in
the preceding quarter, and eMachines shall have right to an independent
third party audit of such quarterly reports.
9. International Distribution. The Parties agree that the provisions of this
--------------------------
Agreement shall also be applicable to Canadian distribution of the Bundled
Products (including any variations of Products distributed in Canada, e.g.,
with respect to name or model
-4-
<PAGE>
number). For any other country (outside of the United States and Canada) in
which AOL or an Affiliate offers an Interactive Service, the Parties will
use best efforts (subject to the written agreement of any applicable
Affiliate) to enter into an addendum to extend this Agreement to such other
country on appropriate terms, and in the event that the parties cannot
reach an agreement with respect to a particular country within sixty days
of beginning negotiations in such county, but in no event less that six (6)
months from the Effective Date, the exclusivity provisions contained in
this Agreement with respect to such country shall be removed, provided,
that with respect to entering an agreement in Japan, the parties
acknowledge that eMachines has an existing partner in Japan ("Hikari") and
the parties shall make good faith efforts to reach an agreement within
sixty days of the Effective Date under which Hikari's retail outlets shall
be an integral part of the distribution channels under such agreement, and
if the parties, despite such good faith efforts, cannot reach a three party
agreement, the exclusivity provisions of this agreement with respect to
Hikari in Japan shall be removed. A standard form of such addendum shall be
made available to eMachines upon request. In addition, AOL and eMachines
shall discuss and use best efforts to enter into an agreement to launch a
consumer rebate program in England whereby eMachines computers shall be
exclusively bundled with a Consumer Rebate Offer for a commitment to a
UK/AOL Service for distribution as promptly as possible following the
Effective Date.
10. Direct Mail. eMachines shall provide AOL with access to eMachines' direct
-----------
mail or other customer lists, to the extent such lists exist, excluding
subscribers to eMachines.Net service, for AOL's mailing and acquisition
efforts. Notwithstanding Section 10 of the Standard Terms, defined in
Section 21, eMachines shall remain free to use and dispose in its sole
discretion its customer lists and information.
11. Additional Activities. eMachines and AOL shall use good faith efforts to
---------------------
work together on additional promotional activities on a case-by-case basis
with the goal of maximizing registration of Qualified New Members and
selling Bundled Products (i.e., cooperative contribution to the Parties
promotional efforts, promotion in traditional media, other products and
peripherals, etc.). eMachines agrees to promote the AOL Services in all of
its media advertising to the extent it has the ability to influence the
creative content of such advertisements, except for (i) promotions
surrounding eMachines.Net, (ii) promotions that interfere with any non
competitive third party cooperative advertising programs, and (iii)
promotions that have an unreasonable material effect on the cost of the
underlying advertisement campaign. Further, in eMachines' development of
Products other than laptop and desktop computers, eMachines shall use
commercially reasonable best efforts (with AOL's reasonable cooperation) to
make all such Products compatible with one or more AOL Services.
-5-
<PAGE>
12. Warrants and Investment.
-----------------------
12.1 Grant of Warrants. Subject to the closing of the AOL Investment (as
-----------------
defined below), eMachines hereby grants to AOL warrants (the
"Warrants") representing the right for a five-year period to purchase
such shares of eMachines common stock equal to the value of Twelve
Million Five Hundred Thousand dollars (US$12,500,000) divided by the
eMachines' Stock Price, defined below. eMachines Stock Price shall
equal (X) a number equal to the price per share of eMachines' common
stock during an initial public offering of its common stock (an
"IPO"), multiplied by a factor of 1.25, provided that the eMachines
Stock Price shall be no less than a number equal to the initial
issuance price per share of the Series A Preferred Stock of eMachines
multiplied by a factor of 1.25, or (Y) in any other scenario besides
an IPO, a number equal to the price per share of eMachines' common
stock based on a One Billion Two Hundred Fifty Million dollar
(US$1,250,000,000) valuation of eMachines on a post-money number of
shares basis. If eMachines does not satisfy the requirements of the
AOL Investment Review by July 15, 1999, pursuant to Section 12.5 of
this Agreement, then AOL will receive twenty five percent (25%)
warrant coverage in the Series A Financing as long as AOL elects to
invest no less than Thirty Million dollars (US$30,000,000). If
eMachines requests AOL in writing to invest less than Fifty Million
Dollars (US$50,000,000) in the Series A Financing or does not permit
AOL to invest prior to December 31, 1999, eMachines shall issue the
full Warrant regardless of the size of AOL's investment so long as
AOL invests the amount requested by eMachines in a timely manner,
provided that, in the event that eMachines does not satisfy the
requirements of the AOL Investment Review and the requested
investment by AOL is on terms less favorable than those proposed in
the PPM, then AOL shall receive the full warrants whether or not it
invests.
12.2 Vesting of Warrants. All Warrants granted to AOL hereunder shall vest
-------------------
upon the issuance of the Warrants, discussed in Section 12.4 of this
Agreement, and shall contain a cashless exercise provision.
12.3 Terms and Conditions. Any shares of stock acquired by AOL upon
--------------------
exercise of the Warrants shall possess rights, preferences, and
privileges that are no less favorable than the rights, preferences,
and privileges accorded to holders of Common Stock of the Company.
Additionally, AOL shall be entitled to the same registration rights
as the current common stockholders of eMachines (including Form S1
and Form S3 demand registration rights and piggyback registration
rights), in connection with any shares of stock received upon
exercise of the Warrants.
12.4 Final Agreement. The provisions of this Section 12 contain all of the
---------------
principal and essential terms and conditions of the Warrants to be
issued to AOL hereunder, and without limiting the foregoing, as soon
as practicable, but in no event later than five (5) days after the
closing of the AOL
-6-
<PAGE>
Investment eMachines shall issue a warrant in a form reasonably
acceptable to AOL; notwithstanding, in the event that the Warrant is
not issued by the date five (5) days after the AOL Investment and on
such date AOL is performing its obligations hereunder without
material breach then after such date the Warrants shall be deemed to
have been issued in accordance herewith and AOL shall have the right
to cease performance of its obligations hereunder until such time as
eMachines shall have issued the Warrants.
12.5 AOL Investment. AOL, subject to AOL's Investment Review, defined
--------------
below, will purchase ("AOL Investment") Fifty Million dollars
(US$50,000,000) of preferred stock of eMachines in its Series A
financing (the "Series A Financing") in accordance with the terms and
conditions set forth in the Summary of Terms included in the
Confidential Offering Memorandum of eMachines dated May 14, 1999 (the
"PPM"), provided, however, that AOL shall have board observer rights
as set forth in such documentation and the terms of the AOL
Investment shall be no less favorable than the terms contained in the
PPM. AOL's Investment Review shall mean the following:
(X) AOL's approval, not to be unreasonably withheld, of the following
matters related to the Series A Financing: (i) the lead investor of the Series
A Financing, (ii) the additional coinvestors of the Series A Financing,
provided that the list of co-investors or their affiliates (with the exception
of any affiliates of Comcast Interactive Capital Group) delivered to AOL prior
to the Effective Date and attached as Exhibit C have been previously approved
by AOL; (iii) the size of the Series A Financing, provided that One Hundred
and Fifty Million (US$150,000,000) is hereby approved by AOL, and (iv)
approval of the terms and conditions of the definitive documents related to
the Series A Financing, provided that to the extent the terms and conditions
of such documents are generally applicable to all investors of the Series A
Financing, the terms and conditions of such documents are presumed to be
reasonable; and (Y) AOL's approval, not to be unreasonably withheld, of the
following due diligence matters (i) review of the audited December 31, 1998,
and March 31, 1999 financial quarters of eMachines, (ii) the review of the
interim financial statements from the end of the March 31, 1999 quarter up to
May 31, 1999, (iii) confirmation from Trigem that it has the ability and
commitments in place to satisfy the production requirements of eMachines as
represented in the Business Plan of the PPM for years 1999 and 2000, and (iv)
no material adverse change in the operations and financial condition of
eMachines from the Effective Date until the closing of the AOL Investment.
13. eMachines Consumer Rebate Offer. eMachines and AOL hereby agree to
-------------------------------
participate in a program offering consumers a rebate in accordance with
the terms and conditions set forth on Exhibit B attached hereto.
14. Term, Renewal, Termination.
--------------------------
14.1 Term. Unless earlier terminated, as set forth herein, the initial
----
term of this Agreement will be five (5) years from the Effective
Date (the "Initial Term").
[*] Confidential Information has been omitted and separately filed with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
-7-
<PAGE>
14.2 Renewal. This Agreement may be renewed for an additional five (5) year
-------
term (the "Renewal Period") upon mutual written agreement of the
parties as set forth in Section 14.3 below. If this Agreement has not
otherwise been terminated under this Agreement prior to the end of the
Initial Term, AOL shall (A) extend the payment to eMachines of the
revenue share under the eCommerce Package, defined in Section 16, for
keyboards and Desktop channels only and AOL shall not be responsible
to pay eMachines [*] per each member per month under the eCommerce
Package; and (B) continue to pay eMachines a fee of [*] per month for
each consumer who participated in the Rebate Offer Contract described
in Section 13 (or other amounts as relate to any agreed upon
modification to the Consumer Rebate Offer) for the remainder of such
consumer's continuous membership to the appropriate AOL Service
whether or not the Parties elect to enter into a Renewal Period.
Further, eMachines will be paid bounties for those customers that
activated their membership during the term of the Agreement but become
Qualified New Members after termination of the Agreement.
14.3 Declaration of Intent. Each Party is required to deliver to the other
---------------------
Party no later than thirty (30) days prior to the fourth (4th)
anniversary of the Effective Date of this Agreement a written notice
stating whether or not such Party intends to negotiate in good faith
for a Renewal Period. In the event that AOL declares in its notice
that it is not interested in negotiating in good faith for a Renewal
Period and eMachines declares in its notice that it is interested in
negotiating in good faith for a Renewal Period, then on the fourth
(4th) anniversary of the Effective Date, the Exclusive Period shall
terminate.
14.4 Termination for Breach. Except as expressly provided elsewhere in this
----------------------
Agreement, either Party may terminate this Agreement at any time in
the event of a material breach of the Agreement by the other Party
which remains uncured after thirty (30) days written notice thereof to
the other Party (or such shorter period as may be specified elsewhere
in this Agreement). In the event this Agreement is terminated upon the
material breach of the Agreement by AOL, AOL will (A) extend the
payment to eMachines of the revenue share under the eCommerce Package,
defined in Section 16, for keyboards and Desktop channels only and AOL
shall not be responsible to pay eMachines [*] per each member per
month under the eCommerce Package; (B) continue to pay eMachines a fee
of [*] per month for each consumer who participated in the Rebate
Offer Contract described in Section 13 (or other amounts as relate to
any agreed upon modification to the Consumer Rebate Offer) for the
remainder of such consumer's continuous membership to the appropriate
AOL Service; and (C) pay bounties for those customers that activated
their membership during the term of the Agreement but become Qualified
New Members after termination of the Agreement.
[*] Confidential Information has been omitted and separately filed with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
-8-
<PAGE>
14.5 Termination for Bankruptcy/Insolvency. Either Party may terminate this
-------------------------------------
Agreement immediately following written notice to the other Party if
the other Party (i) ceases to do business in the normal course, (ii)
becomes or is declared insolvent or bankrupt, (iii) is the subject of
any proceeding related to its liquidation or insolvency (whether
voluntary or involuntary) which is not dismissed within ninety (90)
calendar days or (iv) makes an assignment for the benefit of
creditors.
15. Promotional Materials/Press Releases. Each Party will submit to the other
------------------------------------
Party, for its prior written approval, which will not be unreasonable withheld
or delayed, any marketing, advertising, press releases, and all other
promotional materials related to the transactions contemplated hereunder and/or
referencing the AOL Services and the AOL Software or the other Party and/or its
trade names, trademarks, and the AOL Services marks (the "Materials"). Each
Party will solicit and reasonably consider the views of the other Party in
designing and implementing such Materials.
16. ECommerce Package. During the Term of this Agreement, eMachines and AOL
-----------------
agree to work together to create a package (the "eCommerce Package") to sell to
third parties that shall include:
(a) Keyboard keys: eMachines will manufacture a keyboard which provides
-------------
one touch access to the internet through keyboard keys, or the functional
equivalent, if a user is an AOL or Compuserve subscriber, which (1) shall
initially be dedicated and point directly to a related destinations designated
by AOL and (2) that the technical design of the keyboard buttons allows the
Parties to modify the initial URL or other programming with which it is was
originally shipped.
(b) Desktop "channels": The parties agree to work together with a 3rd
-----------------
party software developer to create a desktop tool containing designated
promotional space and links which (1) shall initially be dedicated and point
directly to a related destinations designated by AOL and (2) that the technical
design of the promotional space and links allows the Parties to modify the
initial URL or other programming with which it is was originally shipped.
(c) AOL Services buttons/links (i.e. pop-ups) that will contain
promotional space and links the technical design of the promotional space and
allows the Parties to modify the initial URL or other programming with which it
is was originally shipped.
(d) Pricing: The Parties agree to [*] of the eCommerce Package, [*] AOL
-------
shall pay eMachines [*] against eMachines share of the revenue to be derived
from sales of the eCommerce Package.
17. Customer Service. During the Term of this Agreement, eMachines and AOL
----------------
agree to work together to develop a program (the "Call Center Acquisition
Program") to enable additional new member registrations to the AOL Services.
[*] Confidential Information has been omitted and separately filed with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
-9-
<PAGE>
18. Technical Support. AOL will be responsible for providing all technical
-----------------
support and customer service relating to the consumers' use of the appropriate
AOL products and services as bundled under this Agreement and the Consumer
Rebate Offer and eMachines will be responsible for the providing all technical
support and customer service relating to the consumers' use of the Products and
eMachines' services under this Agreement.
19. Netscape Portal. The parties hereto shall agree, to be added as an
---------------
addendum of this Agreement, within 30 days of the Effective Date, to develop a
customized Netcenter portal which shall include a custom Netcenter homepage (the
"Custom Netcenter Home Page"), registration process for eMachines.Net, and a
process for transitioning the allocation of revenues and users between the
Parties at the end of term of such agreement. Such addendum shall include the
following terms:
(a) AOL and eMachines shall work together to create a portal to (i)
maximize member experience/retention, (ii) maximize revenue, and (iii) meet the
objective of launching the eMachines.Net Interactive Service within 90 days of
the Effective Date.
(b) AOL shall create a discrete area (the "eMachines Area") on the Custom
Netcenter Home Page whereby eMachines shall possess complete flexibility to
create eMachines' specific channels as desired and to arrange third party
relationships if so desired, including the ability to sell custom channel space
to these partners in return for ecommerce revenues for those referrals and
click-throughs. In order to maintain consistency with the successful Netcenter
programming model, the promotion of these sold partnerships is envisioned as a
feature frame on the Custom Netcenter Home Page containing a prominent link to
an eMachines "Commerce Partner" aggregation site and a rotating photo/text
promotion featuring partner special offers. For these eMachines derived sales,
eMachines will have control of the deal terms and shall retain [*] of the
revenue. Should AOL sell space within the eMachines Area, AOL and eMachines will
split the revenue (percentages to be determined) from those sales. The parties
agree that sales in this area will not be to competitors of either AOL or
eMachines, nor will it be to sites that are improper (i.e. pornography sites,
etc.).
(c) AOL shall pay eMachines [*] of incremental advertising and eCommerce
revenue, net of commissions, derived from the traffic driven to the Netcenter
portal content areas through the eMachines.Net. Such payments will be a product
of CPM (typically between [*] depending on AOL's ability to sell the advertising
and commerce space at a premium), click through rate, sell through rate and
characteristics of portal use by the eMachines.Net users. Provided, however,
eMachines shall have the right to sell desktop channels, keyboard keys and
desktop icons, in a form similar to those keyboard keys and desktop channels
contemplated in Section 16 of this document, to third parties on systems sold
under eMachines.Net offers without payment to AOL. Such sales are subject to the
same terms and conditions outlined above with respect to links to competitive
and inappropriate sites.
[*] Confidential Information has been omitted and separately filed with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
-10-
<PAGE>
(d) eMachines.Net will at not any time co-brand or market eMachines.net
service with a connectivity provider that is a retail branded Interactive
Service, including but not limited to any marketing, advertising, press releases
and all other promotional materials, other than AOL without the prior written
consent of AOL, such consent shall be in AOL's sole discretion.
20. Hardware Development and Sales. eMachines and AOL agree to work together
------------------------------
to develop a special bundle or SKU that is offered exclusively through AOL's
sales efforts for AOL members, such products to be available at wholesale prices
to AOL for AOL's use in reselling to AOL members AOL shall consider auctioning
eMachines closeout products on the AOL Classic Service. AOL and eMachines may
explore co-development of new Internet devices and products that work with AOL's
existing DSL and Broadband technologies and services on a case by case basis.
21. Standard Terms and Conditions. This Agreement incorporates by reference
-----------------------------
AOL's standard legal terms & conditions (the "Standard Terms"), including terms
related to licenses, representations and warranties, confidentiality, limitation
of liability, disclaimers, indemnifications, use of AOL member information and
miscellaneous legal terms. The Standard Terms appear at keyword "Standard
Marketing Terms 2" on the America Online(R) brand commercial online service and
at http://mediaspace.aol.com/markterm2.html on AOL.com. A hard copy of the
Standard Terms will be provided to eMachines upon written request. eMachines
acknowledges that it has been provided an opportunity to review the Standard
Terms and agrees to be bound by them. For purposes of the Standard Terms, (a)
the defined term "Service" shall include both the AOL Services, and (b) the
defined term "Software" shall include the AOL Software. Notwithstanding the
foregoing, to the extent that Section 10 of Standard Terms contradicts the terms
of the other provisions of this Agreement, the other provisions of this
Agreement shall control.
22. Counterparts. This Agreement may be executed in counterparts, each of
------------
which will be deemed an original and all of which together will constitute one
and the same document.
(the following page is a signature page)
-11-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the Effective Date.
AMERICA ONLINE, INC. eMACHINES
By: /s/David M. Colburn By: /s/Stephen Dukker
--------------------------- ------------------------
Print Name: David M. Colburn Print Name: Stephen Dukker
------------------- ----------------
Title: Senior Vice President Title: President & CEO
------------------------ ---------------------
-12-
<PAGE>
EXHIBIT A
DEFINITIONS
-----------
"Affiliate" shall mean an entity in which AOL holds at least a
nineteen percent (19%) equity interest.
"AIM Service" shall mean the AOLbranded service, currently available
through the Internet, that enables endusers of such service to exchange, in
real-time, private, personalized messages with, and to monitor the online
status of, other end-users of such service and AOL Members.
"AIM Software" shall mean the client software (U.S. version) developed
and distributed by AOL that enables end-users to access and use the AIM
Service, and any updates, patches, new version and bug fixes thereto.
"AOL Services" shall include the following services (each an "AOL
Service") the AOL Classic Service, the CompuServe Service, Netscape
Navigator Browser, AIM Service and ICQ, and such other services as AOL may
designate to eMachines in writing during the Term.
"AOL Classic Service" shall mean the U.S. version of the America
Online(R) brand commercial online service.
"AOL Classic Software" shall mean the proprietary software used to
connect to and use the U.S. version of the America Online(R) brand service.
"AOL Software" shall mean the AOL Classic Software, the CompuServe
Software, the Netscape Navigator Software, the AIM Software, the ICQ
Software, and such other software for an AOL Service as AOL may designate
to eMachines in writing during the Term.
"CompuServe Service" shall mean the U.S. version of the CompuServe(R)
brand commercial online service.
"CompuServe Software" shall mean the proprietary software used to
connect to and use the U.S. version of the CompuServe(R) brand service.
Eligible Computer Product shall mean the following Products of
eMachines: all desktop and laptop computers purchased from a Qualified
Retailer.
"Exclusive Period" shall mean the Term of this Agreement, unless such
Exclusive Period is sooner terminated pursuant to Section 14.3.
eMachines.Net shall mean the eMachines' branded Interactive Service,
with connectivity services currently to be provided by UUNet and with
Netscape Netcenter as the default portal.
"ICQ" shall mean the standard narrowband English language version of
the ICQ brand communications and messaging service available in the U.S.
-13-
<PAGE>
"ICQ Software" shall mean the client software developed and
distributed by AOL that enables end-users to access and use ICQ, and any
updates, patches, new version and bug fixes thereto.
"Interactive Service" shall mean any entity offering one or more of
the following: (i) online or Internet connectivity services (e.g., an
Internet service provider); (ii) an interactive site or service featuring a
broad selection of aggregated third party interactive content or navigation
thereto (e.g., an online service or search and directory service) and/or
marketing a broad selection of products and/or services across numerous
interactive commerce categories (e.g., an online mall or other leading
online commerce site); and (iii) communications software capable of serving
as the principal means through which a user creates, sends and receives
electronic mail or real time online messages.
"Marks" shall mean the following tradenames, trademarks and service
marks: "America Online(R)" service, "AOL Canada(TM)" service, "AOL(R)"
service/software, AOL's triangle logo, the "CompuServe(R)" service/software
and logo, Netscape Navigator(R), ICQ(TM), and AOL Instant Messenger(TM).
"Netscape Navigator Browser" shall mean the commercially release
executable code of Netscape Navigator.
"Netscape Navigator Software" shall mean shall mean the client
software that enables end-users to access and use Netscape Navigator, and
any updates, patches, new version and bug fixes thereto.
"Products" shall mean any personal desktop and laptop computers
manufactured, marketed and/or sold by eMachines (or its affiliates) during
the Term and any devices manufactured, marketed and/or sold by eMachines
(or its affiliates) during the Term to the extent such devices are
compatible with any Interactive Service.
"Qualified Purchaser" shall mean any individual or entity who during
the Rebate Offer Period (as defined below) (a) during the Rebate Offer
Period, purchases an Eligible Computer Product, (b) is qualified by the
Bank for the Consumer Rebate Offer through a credit approval process
administered by the respective Qualified Retailer and the Bank at the time
of the purchase, (c) registers for a new account for the Compuserve Service
in the United States utilizing the Compuserve Software preloaded on the
Eligible Computer Product, (d) agrees to the Rebate Offer Contract (which
shall include, without limitation, a commitment to remain a Compuserve
Service member and pay the associated membership fee to the Bank for three
(3) years) mails the Rebate Offer Contract to the designated fulfillment
house, (e) is eighteen years or older and a resident of one of the fifty
(50) United States or Washington D.C. and (f) such other conditions as the
Parties and the Bank may reasonably determine.
"Rebate Offer Contract" shall mean that certain contract between the
consumer and the Bank containing the terms and conditions of the Consumers
obligation to remain a Compuserve Service member and pay the associated
membership fee to the Bank for three (3) years) and the Bank's obligations
to such consumer.
-14-
<PAGE>
EXHIBIT B
CONSUMER REBATE OFFER
A. Consumer Rebate Offer. AOL shall use commercially reasonable efforts to
---------------------
enter, promptly as possible following the Effective Date, an agreement with a
financial institution ___________ (the "Bank") (the "Joint Marketing Agreement")
whereby the Bank will offer (the "Consumer Rebate Offer") to Qualified
Purchasers. Notwithstanding the above sentence, AOL shall use commercially
reasonable efforts to launch a consumer rebate offer (the "Consumer Rebate
Offer") on a test basis (including no less than two (2) national Computer Retail
Chains) by July 1, 1999; deploy a launch at Staples, Inc. by July 8, 1999; and
deploy a full channel launch by July 18, 1999. The Consumer Rebate Offer will
consist of three separate programs whereby under one program Qualified
Purchasers will receive two hundred dollars (US$200.00) for a three year
commitment at $19.95 (the "$200 Program"), under a separate program Qualified
Purchasers will receive three hundred dollars (US$300.00) for a three year
commitment at $19.95 (the "$300 Program"), and under a third program, Qualified
Purchasers will receive four hundred dollars (US$400.00) for a three year
commitment at $21.95 (US$400.00) (the "$400 Program"); provided that, after
October 31, 1999, AOL shall have the right to increase the standard monthly
dollar amount commitment to the Compuserve Service of Qualified Purchasers under
the $200 Program and the $300 Program to $21.95. If AOL increases its standard
pricing for the Compuserve Service to or above such amount and either [*].
B. [*] The Parties hereby agree to enter into any additional agreements
that may be necessary to implement the Consumer Rebate Offer discussed herein.
Upon execution of this Agreement, eMachines shall provide AOL with a list of
retailers that will be participating in the Consumer Rebate Offer ("Qualified
Retailers"), provided, that eMachines shall have the opportunity to update such
list by delivering fifteen (15) days written notice to AOL of such revisions,
subject to AOL's reasonable approval. eMachines may be a Qualified Retailer to
the extent eMachines sells an Eligible Computer Product directly to a Qualified
Purchaser and advertises the Consumer Rebate Offer during the Rebate Offer
Period.
B. [*]
C. Promotion of Consumer Rebate Offer. eMachines will submit to AOL, for
----------------------------------
its prior written approval, any marketing, advertising, press releases, and all
other promotional materials related to the transactions contemplated hereunder
and/or referencing the other Party and/or its trade names, trademarks, and
service marks (the "Materials"). Each Party will solicit and reasonably consider
the views of the other Party in designing and implementing such Materials.
eMachines, subject to the prior written approval of AOL, shall provide the
Qualified Retailers with the following ("Promotional Deliverables"): (i)
provision of point of sale merchandising (tear pads, shelf talkers, flyers,
danglers) and (ii) pre-approved ad slick for use in POP, to be used in
circulars. eMachines shall use its best efforts to ensure that each Qualified
Retailer provides sufficient space within its store where the Consumer Rebate
Offers will be prominently and regularly displayed. AOL shall have final
approval on all descriptions of the Consumer Rebate Offer and use of the Marks.
[*] Confidential Information has been omitted and separately filed with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
-15-
<PAGE>
D. Service Provider. eMachines agrees, other than eMachines.Net, that the
AOL Services shall be the only Interactive Services to be bundled with any
eMachines Consumer Rebate Offer.
E. Rebate Offer Period. [*] Over the course of the five year term, the
Parties agree to work together to develop new and/or additional consumer offers
with the intention of (a) meeting market and consumer conditions and
expectations; (b) maintaining competitiveness for both parties in their
respective marketplace; and (c) maintaining financially viable business models.
Such consumer offers could include an extension of the existing Consumer Rebate
Offer, the introduction of additional consumer rebate offers and/or the
replacement of the existing Consumer Rebate Offer with a new consumer rebate
offer(s). Such consumer offers to be similar in structure to the original
Consumer Rebate Offer and could include AOL Classic Service, CompuServe Service
and/or eMachines.Net. The Parties acknowledge that this agreement to work
together in the development of future consumer rebate offers does not mean that
the Parties must match the economic terms of other consumer rebate offers in the
marketplace.
[*] Confidential Information has been omitted and separately filed with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
-16-
<PAGE>
EXHIBIT C
LIST OF COINVESTORS TO THE SERIES A FINANCING
Amerindo Investment Advisors
Banque Paribas
Bowman Capital Management
Chelsey Capital
Comcast Interactive Capital Group
Credit Suisse First Boston
Franklin Templeton
Hikari Tsushin
Omega Venture Partners
Rho Management
RRE Investors
Van Wagoner Capital Management
-17-
<PAGE>
AOL Standard Marketing Terms & Conditions (v.2)
Standard Legal Terms & Conditions
1. Agreement. MP acknowledges that these Standard Terms and Conditions are
---------
expressly referenced in and made a part of the Marketing Agreement which has
been executed by AOL and MP (the "Marketing Agreement", and collectively with
these Standard Terms and Conditions, the "Agreement"). Any defined term used in
these Standard Terms and Conditions without definition, shall have the meaning
ascribed to such term in the Marketing Agreement.
2. License. AOL hereby grants MP a nonexclusive license to distribute and
-------
promote the Software and Documentation through the Bundled Products during the
Term, solely to the limited extent and for the express purposes contemplated
hereunder.
3. Trademark License. Solely in connection with the marketing, promotion
-----------------
and distribution obligations specified in this Agreement, and subject to the
other provisions of this Agreement, MP shall be entitled to use the Marks,
provided that MP (a) does not create a unitary composite mark involving a Mark
without the prior written approval of AOL; and (b) displays symbols and notices
clearly and sufficiently indicating the trademark status and ownership of the
Marks in accordance with applicable trademark law and practice. In using the
Marks, MP acknowledges and agrees that: (i) the Marks are and shall remain the
sole property of AOL; (ii) MP shall not now or in the future contest the
validity of the Marks; (iii) nothing in this Agreement shall confer in MP any
right of ownership in the Marks; and (iv) MP acknowledges that its utilization
of the Marks will not create in it, nor will it represent it has, any right,
title or interest in or to such Marks other than the licenses expressly granted
herein.
4. Quality Standards. MP agrees that the nature and quality of its
-----------------
products and services supplied in connection with the Marks shall conform to
quality standards communicated in writing by AOL for use of its trademarks. MP
agrees to supply to AOL, upon request, with a reasonable number of samples of
any materials publicly disseminated by MP which utilize the Marks. MP shall
comply with all applicable laws, regulations and customs and obtain any required
government approvals pertaining to use of the Marks.
5. Infringement Proceedings. MP agrees to promptly notify AOL of any
------------------------
unauthorized use of the Marks of which it has actual knowledge. AOL shall have
the sole right and discretion to bring proceedings alleging infringement of the
Marks or unfair competition related thereto; provided, however, that MP agrees
to provide AOL with its reasonable cooperation and assistance with respect to
any such infringement proceedings.
6. Ownership. MP acknowledges that the Software, Documentation and any
---------
other AOL Deliverables and any enhancements and improvements thereto are and
shall remain the exclusive property of AOL and MP shall not in any way alter,
interfere with or modify the Software, the Service functionality, user interface
or experience. Except as explicitly described in this Agreement, MP shall have
no rights to copy, use, reverse engineer, reproduce, display, modify or transfer
the Software, Documentation or any other AOL Deliverables, or any derivative
works thereof.
7. Representations and Warranties. Each Party represents and warrants to
------------------------------
the other Party that: (i) such Party has the full corporate right, power and
authority to enter into this Agreement and to perform the acts required of it
hereunder; (ii) the execution of this Agreement by such Party, and the
performance by such Party of its obligations and duties hereunder, do not and
will not violate any agreement to which such Party is a party or by which it is
otherwise bound; (iii) when executed and delivered by such Party, this Agreement
will constitute the legal, valid and binding obligation of such Party,
enforceable against such Party in accordance with its terms; and (iv) such Party
acknowledges that the other Party makes no representations, warranties or
agreements related to the subject matter hereof that are not expressly provided
for in this Agreement. MP further represents that the content of the Products
will neither infringe on any copyright, U.S. patent or any other third party
right nor violate any applicable law or regulation.
-18-
<PAGE>
8. Confidentiality. During the term of this Agreement, and for a period of
--------------
three (3) years following expiration or termination of this Agreement, each
Party acknowledges that Confidential Information may be disclosed to the other
Party during the course of this Agreement. Each Party agrees that it will take
reasonable steps, at least substantially equivalent to the steps it takes to
protect its own proprietary information, to prevent the duplication or
disclosure of Confidential Information of the other Party, other than by or to
its employees or agents who must have access to such Confidential Information to
perform such Party's obligations hereunder, who will each agree to comply with
this section. Notwithstanding the foregoing, either Party may issue a press
release or other disclosure containing Confidential Information without the
consent of the other Party, to the extent such disclosure is required by law,
rule, regulation or government or court order. In such event, the disclosing
Party will provide at least five (5) business days prior written notice of such
proposed disclosure to the other Party. For the purposes hereof, "Confidential
Information" shall mean any information relating to or disclosed in the course
of the Agreement, which is or should be reasonably understood by the receiving
Party to be confidential or proprietary to the disclosing Party, including, but
not limited to, the terms of the Agreement, information about AOL Members,
technical processes and formulas, source codes, product designs, sales, cost and
other unpublished information, product and business plans, projections, and
marketing data. "Confidential Information" will not include information (a)
already lawfully known to or independently developed by the receiving Party, (b)
disclosed in published materials, (c) generally known to the public, or (d)
lawfully obtained from any third party.
9. Limitation of Liability; Disclaimer; Indemnification.
----------------------------------------------------
9.1 Liability. UNDER NO CIRCUMSTANCES WILL EITHER PARTY BE LIABLE TO THE
---------
OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY
DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES), ARISING FROM BREACH OF THE AGREEMENT, THE USE OR INABILITY TO USE THE
SERVICE, OR ARISING FROM ANY OTHER PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT
LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS
("COLLECTIVELY, "DISCLAIMED DAMAGES"); PROVIDED THAT EACH PARTY WILL REMAIN
LIABLE TO THE OTHER PARTY TO THE EXTENT ANY DISCLAIMED DAMAGES ARE CLAIMED BY A
THIRD PARTY AND ARE SUBJECT TO INDEMNIFICATION PURSUANT TO SECTION 9.3.
9.2 No Additional Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS
------------------------
AGREEMENT, NEITHER PARTY MAKES ANY, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS
ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE PRODUCTS,
THE SERVICE, THE SOFTWARE OR DOCUMENTATION, INCLUDING ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND IMPLIED WARRANTIES
ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE.
9.3 Indemnity. AOL agrees to defend, indemnify and hold MP and the
---------
officers, directors, agents, affiliates, distributors, franchisees and employees
(the "Affiliated Parties") of MP harmless against any loss, damage, expense, or
cost, including reasonable attorneys fees (including allocated costs for in-
house legal services) ("Liabilities") arising out of any claim, demand,
proceeding, or lawsuit by a third party based on any assertion that the Software
breaches the patent, copyright, trademark, trade secret or other proprietary
right of such third party. MP agrees to defend, indemnify and hold AOL and the
Affiliated Parties of AOL harmless against any Liabilities arising out of any
claim, demand, proceeding, or lawsuit by a third party based on any assertion
that a Product breaches the patent, copyright, trademark, trade secret or other
proprietary right of such third party. Either Party will defend, indemnify, save
and hold harmless the other Party and its Affiliated Parties from any and all
Liabilities arising out of any claim, demand, proceeding or lawsuit by a third
party resulting from the indemnifying Party's material breach of any duty,
representation, or warranty of this Agreement, except where Liabilities result
from the gross negligence or knowing and willful misconduct of the other Party.
-19-
<PAGE>
9.4 Claims. Each Party agrees to (i) promptly notify the other Party in
------
writing of any indemnifiable claim and give the other Party the opportunity to
defend or negotiate a settlement of any such claim at such other Party's
expense, and (ii) cooperate fully with the other Party, at that other Party's
expense, in defending or settling such claim. AOL reserves the right, at its own
expense, to assume the exclusive defense and control of any matter otherwise
subject to indemnification by MP hereunder.
9.5 Acknowledgment. AOL and MP each acknowledges that the provisions of
--------------
this Agreement were negotiated to reflect an informed, voluntary allocation
between them of all risks (both known and unknown) associated with the
transactions contemplated hereunder. The provisions of this Section 9 will be
enforceable independent of and severable from any other enforceable or
unenforceable provision of this Agreement.
10. Solicitation of AOL Members. (a) During the term of the Agreement and
---------------------------
for a two year period thereafter, MP will not use the Service or any other
product or service owned, operated, distributed or authorized to be distributed
by or through AOL or its Affiliates worldwide (the "AOL Network") (including,
without limitation, the e-mail network contained therein) to solicit any
authorized user of the AOL Network, including any sub-accounts using the AOL
Network under an authorized master account ("an AOL Member") on behalf of
another Interactive Service. More generally, MP will not send unsolicited,
commercial e-mail (i.e., "spam") through or into AOL's products or services,
absent a Prior Business Relationship. For purposes of this Agreement, a "Prior
Business Relationship" will mean that the AOL Member to whom commercial e-mail
is being sent has voluntarily either (i) engaged in a transaction with MP or
(ii) provided information to MP through a contest, registration, or other
communication, which included clear notice to the AOL Member that the
information provided could result in commercial e-mail being sent to that AOL
Member by MP or its agents. Any commercial e-mail to be sent through or into
AOL's products or services shall also be subject to AOL's then standard
restrictions on distribution of bulk e-mail (e.g., related to the time and
manner in which such e-mail can be distributed through or into the AOL product
or service in question).
(b) MP shall ensure that its collection, use and disclosure of information
obtained from AOL Members under this Agreement ("Member Information") complies
with (i) all applicable laws and regulations and (ii) AOL's standard privacy
policies, available on the America Online(R) brand commercial online service at
the keyword term "Privacy" (or any successor keyword) (or, in the case of an MP
interactive site or area (e.g., MP's site on the Internet) that is linked to a
specific area of the AOL Network that MP developed, manages or markets, MP's
standard privacy policies so long as such policies are prominently published on
the site and provide adequate notice, disclosure and choice to users regarding
MP's collection, use and disclosure of user information). MP will not disclose
Member Information collected hereunder to any third party in a manner that
identifies AOL Members as end users of an AOL product or service or use Member
Information collected under this Agreement to market another Interactive
Service.
11. Excuse. Neither Party will be liable for, or be considered in breach
------
of or default under this Agreement on account of, any delay or failure to
perform as required by this Agreement as a result of any causes or conditions
which are beyond such Party's reasonable control and which such Party is unable
to overcome by the exercise of reasonable diligence.
12. Independent Contractors. AOL and MP are independent contractors.
-----------------------
Neither AOL nor MP is an agent, representative or partner of the other. Neither
AOL nor MP will have any right, power or authority to enter into any agreement
for or on behalf of, or incur any obligation or liability of, or to otherwise
bind, the other. This Agreement will not be interpreted or construed to create
an association, agency, joint venture or partnership between AOL and MP or to
impose any liability attributable to such a relationship upon either AOL or MP.
13. Notice. Any notice, approval, request, authorization, direction or
------
other communication under this Agreement will be given in writing and will be
deemed to have been delivered and given for all purposes: (i) on the delivery
date if delivered by electronic mail on the AOL Network (to screenname
"[email protected]" in the case of AOL), through a confirmed facsimile or if
delivered personally to the Party to whom the same is directed; (ii) one (1)
business day after deposit with a commercial overnight carrier, with written
verification of receipt, or (iii) five (5)
-20-
<PAGE>
business days after the mailing date, whether or not actually received, if sent
by U.S. mail, return receipt requested, postage and charges prepaid, or any
other means of rapid mail delivery for which a receipt is available, to the
person(s) specified below at the address of the Party set forth in the first
paragraph of the Agreement. In the case of AOL, such notice will be provided to
both the Senior Vice President for Business Affairs (fax no. 703-265-1206) and
the Deputy General Counsel (fax no. 703-265-1105), each at the address of AOL
set forth in the first paragraph of the Marketing Agreement. In the case of MP,
except as otherwise specified herein, the notice address shall be the address
for MP set forth in the first paragraph of the Marketing Agreement, with the
other relevant notice information, including the recipient for notice and, as
applicable, such recipient's fax number or e-mail address, to be as reasonable
identified by AOL.
14. No Waiver. The failure of either Party to insist upon or enforce
---------
strict performance by the other Party of any provision of this Agreement or to
exercise any right under this Agreement will not be construed as a waiver or
relinquishment to any extent of such Party's right to assert or rely upon any
such provision or right in that or any other instance; rather, the same will be
and remain in full force and effect.
15. Return of Information. Upon the expiration or termination of this
---------------------
Agreement, each Party will, upon the written request of the other Party, return
or destroy (at the option of the Party receiving the request) all confidential
information, documents, manuals and other materials specified by the other
Party.
16. Survival. Sections 8 through 23 of these Standard Terms and Conditions
--------
will survive the completion, expiration, termination or cancellation of this
Agreement.
17. Entire Agreement. This Agreement sets forth the entire agreement and
----------------
supersedes any and all prior agreements of the Parties with respect to the
transactions set forth herein. Neither Party will be bound by, and each Party
specifically objects to, any term, condition or other provision which is
different from or in addition to the provisions of this Agreement (whether or
not it would materially alter this Agreement) and which is proffered by the
other Party in any correspondence or other document, unless the Party to be
bound thereby specifically agrees to such provision in writing.
18. Amendment. No change, amendment or modification of any provision of
---------
this Agreement will be valid unless set forth in a written instrument signed by
the Party subject to enforcement of such amendment, and in the case of AOL, by
an executive of at least the same standing as the executive who signed the
Agreement.
19. Further Assurances. Each Party will take such action (including, but
------------------
not limited to, the execution, acknowledgment and delivery of documents) as may
reasonably be requested by any other Party for the implementation or continuing
performance of this Agreement.
20. Assignment. MP will not assign this Agreement or any right, interest
----------
or benefit under this Agreement without the prior written consent of AOL.
Subject to the foregoing, this Agreement will be fully binding upon, inure to
the benefit of and be enforceable by the Parties hereto and their respective
successors and assigns.
21. Construction; Severability. In the event that any provision of this
--------------------------
Agreement conflicts with the law under which this Agreement is to be construed
or if any such provision is held invalid by a court with jurisdiction over the
Parties to this Agreement, (i) such provision will be deemed to be restated to
reflect as nearly as possible the original intentions of the Parties in
accordance with applicable law, and (ii) the remaining terms, provisions,
covenants and restrictions of this Agreement will remain in full force and
effect.
22. Injunctive Relief; Remedies. MP acknowledges a violation of this
---------------------------
Agreement could cause irreparable harm to AOL for which monetary damages may be
difficult to ascertain or an inadequate remedy. MP therefore agrees that AOL
will have the right, in addition to its other rights and remedies, to seek and
obtain injunctive relief for any violation of this Agreement. Except where
otherwise specified, the rights and remedies granted to a Party under this
Agreement
-21-
<PAGE>
are cumulative and in addition to, and not in lieu of, any other rights or
remedies which the Party may possess at law or in equity.
23. Applicable Law; Jurisdiction. This Agreement will be interpreted,
----------------------------
construed and enforced in all respects in accordance with the laws of the
Commonwealth of Virginia except for its conflicts of laws principles. Each Party
irrevocably consents to the exclusive jurisdiction of the courts of the
Commonwealth of Virginia and the federal courts situated in the Commonwealth of
Virginia, in connection with any action to enforce the provisions of this
Agreement, to recover damages or other relief for breach or default under this
Agreement, or otherwise arising under or by reason of this Agreement.
24. Statements to Third Parties. MP shall not make, publish, or otherwise
---------------------------
communicate, or cause to be made, published, or otherwise communicated, any
deleterious remarks to any third parties concerning AOL or its Affiliates,
directors, officers, employees or agents.
25. Export Controls. Both Parties will adhere to all applicable laws,
---------------
regulations and rules relating to the export of technical data and will not
export or re-export any technical data, any products received from the other
Party or the direct product of such technical data to any proscribed country
listed in such applicable laws, regulations and rules unless properly
authorized.
26. Headings. The captions and headings used in this Agreement are
--------
inserted for convenience only and will not affect the meaning or interpretation
of this Agreement.
-22-
<PAGE>
CONFIDENTIAL
------------
EXHIBIT 10.20
ORIGINAL DESIGN MANUFACTURER AGREEMENT
between
TRIGEM COMPUTER, INC.
and
EMACHINES, INC.*
January 24, 2000
* CERTAIN CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
SEPARATELY FILED WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
CONFIDENTIAL
------------
ORIGINAL DESIGN MANUFACTURER AGREEMENT*
This Original Design Manufacture Agreement ("Agreement") is entered into on
this 24th day of January, 2000, between TRIGEM COMPUTER, INC., a Korean
corporation whose principal office is located at TriGem Computer Bldg., 45-2
Yoido-dong, Youngdeungpo-ku, Seoul 150-010, Korea ("Original Design
Manufacturer" or "ODM") and EMACHINES, INC., a Delaware corporation whose
principal office is located at 14350 Myford Road, Bldg. 100, Irvine, California
92606-1002, U.S.A. ("EMACHINES"). ODM and EMACHINES shall be referred
collectively as "Parties" or individually as "Party." Unless otherwise noted,
all capitalized terms in this Agreement shall have the meanings set forth in
Article 1.
WITNESSETH:
WHEREAS, ODM and EMACHINES desire to enter into a relationship whereby ODM will
manufacture, assemble and provide Support for the Products whereby the Products
will be ODM's design but may incorporate certain EMACHINES Components and Third
Party Components;
WHEREAS, the Parties desire the Products to be marketed and sold by EMACHINES
under the EMACHINES label on a worldwide basis; and
WHEREAS, the Parties desire to set forth the terms and conditions of their
relationship in this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and covenants contained
hereinbelow, the Parties hereby agree as follows:
ARTICLE 1. DEFINITIONS
"Affiliate" means any EMACHINES Subsidiary, subcontractor or other third party
authorized to purchase Products under this Agreement as listed in a Product
Addendum.
"Annual Plan" shall have the meaning set forth in Section 3.1.
"Applicable Percentage" means LIBOR plus 3%, as adjusted on calendar quarter
basis.
"Class Failure" shall have the meaning set forth in Section 8.5.
"Components" means EMACHINES Components, ODM Components and Third Party
Components.
"Confidential Information" shall have the meaning in Section 13.1.
* CERTAIN CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
SEPARATELY FILED WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
CONFIDENTIAL
------------
"Defective Product" means any Product that does not comply with the
Specifications, the requirements of the Purchase Order, Product Addendum, or
other provisions of this Agreement.
"Delivery Date" means the date specified in a Purchase Order for the delivery of
Products by ODM to the Shipping Port.
"Documentation" means any user and technical materials that EMACHINES makes
available for the Products.
"Effective Date" means the date this Agreement is executed by the Parties.
"EMACHINES Components" means all EMACHINES hardware, EMACHINES Software and
other EMACHINES materials and Documentation that ODM will incorporate into the
Products that are either provided or sold to ODM by EMACHINES or EMACHINES'
designee; provided, however, that if the same components from EMACHINES'
designees are being used by ODM in other products that it manufactures for its
other clients, then such components shall be designated as the Third Party
Component for the purposes of this Agreement.
"EMACHINES Custom Parts" means keyboards, speakers, mice, chassis, front bezel,
packing boxes and Documentation which contain EMACHINES Marks purchased by ODM
to fulfill a Purchase Order. For avoidance of any doubt, in the event that
EMACHINES provides, whether directly or indirectly, the EMACHINES Custom Parts
to ODM, then such EMACHINES Custom Parts shall be deemed to be EMACHINES
Components.
"EMACHINES Property" means all property, including without limitation, models,
tools, equipment, copies of designs and documentation and other materials that
may be provided to ODM by EMACHINES or by a third party on EMACHINES' behalf, or
separately paid for by EMACHINES for use by ODM to manufacture (but not
incorporate into) Products under this Agreement. However, EMACHINES Property
shall not include chassis tooling, packaging tooling and plastic molds unless
such items are paid for by EMACHINES.
"Excess Components" means Components that (a) were purchased solely to fulfill a
Requisition and are remaining on the last day covered by the Requisition and (b)
are not scheduled to be used in the immediately following Requisition.
"Intellectual Property Rights" means all rights in patents, copyrights, trade
secrets, mask works, Marks and other similar rights.
"Lead Time" means the time between the date a Purchase Order is acknowledged by
ODM and the Delivery Date.
"Marks" means the trademarks, service marks, trademark and service mark
applications, trade dress, trade names, logos, insignia, symbols, designs or
other marks identifying a Party or its products.
"Month" means a calendar month.
* CERTAIN CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
SEPARATELY FILED WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
-2-
<PAGE>
CONFIDENTIAL
------------
"ODM Components" means all ODM hardware, ODM Software, packaging materials,
inserts and other ODM materials that ODM will incorporate into the Products.
"Parts" means the replacement parts, components, consumables or other products
that may be supplied in conjunction with the Products.
"Price" shall have the meaning set forth in Section 5.1.
"Product Addendum" means the addendum to the description of Products and
Product-specific requirements in the form attached to this Agreement as Exhibit
A, and any subsequent addendum entered into between ODM and EMACHINES,
containing the information required in Section 4.1.
"Products" means the finished and assembled products listed in the Product
Addendum to this Agreement.
"Purchase Order" means a written or electronic purchase order issued by
EMACHINES or its Affiliate to ODM for purchase of the Products.
"Shipping Port" means the shipping port stated in the Product Addendum.
"Software" means any software or firmware included or bundled with the Products.
"Software Build" means the specific operating system and bundled software
packages and drivers loaded on the Products listed in each Product Addendum.
"Specifications" means the technical and functional requirements for the
assembly of the Products as specified or referenced in a Product Addendum.
"Subsidiary" means an entity controlled by or under common control with a Party,
through ownership or control of more than 50% of the voting power of the shares
or other means of ownership or control, provided that such control continues to
exist.
"Support" means ongoing maintenance and technical support by ODM for the
Products as more fully described in Exhibit B.
"Term" shall have the meaning in Section 14.1.
"Third Party Components" means all third party hardware, third party Software
and other third party materials that ODM procures and incorporates into the
Products.
ARTICLE 2. SALE AND PURCHASE OF PRODUCTS
Subject to the terms and conditions in this Agreement, ODM agrees to design,
procure, directly or indirectly, certain Components, manufacture, assemble and
provide Support for the Products, and to sell the same to EMACHINES in
accordance with the terms hereof.
* CERTAIN CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
SEPARATELY FILED WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
-3-
<PAGE>
CONFIDENTIAL
------------
ARTICLE 3. ORDERS FOR PRODUCTS AND SUPPORT
3.1 Annual Plan. The annual plan ("Annual Plan") shall set forth the projected
-----------
monthly breakdown of the Products required by EMACHINES. The Annual Plan
for the first year of this Agreement is set forth in Exhibit F. Thereafter,
the Parties shall mutually agree on revised Annual Plans for the year by
January 15th of that year. The Annual Plan shall be subject to quarterly
adjustment on the mutual agreement of the Parties.
3.2 Forecasts. [*] days before the commencement of each three (3) Month
---------
period, EMACHINES shall provide a three (3) Month rolling forecast of its
projected purchases of Products for such quarter ("Forecast"). The Forecast
shall consist of an approximation of such prospective purchases of the
Products, broken down by price band, per Month in the forecasted period.
Any quantities listed in any Forecast or other correspondence between the
Parties are only estimates made as an accommodation for planning purposes
and do not constitute EMACHINES' commitment to purchase any such quantity.
3.3 Requisitions. [*] EMACHINES shall provide to ODM such Month's binding
------------
requisition for projected purchases of the Products ("Requisition").
Immediately after the Forecast has been issued by EMACHINES in accordance
with Section 3.2, the Parties shall meet and determine the Requisition for
the next Month's projected purchases. ODM shall accept the Requisitions;
provided that (a) Components are available to ODM to build the Products in
the Requisition; and (b) the Requisition is within the capacity levels set
forth in the Annual Plan. The Requisition shall consist of EMACHINES'
purchases broken down by model number, price of each Product model, unit
quantity and week of delivery, and shall be implemented through the
issuance of Purchase Orders in accordance with Section 3.4.
3.4 Purchase Order. [*] EMACHINES shall place a Purchase Order electronically
--------------
or through facsimile for purchase of Products to ODM. Each Purchase Order
shall include: (i) a reference to the Product Addendum; (ii) Product unit
quantity; (iii) Shipping Port; (iv) Delivery Date; (v) price of each
Product model, and (vi) other instructions or requirements pertinent to the
Purchase Order. The Purchase Orders for the relevant Month may exceed the
Requisition [*] subject to ODM's Component availability. ODM shall use
commercially reasonable efforts to manage its inventory of Components to
absorb such [*] flexibility, provided that in the months of September,
October and November, such flexibility shall be subject to both ODM's
Component availability and ODM's production capacity, provided that
capacity shall be allocated on a most favored basis.
3.5 Delivery Destination. Unless otherwise agreed by ODM, all Products ordered
--------------------
through Purchase Orders shall be delivered to the Shipping Port. Subject to
Section 6.5, ODM, at EMACHINES cost, may assist EMACHINES with shipping
documentation to have the Products delivered to a location desired by
EMACHINES from the Shipping Port.
3.6 Order Acknowledgment. A Purchase Order shall be deemed to have been placed
--------------------
as of the date ODM acknowledges receipt of a Purchase Order electronically
or through facsimile to
* CERTAIN CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
SEPARATELY FILED WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
-4-
<PAGE>
CONFIDENTIAL
------------
EMACHINES [*] Purchase Order(s) within Lead Time requirements of this
Agreement shall be deemed accepted upon acknowledgement by ODM. If a
Purchase Order shortens the Lead Time or EMACHINES requests an adjustment
to a Purchase Order, ODM will use commercially reasonable efforts to adjust
the Purchase Order or accommodate such shorter Lead Time. Any reasonable
costs incurred by ODM to adjust the Purchase Order or accommodate a shorter
Lead Time shall be borne by EMACHINES; provided that EMACHINES has approved
of such costs in advance in writing. If EMACHINES does not approve such
costs, the Products shall be delivered at the originally scheduled Delivery
Date.
3.7 Change in Components or Specifications. Upon mutual agreement of the
--------------------------------------
Parties, EMACHINES may change EMACHINES Components or Specifications at any
time prior to manufacture of corresponding Products. If such change
reasonably and directly affects the Price, number of Product units or
delivery schedule for the Products, an equitable adjustment shall be made
provided ODM makes a written claim for an adjustment.
3.8 Materials Procurement and Liability. At the time a Requisition is made, the
-----------------------------------
Parties will meet and discuss whether any Components cannot reasonably be
returned, sold or used for other customers of ODM in the event Components
procured by ODM in reliance on a Requisition are not consumed for the
Products. If ODM identifies such Components to EMACHINES, ODM shall also
identify reasonable substitutes, where possible, which could be sold,
returned or used by ODM for its other customers and the Parties will work
together to maximize the use of such substitutes. In the event EMACHINES's
Purchase Orders for the relevant Month do not match the Requisitions and
Excess Components remain, [*] ("Initial Period"), ODM will use commercially
reasonable efforts to mitigate damages including, without limitation,
canceling Components orders, using such Components for ODM's support
obligations, rescheduling Components orders, or selling Components, as well
as using the Components for other Products or the products of other
customers of ODM when ODM cannot sell, cancel or reschedule Components that
were purchased solely to support a Requisition. EMACHINES shall either (a)
compensate ODM for any Excess Components at any time after the end of the
applicable Requisition; or (b) request ODM to continue holding such Excess
Components for up to [*] after the Initial Period, [*] In cases where ODM
cannot sell the Components to any third party for the same price as the
price set forth in the Requisition, the Parties will mutually agree on an
amount to be paid to ODM prior to ODM selling such Components at a lower
price. ODM will sell such Components at the best commercially available
price in the marketplace or according to EMACHINES's written direction and
EMACHINES shall be entitled to set-off the amount received by ODM for such
sale against any EMACHINES expense for which EMACHINES would otherwise be
liable.
ARTICLE 4. PRODUCT ADDENDUM
4.1 New Product Addenda. EMACHINES and ODM may, from time to time, add
-------------------
products to this Agreement by executing a Product Addendum. Each Product
Addendum shall include the following information: (i) Product description
and model number; (ii) Product number; (iii) Price components and
configuration and profit percentage; (iv) Software Build; (v)
* CERTAIN CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
SEPARATELY FILED WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
-5-
<PAGE>
CONFIDENTIAL
------------
packaging and packing specifications; (vi) Affiliates authorized to
purchase Products and Support; (vii) Shipping Port; (viii) Product
specifications; (ix) tentative price; and (x) other terms and conditions as
agreed by the Parties.
4.2 Precedence. Unless a Product Addendum specifically refers to and amends a
----------
term of this Agreement, the terms and conditions of this Agreement will
control and take precedence over any conflicting terms in a Product
Addendum.
4.3 New Products Configuration Lead Time. EMACHINES may request a change (i)
------------------------------------
in the configuration (memory, processors and mass storage) with a Lead Time
of [*]; (ii) for motherboards in production with a Lead Time of [*]; and
(iii) for new motherboards with a Lead Time of [*].
ARTICLE 5. PRICE; PAYMENT TERMS
5.1 Price. Subject to Section 5.2, ODM's price for the Products shall be as
-----
agreed upon by the Parties and tentative, non-binding price or pricing
formula shall be stated in the Product Addendum ("Price"). [*] Prices shall
be calculated on a "cost plus" basis, [*]:
5.1.1 [*]
5.1.2 [*]
5.1.3 [*]
5.1.4 [*]
5.1.5 [*]
5.1.6 [*]
5.1.7 [*]
5.1.8. [*]
5.2 Price Adjustments. Prices shall be agreed [*] in the Requisition, and shall
-----------------
be based on ODM's then current cost as calculated in accordance with Section
5.1. Pricing shall take into account any inventory effects for the BOM agreed by
the Parties, and shall also reflect any change in BOM cost during the previous
Month.
5.3 Most Favored Pricing. The Prices shall not exceed those offered to other
--------------------
ODM customers purchasing similar products and services in like or lesser
quantities under similar terms and conditions. If ODM offers prices to other
customers for like or lesser quantities during the same time period which are
lower than those offered to EMACHINES, then those prices shall become available
to EMACHINES at the time of availability to that other customer.
* CERTAIN CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
SEPARATELY FILED WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
-6-
<PAGE>
CONFIDENTIAL
------------
5.4 Payment Terms. After ODM has delivered the Products to the Shipping
-------------
Port, ODM shall transmit to EMACHINES the executed bill of lading and other
shipping documents for the Products. Full payment for the Products shall be
due within net [*] from the estimated arrival date to the destination port
("Due Date"). Unless otherwise instructed by ODM, all payments shall be
made to ODM's Subsidiary, TriGem America Corporation ("TGA"), in United
States currency, by check, money order or wire transfer (as may be agreed
upon by the Parties) to an account designated by ODM or TGA. ODM shall be
responsible for ensuring that TGA complies with the terms of this Agreement
and ODM shall be liable to EMACHINES for any breach by TGA.
5.5 Early Payment; Late Payment. Payment which is received by TGA or ODM,
---------------------------
as the case may be, prior to the Due Date shall be discounted by ODM and
credited to the account of EMACHINES at the Applicable Percentage of the
Price based on the following formula:
[*]
Similarly, if EMACHINES is late in its payments to ODM or TGA, as the case
may be, a late fee shall be assessed on the Price using the following
formula:
[*]
5.6 Taxes; Duties. Upon delivery of the Products to the Shipping Port,
-------------
EMACHINES shall be wholly responsible for all applicable taxes, duties and
any other fees or costs related to the Products, except for those expressly
included in the Prices. In the event ODM pays for any such taxes or fees
that accrue after delivery to the Shipping Port, EMACHINES shall repay ODM
or its designee within ten (10) days of ODM's demand for immediate
repayment of the same after presentation of documents evidencing such
payment.
5.7 Price Audit. Upon prior written notice, EMACHINES or its representative may
-----------
inspect ODM's relevant records to confirm that EMACHINES is receiving
Prices equal to or better than those offered by ODM to other customers
pursuant to Section 5.3, and the accuracy of the computation of "cost"
pursuant to Section 5.1. The audit shall not be performed more than once
per year ("Initial Audit"), [*] Further, audits shall be conducted at a
reasonable time and during normal hours of operation. If the audit reveals
that ODM has not complied with the terms of Sections 5.1 and 5.3 and there
has been an overcharge to EMACHINES, then ODM shall promptly pay such
overcharge, without interest, to EMACHINES. If, however, the audit reveals
that ODM has not complied with the terms of Sections 5.1 and 5.3 and there
has been an undercharge to EMACHINES, then EMACHINES shall promptly pay
such undercharge, without interest, to ODM. [*]
ARTICLE 6. SHIPMENT
6.1 Product Labeling. To the extent EMACHINES timely provides ODM with
----------------
specific instructions on and samples of EMACHINES' current labeling
requirements and Marks,
* CERTAIN CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
SEPARATELY FILED WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
-7-
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ODM will ensure that the Products and the packaging contain such
information and EMACHINES' Marks.
6.2 Complete Delivery. All Product units specified in a Purchase Order
-----------------
are to be shipped complete. In the event ODM knows that only a portion of
the Products will be available for shipment to meet a Delivery Date, ODM
shall immediately notify EMACHINES. In such event, EMACHINES shall have the
option to accept partial shipment or direct ODM to reschedule the shipment.
6.3 Option to Accept Overshipment. If ODM ships more Product units than
-----------------------------
ordered, EMACHINES may accept the amount of the overshipment with payment
due.
6.4 Delays. If ODM knows it cannot meet or has missed the Delivery Date,
------
ODM shall immediately notify EMACHINES of such event. ODM shall take any
and all necessary actions, and EMACHINES shall inform ODM of the delivery
dates to the Products affected. Such affected Products shall be shipped by
air transportation or other expedient means acceptable to EMACHINES to a
destination port as set forth in the bill of lading. If, however, the delay
is to the extent that ODM can not meet the estimated arrival date at the
destination port but reasonably believes that it can meet EMACHINES'
reasonable commitment to deliver to EMACHINES' customer destination
("Commitment Destination"), then ODM shall ship the Products to the
Commitment Destination by EMACHINES' required delivery dates to its
customers. ODM shall pay for any resulting increase in the freight cost
over that which EMACHINES would have been required to pay by the standard
method of transportation. If delay has been notified to EMACHINES or has
occurred, EMACHINES shall have the right to cancel any Purchase Order if
(a) EMACHINES notifies ODM of the Commitment Destination and delivery date
to the Commitment Destination and (b) (i) ODM acknowledges that it can not
meet the delivery date to the Commitment Destination; or (ii) ODM misses
the delivery date to the Commitment Destination. EMACHINES shall undertake
commercially reasonable methods to mitigate ODM's costs associated with
above described expedient delivery for the affected Products.
Notwithstanding the foregoing, this Section 6.4 shall be subject to Article
12 in the event of a force majeure.
6.5 Title and Risk of Loss. [*]
----------------------
6.6 Packing List. Each delivery of Products must include a packing list
------------
that contains at least: (i) EMACHINES model number; (ii) quantity of
Products shipped; and (iii) date of shipment.
6.7 Packaging; Damages. ODM shall properly package, handle and pack all
------------------
Products so as to protect the Products from loss or damage, in conformance
with good commercial practice, the Specifications, government regulations,
and other applicable standards. Special static protection must be provided
for Products requiring such packaging.
* CERTAIN CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
SEPARATELY FILED WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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ARTICLE 7. COMPLIANCE WITH LAWS AND REGULATIONS
7.1 Compliance with Laws and Regulations. ODM shall comply with all
------------------------------------
applicable laws and regulations applicable to the Products and/or Parts
in jurisdictions in which EMACHINES sell the Products and/or the Parts.
EMACHINES shall provide the jurisdictions in which the Products and/or
the Parts will be sold at the time in which the Forecast is issued to ODM
and shall reasonably assist ODM to comply with applicable laws and
regulations. In no event shall ODM be held liable or responsible for any
non-compliance with applicable laws and regulations for the jurisdictions
in which EMACHINES failed to timely inform ODM.
7.2 Compliance. Subject to Section 7.1, ODM shall be responsible for
----------
providing regulatory agencies and standards organizations with proof of
compliance to the requirements in Section 7.1 for each Product and, as
applicable, for Parts and Components associated with such Product. ODM
shall mark the Products and, as applicable, the Parts and Components with
regulatory, safety and standards organizations marks which signify
compliance with the requirements of those organizations. Upon request by
EMACHINES, ODM shall provide EMACHINES with a copy of each report issued
by the foregoing agencies and organizations related to compliance testing
and approvals for Products, Components and Parts. ODM will obtain the
prior approval of the relevant agencies or organizations prior to
implementing any change that may affect the compliance status of any
Product previously approved by such agency or organization. EMACHINES
shall provide any and all assistance requested by ODM to obtain such
prior approval from the relevant agencies and organizations. In addition
to the foregoing, ODM agrees to notify EMACHINES in writing of any change
it proposes to make to any Product that affects its performance, quality
or reliability.
7.3 Origin Certification; Marking. Upon EMACHINES' request, ODM will
-----------------------------
provide EMACHINES with an appropriate certificate stating the country of
origin for the Products. ODM shall also mark each Product, or the
container if there is no room on the Product, with the country of origin
in compliance with customs requirements.
7.4 WHQL Certification. ODM warrants that the Products will meet all
------------------
Microsoft Windows Hardware Qualification Laboratories certifications.
7.5 Indemnification. Each Party shall indemnify and hold the other Party
---------------
harmless from and against any claim, liability, loss, judgment, expense
or cost arising from the breach or claimed breach of any of the
provisions in this Article 7.
ARTICLE 8. PRODUCT QUALITY
8.1 Quality Program. ODM shall maintain a quality program for all
---------------
Products in accordance with its current policies which has been provided
to EMACHINES prior to the Effective Date and, if applicable, any
additional or substitute quality requirements agreed to by the Parties.
ODM will conform to the requirements of ISO 9001 at all times. ODM
further represents and warrants that it currently is or will, within
twelve (12) Months of the Effective Date of
* CERTAIN CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
SEPARATELY FILED WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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this Agreement become certified under ISO 14000, and during the term of
this Agreement will remain ISO 9001 and 14000 certified. If at any time
hereafter certification under ISO 9001 is no longer generally
appropriate, ODM will ensure that it is certified under another
comparable or higher standard which is acceptable to EMACHINES.
8.2 Inspection of ODM Plants; Subcontractors. Upon prior written request
----------------------------------------
by EMACHINES, EMACHINES or its representatives may inspect the Products
and associated manufacturing processes at ODM's plants. Inspections shall
be conducted at a reasonable time and during normal hours of operation,
unless such inspection disrupts the operation or business of ODM's
plants. Subject to the approval of ODM's vendor or subcontractor,
EMACHINES or its representatives may also inspect such vendor or
subcontractor. ODM shall use commercially reasonable efforts to obtain
the approval of ODM's vendor or subcontractor.
8.3 Safety Standard Changes. ODM shall promptly notify EMACHINES if any
-----------------------
upgrade, substitution or other change to any ODM Component or Third Party
Component is required to make the Component meet applicable safety
standards or other governmental statutes, rules, orders or regulations.
If an ODM Component or Third Party Component meets applicable safety
standards and other governmental requirements at the time of manufacture,
EMACHINES and ODM will allocate the costs of any subsequent upgrade,
substitution or other required change in an equitable manner based on
good faith discussions between the Parties.
8.4 Failure Rate. A "Failure Rate" shall mean the cumulative percentage
------------
of Defective Products shipped under a Product Addendum in relation to the
total Products shipped under that Product Addendum. ODM and EMACHINES
acknowledge that a Failure Rate set forth in a Product Addendum is
expected by the Parties. If the actual Failure Rate for Products exceeds
the expected rate, ODM shall provide EMACHINES with a root cause analysis
and a corrective action plan within [*] working days after the occurrence
of such failure.
8.4.1 [*]
8.4.2 The corrective action plan will describe the additional
engineering and technical support that ODM will provide to
bring the actual Failure Rate within the specified Failure Rate
in the Product Addendum, and other necessary corrective
measures as agreed to by the Parties.
8.5 Class Failures. Unless otherwise stated in the Product Addendum, "Class
--------------
Failure" shall mean a cumulative return rate for a specific Product of at
least [*]; provided however, defects related to Software shall only be
included as a Class Failure if (i) the defect cannot be fixed by
download, (ii) the defect is known as "catastrophic" such that the
Product cannot perform basic functions and is inoperable, and (iii) the
defect is directly attributable to ODM. A "Class Failure" occurring
before the Effective Date shall mean a cumulative return rate of at least
[*].
* CERTAIN CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
SEPARATELY FILED WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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8.6 Class Failure Remedies. Upon the occurrence of a Class Failure, EMACHINES
----------------------
shall have the remedies set forth in Exhibit B.
ARTICLE 9. WARRANTIES
9.1 Product Warranties. ODM warrants that all Products will be free from
------------------
defects in design, material and workmanship and will conform to the
Specifications and other criteria referred to in this Agreement or agreed
to by the Parties in writing. The warranty period for each Product shall
continue from the actual Delivery Date and continue until fifteen (15)
Months thereafter. Warranty claims shall be processed in accordance with
Exhibit B. ODM further warrants that all Products will:
9.1.1 Be new, except as otherwise provided by the Parties.
9.1.2 Be free and clear of all liens, encumbrances, restrictions, and
other claims against title or ownership.
9.2 Component Warranties. ODM warrants that all ODM Components and Third Party
--------------------
Components when assembled into the Product will:
9.2.1 Conform to the Specifications, and other criteria referred to in
this Agreement or agreed to by the Parties in writing.
9.2.2 Be new, except as otherwise provided by the Parties.
9.2.3 Be free from defects in design, material and workmanship.
9.2.4 Be free and clear of all liens, encumbrances, restrictions, and
other claims against title or ownership.
9.3 Support Warranties. ODM will provide EMACHINES with Support for the
------------------
Products as specified in the Support Terms, attached as Exhibit B, during
the Term of this Agreement and notwithstanding the expiration or
termination of this Agreement, [*]; provided, that separate fees will be
paid by EMACHINES for Support required after the expiration of the warranty
period for the Products. ODM will maintain such number of qualified
personnel and Parts as are necessary to provide timely and knowledgeable
maintenance and Support. ODM warrants that all Support will be provided in
a professional and workmanlike manner. ODM shall not independently offer
and provide support services to Product customers. However, in no event may
ODM disclose EMACHINES Confidential Information or use EMACHINES Property
to provide such support without EMACHINES' prior consent.
9.4 No Warranty on EMACHINE Components. Notwithstanding any provision to the
----------------------------------
contrary in this Agreement, ODM shall not be liable for any damages or
losses to EMACHINES or any third party resulting from defective EMACHINES
Components, except for those
* CERTAIN CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
SEPARATELY FILED WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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EMACHINES Components which have been qualified by ODM pursuant to a test
program set by ODM which ODM shall implement in connection with EMACHINES
Components.
9.5 Third Party Royalties and Fees. Unless otherwise noted in the Product
------------------------------
Addendum, ODM warrants that the fees set forth in the Product Addendum are
inclusive of all royalties and other fees relating to Third Party
Components.
9.6 Year 2000 Compliance Warranty. ODM warrants that all Products delivered
-----------------------------
under this Agreement shall perform without error, loss of data or loss of
functionality arising from any failure to process, calculate, compare or
sequence date data accurately. In addition, the Products will not cause any
associated products or systems in which they may be used to fail in any of
the ways described above. ODM shall take all reasonable actions to ensure
that all of its suppliers and shipping agents and their products and
services are Year 2000 Compliant.
9.7 Remedies for Breach of Warranty. If a Product is deemed to be a Defective
-------------------------------
Product, the procedures set forth in Exhibit B shall apply.
9.8 Survival of Warranties. Unless otherwise specified in the Product
----------------------
Addendum, all warranties shall be effective for the term stated in Section
9.1.
9.9 DISCLAIMER; LIMITATION OF LIABILITY FOR DEFECTIVE PRODUCTS. EXCEPT AS
----------------------------------------------------------
EXPRESSLY PROVIDED IN THIS AGREEMENT, AND SUBJECT TO ANY RIGHTS EMACHINES
OR ITS CUSTOMERS MAY HAVE UNDER LAW THAT CANNOT BE EXCLUDED UNDER THIS
AGREEMENT, ODM MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED, REGARDING THE
PRODUCTS AND COMPONENTS, THEIR MERCHANTABILITY OR THEIR FITNESS FOR A
PARTICULAR PURPOSE. EXCEPT AS OTHERWISE PROVIDED HEREIN, ODM'S SOLE AND
EXCLUSIVE LIABILITY AND EMACHINES' SOLE AND EXCLUSIVE REMEDY FOR DEFECTIVE
PRODUCTS DURING THE WARRANTY PERIOD SHALL BE LIMITED TO REPAIR OR
REPLACEMENT OF THE DEFECTIVE PRODUCT.
ARTICLE 10. MARKETING AND LICENSING
10.1 Marketing Authority. EMACHINES shall have the right to use its own
-------------------
business and license terms for all marketing and distribution of the
Products.
10.2 No Rights in Marks. Except as otherwise specified in Section 6.1, nothing
------------------
in this Agreement shall be construed to grant either Party any rights in
the Marks of the other Party. The Products shall be affixed with copyright
notices sufficient to give notice as to the rights of the Parties in their
respective products. As between the Parties, the exterior Product design,
manuals, EMACHINES Marks, manuals and Product model names (the "EMACHINES
Elements") are the property of EMACHINES. Accordingly, ODM shall not use
the EMACHINES Elements except in connection with fulfillment of ODM's
obligations hereunder; provided, however, that EMACHINES Elements that were
used by ODM prior to
* CERTAIN CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
SEPARATELY FILED WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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the Effective Date as set forth in Exhibit D shall continue to be used by
ODM. Further ODM shall reasonably assist EMACHINES at EMACHINES's expense
to provide necessary materials so that EMACHINES can have the EMACHINES
Elements reproduced by itself or other manufacturers.
ARTICLE 11. MUTUAL INFRINGEMENT INDEMNIFICATION
11.1 ODM Intellectual Property Warranty. ODM warrants that the manufacturing
----------------------------------
processes used to manufacture the Products do not and will not violate or
infringe any third party Intellectual Property Rights. ODM further warrants
that the ODM Components and Third Party Components do not violate or
infringe any third party Intellectual Property Rights.
11.2 EMACHINES Intellectual Property Warranty. EMACHINES warrants to ODM that
----------------------------------------
EMACHINES Components do not and will not violate or infringe any third
party Intellectual Property Rights.
11.3 Duty to Indemnify. The Parties warrant to each other that neither is
-----------------
aware of any such facts upon which such Intellectual Property Rights
infringement claims could be made (except as set forth in Exhibit E). In
the event an infringement claim is filed, the Parties agree to indemnify
and hold the other Party harmless, as the case may be, from and against any
such claims, losses, liabilities, costs and expenses (including the actual
fees of attorneys and other professionals and all related costs and
expenses) the indemnified Party may incur as a result of the other Party's
breach or claimed breach of its warranties in Sections 11.1, 11.2 and 11.3.
11.4 Notification of Claim. If either Party learns of any claim or any facts
---------------------
upon which a claim could be made, such Party shall immediately notify the
other Party. If after such notice, the indemnifying Party does not
diligently pursue resolution of the claim nor provide the indemnified Party
with reasonable assurances that it will diligently pursue resolution, then
the indemnified Party may, without in any way limiting its other rights and
remedies, defend the claim.
11.5 Remedies For Infringing Products. If the use or combination of any
--------------------------------
Product provided hereunder is enjoined and is not subject to
indemnification by EMACHINES under Section 11.3 ("Infringing Product"), ODM
may, in its sole discretion:
(i) Procure for EMACHINES and its customers the right to continue using
or combining the Infringing Product;
(ii) Replace the Infringing Product with a non-infringing product of
equivalent function and performance; or
(iii) Modify the Infringing Product to be non-infringing, without
detracting from function or performance.
* CERTAIN CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
SEPARATELY FILED WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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11.6 Limitations. ODM shall be relieved of its indemnification obligations
-----------
under this Article 11 to the extent Section 11.2 applies or the claim
arises from ODM's compliance with EMACHINES's Specifications.
ARTICLE 12. FORCE MAJEURE
12.1 Notification. If the performance of either Party is affected by any event
------------
of force majeure, including act of God, actions or directive of a court or
public authority or government, war or civil disturbance, fire, explosion,
flood, shortage of fuel, power, materials, disruption of transportation or
communications, strikes or other labor disruption, destruction of
machinery or equipment, or any other natural or man-made event beyond the
reasonable control of such Party, such Party shall immediately notify the
other Party, in writing, giving details of the event. For clarification
purposes, an industry wide inability to obtain a Component is a force
majeure event; however, other supplier shortages shall not be force
majeure events.
12.2 Suspension of Performance. The performance of the Party affected by such
-------------------------
force majeure shall be suspended only for as long as the event of force
majeure continues, but the Parties shall consult and will use their best
efforts to find alternative means of accomplishing such performance.
12.3 Commencement of Performance. Immediately upon cessation of the event of
---------------------------
force majeure, the Party affected by force majeure will notify the other
Party in writing and will take steps to recommence or continue the
performance that was suspended.
12.4 Disaster Recovery Plan. As of the Effective Date of this Agreement, ODM
----------------------
shall have a disaster recovery plan in place and approved by EMACHINES for
each Product to ensure the supply of such Products to EMACHINES is not
interrupted. Such plans may include multiple sources of supply for each
Component and multiple manufacturing facilities. Any changes to the
disaster recovery plan shall be subject to EMACHINES's prior written
concurrence.
ARTICLE 13. CONFIDENTIALITY
13.1 Definition of Confidentiality. As used in this Article 13, Confidential
-----------------------------
Information shall mean any and all information exchanged by the Parties
expressly marked as confidential or proprietary (or similar variations
thereof), including such information which would normally be deemed
confidential if not expressly marked including, but not limited to, any
information concerning either Party's business operations, strategies,
customers, suppliers, technology, know-how, and financial information.
Confidential Information shall also include the terms and conditions as
well as the existence of this Agreement.
13.2 Obligation of Confidentiality. All Confidential Information shall be kept
-----------------------------
in strict confidence by the Parties and shall not be used otherwise than
in connection with the implementation of the terms and conditions of this
Agreement, except as follows:
* CERTAIN CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
SEPARATELY FILED WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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(i) to the extent it was known when received by the receiving Party;
(ii) as it is obtained by the receiving Party from other sources without
such duty as to confidentiality and non-use;
(iii) to the extent such information is generally available to the public;
(iv) to the extent such duty as to confidentiality and non-use is waived
by the disclosing Party; or
(v) as may be required by court order or any governmental agency.
13.3 Survival. The foregoing obligation as to confidentiality and non-use
--------
shall survive any expiration or termination of this Agreement. Upon
expiration or termination of this Agreement, each Party shall promptly
return to the other Party all Confidential Information (including any
reproductions thereof or notes therefrom) received from such Party not
within the above exceptions.
ARTICLE 14. TERM; TERMINATION
14.1 Term. This Agreement shall commence as of the Effective Date and continue
----
for two (2) years ("Term"), unless terminated earlier. After the initial
Term, this Agreement will renew automatically for additional one-year
periods, unless either Party provides the other Party at least one hundred
and eighty (180) days written notice of its intent to terminate prior to
the expiration of the initial Term or any subsequent Term.
14.2 Outstanding Orders. All Purchase Order(s) accepted by ODM prior to the
------------------
expiration of this Agreement shall be fulfilled pursuant to and subject to
the terms of the Purchase Order.
14.3 Termination
-----------
14.3.1 Notice of Breach. If either Party is in material breach of any
----------------
provision of this Agreement, the non-breaching Party may, by
notice to the breaching Party, terminate the whole or any part of
this Agreement or any Purchase Order, unless the breaching Party
cures the breach [*] after receipt of notice.
14.3.2 Causes of Breach. For purposes of Section 14.3.1 above, "breach"
----------------
includes, without limitation, any:
(1) Proceeding, whether voluntary or involuntary, in bankruptcy
or insolvency by or against a Party; or the inability to pay
debts as they become due (except those contested in good
faith);
(2) Appointment, with or without the other Party's consent, of a
receiver or an assignee for the benefit of creditors;
* CERTAIN CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
SEPARATELY FILED WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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(3) Failure by ODM to deliver the Products in accordance with the
requirements of this Agreement or any Purchase Order, not as
a result of force majeure;
(4) Failure by ODM to replace or repair Defective Products in a
timely manner as required by Article 9;
(5) Failure by EMACHINES to make its payments in accordance with
Article 5; or
(6) Any other failure by a Party to comply with any material
provision of this Agreement with additional failure to
provide the non-breaching party, upon request, with
reasonable assurances of future performance.
14.4 LIMITATION OF LIABILITY. UNLESS OTHERWISE STATED IN THIS AGREEMENT,
-----------------------
NEITHER PARTY SHALL BE LIABLE FOR ANY SPECIAL OR CONSEQUENTIAL DAMAGES OF
THE OTHER ARISING OUT OF ANY PERFORMANCE OF THIS AGREEMENT OR IN
FURTHERANCE OF THE PROVISIONS OR OBJECTIVES OF THIS AGREEMENT, REGARDLESS
OF WHETHER SUCH DAMAGES ARE BASED ON TORT, WARRANTY, CONTRACT OR ANY OTHER
LEGAL THEORY, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
ARTICLE 15. DISPUTE RESOLUTION
15.1 Amicable Resolution. The Parties agree to carry out this Agreement in a
-------------------
spirit of mutual cooperation and good faith, and shall attempt to resolve
any differences, disputes or controversies which may arise between them
amicably.
15.2 Escalation. If such negotiations and meetings do not resolve the dispute
----------
within ten (10) days of written communications of the dispute, then each
Party shall nominate one senior officer of the rank of Vice President, or
higher, as their respective representative. The senior representatives
shall meet within ten (10) days of their nomination to resolve such
dispute. If the dispute is not resolved to the satisfaction of the
representatives within thirty (30) days from the date of the original
communication, then either Party may terminate this Agreement in whole or
in part and seek arbitration under Section 15.3.
15.3 Arbitration. Any disagreement, dispute, controversy or claim arising out
-----------
of or relating to this Agreement or the interpretation hereof or any
arrangements relating hereto or contemplated herein or the breach,
termination or invalidity hereof shall be finally settled by arbitration.
15.4 Arbitration Venue. The arbitration shall be conducted in London, United
-----------------
Kingdom, and shall be conducted in accordance with the Rules of
Arbitration of the International Chamber of Commerce ("ICC Rules").
* CERTAIN CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
SEPARATELY FILED WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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15.5 Arbitrators. The arbitral tribunal shall consist of three arbitrators.
-----------
One arbitrator shall be appointed by ODM, one arbitrator shall be
appointed by EMACHINES, and the third arbitrator shall be appointed by
mutual consent of the two appointed arbitrators.
15.6 Language. The language used in the arbitration shall be the English
--------
language.
15.7 Binding Decision. Any decision or award of the arbitral tribunal shall be
----------------
final and binding upon the Parties. To the extent permitted by law, the
Parties waive any rights to appeal or to review of such award by any court
or tribunal. The Parties further agree that the arbitral award may be
enforced against the Parties to the arbitration proceeding or their assets
wherever they may be found and that a judgement upon the arbitral award
may be entered in any court having jurisdiction thereof.
ARTICLE 16. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws of
the State of New York, without reference to its conflicts of laws provisions.
ARTICLE 17. NOTICE
17.1 Notice Address. Any notices given hereunder shall be in writing and shall
--------------
be served by hand at, or by being sent by facsimile transmission or
prepaid post to, the following addresses and numbers:
To ODM:
TRIGEM COMPUTER, INC.
45-2 Yoido-dong, Youngdeunpo-ku
Seoul 150-010, Korea
Attention: J.R. Lee, Vice President
Facsimile: 82-345-492-0466
To EMACHINES:
EMACHINES, INC.
14350 Myford Road, Bldg. 100
Irvine, California 92606-1002
U.S.A.
Attention: General Counsel
Facsimile: 1-714-505-5048
17.2 Method of Notice. Any such notice shall be deemed to be served at the
----------------
time of delivery (if delivered by hand), at the time of transmission (if
served by facsimile) or on the fifth (5th) working day immediately after
the date of posting with an internationally recognized courier (if served
by courier). Evidence that the notice was properly addressed and placed
with an
* CERTAIN CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
SEPARATELY FILED WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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internationally recognized courier shall be conclusive evidence of
posting. Without prejudice to the effectiveness thereof, a notice served
by facsimile shall be confirmed promptly in writing delivered by hand or
sent by courier.
17.3 Change of Address. Any Party may, by seven (7) days' written notice
-----------------
served to the aforesaid addresses of the other Parties, change the address
or facsimile number for service referred to above.
ARTICLE 18. MISCELLANEOUS
18.1 Non-Recurring Expenses. EMACHINES shall pay ODM certain non-recurring
----------------------
expenses as contained in Exhibit C. Upon payment of the non-recurring
expenses, EMACHINES shall own all rights in any work product resulting
from such expenses as well as all intellectual property rights therein,
and ODM agrees to provide all reasonable cooperation and assistance and
execute all documents necessary to evidence or perfect EMACHINES's
ownership of such rights.
18.2 Surviving Provisions. The following provisions shall survive expiration
--------------------
or termination of this Agreement: Warranties in Article 9, Indemnification
in Article 11, Confidential Information in Article 13, Limitation of
Liability in Section 14.4, Dispute Resolution in Article 15, Governing Law
in Article 16 and the miscellaneous provisions in this Article 18 (except
for the proviso in Section 18.7).
18.3 Entire Agreement. This Agreement and any attachments and exhibits
----------------
attached hereto shall, as of the date of execution hereof, supersede all
previous representations, understandings or agreements, oral or written,
among the Parties with respect to the subject matter hereof.
18.4 Application to Prior Sales. The provisions in Articles 1, 7, 9, 11, 13,
--------------------------
Section 10.2 and Section 18.3 shall apply to the relationship of the
Parties prior to the Effective Date.
18.5 Waivers. No waiver by any Party of any breach or failure to comply with
-------
any provision of this Agreement shall be construed as, or constitute, a
continuing waiver of such provision or a waiver of any other breach of, or
failure to comply with, any other provision of this Agreement.
18.6 Further Assurances. Each of the Parties hereto agrees to execute and
------------------
deliver such other documents and take such other action as may be
necessary to more effectively consummate the purposes and subject matter
of this Agreement.
18.7 Successors and Assigns. This Agreement and each and every covenant, term
----------------------
and condition hereof shall be binding upon and inure to the benefit of the
Parties hereto and their respective successors and assigns; provided,
however, that neither Party may assign any of its rights or delegate any
of its duties under this Agreement without obtaining the prior consent of
the other Party, except that EMACHINES, in the event of a transfer or sale
of all or substantially
-18-
<PAGE>
CONFIDENTIAL
------------
all of its (a) assets related to this Agreement, or (b) its equity, shall
have the right to assign this Agreement the acquiring entity without ODM's
consent, provided the assignee is not a direct competitor of ODM and the
assignee agrees in writing to assume EMACHINES's obligations hereunder.
18.8 Relationship. This Agreement shall not be construed to create a
------------
partnership, joint venture, agency or employment relationship between the
Parties.
18.9 Amendments. This Agreement may be amended or modified only by an
----------
instrument in writing duly executed by the Parties.
18.10 Severability of Provisions. If any term of provision of this Agreement
--------------------------
is for any reason found invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect the
validity of any remaining portion, which shall remain in full force and
effect as if the invalid portion was never a part of this Agreement when
it was executed.
18.11 Headings. Headings of Articles and Sections in this Agreement are for
--------
convenience only and shall not substantively affect the terms of this
Agreement.
* CERTAIN CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
SEPARATELY FILED WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
-19-
<PAGE>
CONFIDENTIAL
------------
IN WITNESS WHEREOF, the Parties have executed this Agreement on this 24th day of
January, 2000.
TRIGEM COMPUTER, INC. EMACHINES, INC.
By: /s/ Doo Soo Kim By: /s/ Stephen Dukker
--------------- -------------------
Name: Doo Soo Kim Name: Stephen Dukker
Title: President Title: Chief Executive Officer
* CERTAIN CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
SEPARATELY FILED WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
-20-
<PAGE>
CONFIDENTIAL
------------
EXHIBIT A
PRODUCT ADDENDUM
[TO BE AGREED BY THE PARTIES]
- ---------------------------------------------
Model Number
- ---------------------------------------------
Product Specification
- ---------------------------------------------
Tentative Price
- ---------------------------------------------
Price:
- -----
Price Components, Configurations and Profit Percentages: See attachment
- ------------------------------------------------------------------------
Software Build and Royalties: [*]
- ----------------------------
Shipping Port:
- --------------
Product Specifications: See attachment
- ---------------------------------------
Packaging and Packing Specifications: See attachment
- -----------------------------------------------------
Affiliates Authorized to Purchase the Products and Support:
- ----------------------------------------------------------
Expected Products Failure Rate and Class Failure Rate:
- ----------------------------------------------------- ----------
Individuals Designated for Receipt of Notices:
- ---------------------------------------------
EMACHINES, INC. TRIGEM COMPUTER, INC.
Stephen Dukker J. R. Lee
14350 Myford Road, Bldg. 100 Panwol Industrial Complex 603-4
Irvine, California 92606-1002 1055 Shinkil-Dong
United States of America Ansan, Kyunggi-Do, Korea
Facsimile: 1-714-505-5048 Facsimile: 82-345-492-0466
* CERTAIN CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
SEPARATELY FILED WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
-21-
<PAGE>
CONFIDENTIAL
------------
APPROVED AND AGREED:
EMACHINES, INC. TRIGEM COMPUTER, INC.
By: By:
---------------------------- -----------------------------
Name: Name:
-------------------------- ---------------------------
Title: Title:
------------------------- --------------------------
Date: Date:
-------------------------- --------------------------
* CERTAIN CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
SEPARATELY FILED WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
-22-
<PAGE>
CONFIDENTIAL
------------
EXHIBIT B
SUPPORT TERMS
ODM and EMACHINES agree to the following terms and processes for Product
Support which shall be updated and amended every six month period starting from
the Effective Date:
I. Definitions. As used in this Exhibit B, the following terms shall be defined
-----------
as follows:
A. "DF" shall mean defects found.
B. "NDF" shall mean no defects found.
C. "RA" shall mean the return to EMACHINES of a specific Product by
EMACHINES' resellers.
C. "RMA" shall mean the return to EMACHINES of a specific Product by an end
user during the warranty period ("User").
II. New Programs.
------------
A. RA: Effective April 1, 2000:
(1) If the Product is DF, then EMACHINES shall be entitled to a full
credit for the returned Product from ODM.
(2) If the Product is NDF such that the cumulative rate of the NDF is
less than [*], then EMACHINES shall be entitled to a full credit
for the returned Products from ODM.
(3) If the Product is NDF such that the cumulative rate of the NDF is
[*], or more, then EMACHINES shall pay ODM [*] per returned
Product unit.
B. RMA: Effective May 1, 2000
(1) If the Product is DF, [*].
(2) If the Product is NDF, [*].
(3) [*]
III. Old Programs. For Products returned prior to April 1, 2000 (for RA) and May
1, 2000 (for RMA), the following shall apply for both RA and RMA:
A. If the Product is DF:
* CERTAIN CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
SEPARATELY FILED WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
-23-
<PAGE>
CONFIDENTIAL
------------
1. and the age of the Product is less than [*] from the Delivery Date,
EMACHINES shall be entitled to a credit equal to [*] of the relevant
invoice Price and EMACHINES shall receive a refurbished Product; or
2. and the age of the Product is 120 days or more from the Delivery
Date, EMACHINES shall be entitled to a refurbished Product only.
B. If the Product is NDF, then EMACHINES shall pay TGA the amount of [*]
and ODM shall provide EMACHINES with a refurbished Product.
C. Weekly Status Reports. EMACHINES shall provide ODM and TGA with accurate
records of RA on a [*] basis.
IV. Class Failures
A. Recall. From the Effective Date, in the event EMACHINES deems a specific
Product model or certain Product batch (those Products that can be
identified by a sequence of serial numbers or other reasonable method)
to be a Class Failure, EMACHINES, after consultation with ODM, may [*].
B. Old Class Failures. In the event of a Class Failure prior to the
Effective Date, regardless whether DF or NDF, then EMACHINES shall be
entitled to [*].
V. Additional Terms
1. ODM and TGA shall only accept Defective Products from EMACHINES or Users
at EMACHINES' directions.
2. Unless otherwise stated in Article 9 (Warranties), the Support Terms and
the relevant Product Addendum, ODM shall be responsible for all costs to
repair or replace Defective Products and Parts.
3. [*]
4. ODM and TGA, as applicable, shall provide EMACHINES with weekly reports
on Product repair. The format of such reports will be mutually agreed
upon by ODM and EMACHINES.
5. For a period of [*] after the last Product is delivered to the Shipping
Port by ODM, inclusive of the applicable warranty period, ODM or its
Subsidiary will provide return-to-factory repair or replacement of
Defective Products and Parts for EMACHINES' customers on a per incident
basis at a charge to be determined by EMACHINES and ODM prior to the
date the Products are delivered to the Shipping Port. Such agreement may
be set forth in the Product Addendum.
* CERTAIN CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
SEPARATELY FILED WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
-24-
<PAGE>
CONFIDENTIAL
------------
6. ODM agrees to maintain adequate service personnel and stock of the
original Parts or their functional equivalent to ensure compliance with
the requirements of this Exhibit B.
7. ODM agrees to provide EMACHINES' support team with bill of materials and
any updates to it during the support life of each Product listed in
Product Addenda.
8. Upon request by EMACHINES, ODM shall disclose its inspection process
used to determine whether a returned Product is a Defective Product to
EMACHINES, and shall permit EMACHINES and its representatives to inspect
such process and audit any documentation related to such process or the
determination of whether any Product returned hereunder is defective.
9. [*]
10. [*]
* CERTAIN CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
SEPARATELY FILED WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
-25-
<PAGE>
CONFIDENTIAL
------------
EXHIBIT C
NON-RECURRING EXPENSES
[TO BE AGREED BY THE PARTIES]
ODM and EMACHINES have agreed that EMACHINES shall reimburse ODM or TGA for the
following non-recurring expenses that ODM has incurred on EMACHINES' behalf :
Packaging Tooling: US$ [to be determined]
Certification Fees: US$ [to be determined]
Chassis Tooling: US$ [to be determined]
* CERTAIN CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
SEPARATELY FILED WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
-26-
<PAGE>
CONFIDENTIAL
------------
EXHIBIT D
Description of Continued Use Model
* CERTAIN CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
SEPARATELY FILED WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
-27-
<PAGE>
CONFIDENTIAL
------------
EXHIBIT E
[TO BE COMPLETED BY ODM]
Intellectual Infringement Disclosure
* CERTAIN CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
SEPARATELY FILED WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
-28-
<PAGE>
EXHIBIT 10.23
THIS WARRANT AND THE SHARES OF COMMON STOCK WHICH MAY BE PURCHASED UPON THE
EXERCISE OF THIS WARRANT HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT AND HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH SALE, OFFER,
PLEDGE OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF THE ACT AND OF ANY APPLICABLE STATE SECURITIES LAWS.
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER ARE SUBJECT TO THE CONDITIONS
SPECIFIED IN THE AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT, DATED AS OF
AUGUST 18, 1999, AND ANY AMENDMENT THERETO OR RESTATEMENTS THEREOF (SUCH
AGREEMENT INCLUDING ANY SUCH AMENDMENT OR RESTATEMENTS, THE "AGREEMENT") AMONG
EMACHINES, INC. AND CERTAIN OTHER SIGNATORIES THERETO, AND NO TRANSFER OF THIS
WARRANT OR SUCH SHARES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE
BEEN FULFILLED. THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER ARE SUBJECT TO A
VOTING AGREEMENT CONTAINED IN THE AGREEMENT AND BY ACCEPTING ANY INTEREST IN
THIS WARRANT OR SUCH SHARES, THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED
TO AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF THE AGREEMENT. UPON
THE FULFILLMENT OF CERTAIN OF SUCH CONDITIONS EMACHINES, INC. HAS AGREED TO
DELIVER TO THE HOLDER HEREOF A NEW WARRANT OR TO THE HOLDER THEREOF A NEW
CERTIFICATE FOR THE SHARES ISSUABLE HEREUNDER, AS APPLICABLE, IN EACH CASE NOT
BEARING THIS LEGEND, FOR THE WARRANT OR SUCH SHARES, AS THE CASE MAY BE,
REGISTERED IN THE NAME OF THE HOLDER HEREOF OR THEREOF. A COPY OF THE AGREEMENT
MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF
THIS WARRANT OR OF THE SHARES ISSUABLE HEREUNDER TO THE SECRETARY OF EMACHINES,
INC
EMACHINES INC.
COMMON STOCK PURCHASE WARRANT
-----------------------------
No. 2 Void after August 18, 2004
THIS CERTIFIES THAT, for value received, America Online, Inc. (the
"Holder") is entitled to subscribe for and purchase the Formula Number of shares
------
(as such number of shares shall be
<PAGE>
adjusted pursuant to Section 3 hereof, thus adjusting the per share Exercise
Price) of the fully paid and nonassessable Common Stock, $0.0000125 par value
(the "Shares"), of eMachines, Inc., a Delaware corporation (the "Company"),
------ -------
at the aggregate exercise price of $8.875 million (the "Exercise Price"),
--------------
subject to the provisions and upon the terms and conditions hereinafter set
forth. The "Formula Number" of shares shall mean $8.875 million divided by (i)
in the case of an initial public offering of Shares pursuant to a registration
statement on Form S-1, the greater of (A) the product of 1.25 and the per Share
offering price of the Shares in such offering and (B) $7.981, or (ii) in any
other case, $11.823.
1. Method of Exercise; Payment.
---------------------------
(a) Cash Exercise. The purchase rights represented by this
-------------
Warrant may be exercised by the Holder, in whole or in part, by the surrender of
this Warrant (with the notice of exercise form attached hereto as Exhibit A duly
---------
executed) at the principal office of the Company, and by the payment to the
Company, by certified, cashier's or other check acceptable to the Company or by
wire transfer to an account designated by the Company, of an amount equal to the
aggregate Exercise Price of the Shares being purchased.
(b) Net Issue Exercise. In lieu of exercising this Warrant, the
------------------
Holder may elect to receive Shares equal to the value of this Warrant (or the
portion thereof being canceled) by surrender of this Warrant at the principal
office of the Company together with notice of such election, in which event the
Company shall issue to the Holder a number of Shares computed using the
following formula:
<TABLE>
<CAPTION>
<S> <C>
X = Y (A-B)
-------
A
Where X = the number of the Shares to be issued to the Holder.
Y = the number of the Shares purchasable under this Warrant.
A = the fair market value of one Share on the date of determination.
B = the per share Exercise Price (as adjusted to the date of such calculation).
</TABLE>
(c) Fair Market Value. For purposes of this Section 1, the per
-----------------
share fair market value of the Shares shall mean:
(i) If the Company's Common Stock is publicly traded, the
per share fair market value of the Shares shall be the average of the closing
prices of the Common Stock as quoted on the Nasdaq National Market or the
principal exchange on which the Common Stock is listed, or if not so listed then
the fair market value shall be the average of the closing bid prices of the
Common Stock as published in The Wall Street Journal, in each case for the
-----------------------
fifteen trading days ending five trading days prior to the date of determination
of fair market value;
-2-
<PAGE>
(ii) If the Company's Common Stock is not so publicly
traded, the per share fair market value of the Shares shall be such fair market
value as is determined in good faith by the Board of Directors of the Company
after taking into consideration factors it deems appropriate, including, without
limitation, recent sale and offer prices of the capital stock of the Company in
private transactions negotiated at arm's length.
(d) Stock Certificates. In the event of any exercise of the
------------------
rights represented by this Warrant, certificates for the Shares so purchased
shall be delivered to the Holder within a reasonable time and, unless this
Warrant has been fully exercised or has expired, a new Warrant representing the
shares with respect to which this Warrant shall not have been exercised shall
also be issued to the Holder within such time.
2. Stock Fully Paid; Reservation of Shares. All of the Shares issuable
---------------------------------------
upon the exercise of During the period within which the rights the rights
represented by this Warrant will, represented by this Warrant may be upon
issuance and receipt of the Exercise Price exercised, the Company shall at all
times therefor, be fully paid and nonassessable, and have authorized and
reserved for issuance free from all taxes, liens and charges with sufficient
shares of its Common Stock to respect to the issue thereof. provide for the
exercise of the rights represented by this Warrant.
3. Adjustments. Subject to the provisions of Section 11 hereof, the
-----------
number and kind of securities purchasable upon the exercise of this Warrant and
the Exercise Price therefor shall be subject to adjustment from time to time
upon the occurrence of certain events, as follows:
(a) Reclassification. In the case of any reclassification or
----------------
change of securities of the class issuable upon exercise of this Warrant (other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination), or in case
of any merger of the Company with or into another corporation (other than a
merger with another corporation in which the Company is the acquiring and the
surviving corporation and which does not result in any reclassification or
change of outstanding securities issuable upon exercise of this Warrant), or in
case of any sale of all or substantially all of the assets of the Company, the
Company, or such successor or purchasing corporation, as the case may be, shall
duly execute and deliver to the holder of this Warrant a new Warrant (in form
and substance reasonably satisfactory to the holder of this Warrant), or the
Company shall make appropriate provision without the issuance of a new Warrant,
so that the holder of this Warrant shall have the right to receive, at a total
purchase price not to exceed that payable upon the exercise of the unexercised
portion of this Warrant, and in lieu of the shares of Common Stock theretofore
issuable upon exercise of this Warrant, (i) the kind and amount of shares of
stock, other securities, money and property receivable upon such
reclassification, change, merger or sale by a holder of the number of shares of
Common Stock then purchasable under this Warrant, or (ii) in the case of such a
merger or sale in which the consideration paid consists all or in part of assets
other than securities of the successor or purchasing corporation, at the option
of the Holder of this Warrant, the securities of the successor or purchasing
corporation having a value at the time of the transaction equivalent to the fair
market value of the Common Stock at the time of the transaction. The provisions
of this subparagraph (a) shall similarly apply to successive reclassifications,
changes, mergers and transfers.
-3-
<PAGE>
(b) Stock Splits, Dividends and Combinations. In the event that
----------------------------------------
the Company shall at any time subdivide the outstanding shares of Common Stock
or shall issue a stock dividend on its outstanding shares of Common Stock the
number of Shares issuable upon exercise of this Warrant immediately prior to
such subdivision or to the issuance of such stock dividend shall be
proportionately increased, and the Exercise Price shall be proportionately
decreased, and in the event that the Company shall at any time combine the
outstanding shares of Common Stock the number of Shares issuable upon exercise
of this Warrant immediately prior to such combination shall be proportionately
decreased, and the Exercise Price shall be proportionately increased, effective
at the close of business on the date of such subdivision, stock dividend or
combination, as the case may be.
4. Notice of Adjustments. Whenever the number of Shares purchasable
---------------------
hereunder or the Exercise Price thereof shall be adjusted pursuant to Section 3
hereof, the Company shall provide notice to the Holder setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the number
and class of shares which may be purchased thereafter and the Exercise Price
therefor after giving effect to such adjustment.
5. Fractional Shares. This Warrant may not be exercised for fractional
-----------------
shares. In lieu of fractional shares the Company shall make a cash payment
therefor based upon the Exercise Price then in effect and the fair market value
of the shares then obtaining (calculated in accordance with Section 1(c) hereof
as if the shares were the Shares referred to in such Section).
6. Representations of the Company. The Company represents that all
------------------------------
corporate actions on the part of the Company, its officers, directors and
shareholders necessary for the sale and issuance of the Shares pursuant hereto
and the performance of the Company's obligations hereunder were taken prior to
and are effective as of the effective date of this Warrant.
7. Representations and Warranties by the Holder. The Holder represents
--------------------------------------------
and warrants to the Company as follows:
(a) This Warrant and the Shares issuable upon exercise thereof
are being acquired for its own account, for investment and not with a view to,
or for resale in connection with, any distribution or public offering thereof
within the meaning of the Securities Act of 1933, as amended (the "Act").
---
Upon exercise of this Warrant, the Holder shall, if so requested by the Company,
confirm in writing, in a form satisfactory to the Company, that the securities
issuable upon exercise of this Warrant are being acquired for investment and not
with a view toward distribution or resale.
(b) The Holder understands that the Warrant and the Shares have
not been registered under the Act by reason of their issuance in a transaction
exempt from the registration and prospectus delivery requirements of the Act
pursuant to Section 4(2) thereof, and that they must be held by the Holder
indefinitely, and that the Holder must therefore bear the economic risk of such
investment indefinitely, unless a subsequent disposition thereof is registered
under the Act or is exempted from such registration. The Holder further
understands that the Shares have not been qualified under the California
Securities Law of 1968 (the "California Law") by reason of their issuance
--------------
in a transaction exempt from the qualification requirements of the California
Law pursuant
-4-
<PAGE>
to Section 25102(f) thereof, which exemption depends upon, among other things,
the bona fide nature of the Holder's investment intent expressed above.
(c) The Holder has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of the
purchase of this Warrant and the Shares purchasable pursuant to the terms of
this Warrant and of protecting its interests in connection therewith.
(d) The Holder is able to bear the economic risk of the purchase
of the Shares pursuant to the terms of this Warrant.
8. Restrictive Legend.
------------------
The Shares (unless registered under the Act) shall be stamped or
imprinted with a legend in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE
OR DISTRIBUTION THEREOF, AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE
COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT
STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT.
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE CONDITIONS
SPECIFIED IN THE AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT,
DATED AS OF AUGUST 18, 1999, AND ANY AMENDMENT THERETO OR
RESTATEMENTS THEREOF (SUCH AGREEMENT INCLUDING ANY SUCH AMENDMENT
OR RESTATEMENTS, THE "AGREEMENT") AMONG EMACHINES, INC. AND
CERTAIN OTHER SIGNATORIES THERETO, AND NO TRANSFER OF THESE
SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE
BEEN FULFILLED. THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO A
VOTING AGREEMENT CONTAINED IN THE AGREEMENT AND BY ACCEPTING ANY
INTEREST IN SUCH SECURITIES, THE PERSON ACCEPTING SUCH INTEREST
SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE
PROVISIONS OF THE AGREEMENT. UPON THE FULFILLMENT OF CERTAIN OF
SUCH CONDITIONS EMACHINES, INC. HAS AGREED TO DELIVER TO THE
HOLDER HEREOF A NEW CERTIFICATE NOT BEARING THIS LEGEND FOR THE
SECURITIES REPRESENTED HEREBY REGISTERED IN THE NAME OF THE HOLDER
HEREOF. A COPY OF THE AGREEMENT MAY BE OBTAINED AT NO COST
-5-
<PAGE>
BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS
CERTIFICATE TO THE SECRETARY OF EMACHINES, INC.
9. Restrictions Upon Transfer and Removal of Legend.
------------------------------------------------
(a) The Company need not register a transfer of this Warrant or
Shares bearing the restrictive legend set forth in Section 8 hereof, unless the
conditions specified in such legend are satisfied. The Company may also instruct
its transfer agent not to register the transfer of the Shares, unless one of the
conditions specified in the legend referred to in Section 8 hereof is satisfied.
(b) Notwithstanding the provisions of paragraph (a) above, no
opinion of counsel shall be necessary for a transfer without consideration by
any holder (i) if such holder is a partnership, to a partner or retired partner
of such partnership who retires after the date hereof or to the estate of any
such partner or retired partner, or (ii) if such holder is a corporation, to a
shareholder of such corporation, or to any other corporation under common
control, direct or indirect, with such holder.
(c) The holder agrees not to sell, make any short sale of, loan,
grant any option for the purchase of, or otherwise transfer or dispose of any
shares of Common Stock (or other securities) of the Company held by such holder
during a period of time determined by the Company and its underwriters (not to
exceed 180 days in the event of the Company's initial public offering and 90
days in the event of any other public offering) following the effective date of
a registration statement of the Company filed under the Securities Act, as
amended. The Company may impose stop-transfer instructions with respect to the
Common Stock (or other securities) subject to the foregoing restriction until
the end of said period.
10. Rights of Shareholders. No holder of this Warrant shall be entitled,
----------------------
as a Warrant holder, to vote or receive dividends or be deemed the holder of any
Shares or any other securities of the Company which may at any time be issuable
on the exercise hereof for any purpose, nor shall anything contained herein be
construed to confer upon the holder of this Warrant, as such, any of the rights
of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par
value, consolidation, merger, conveyance, or otherwise) or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until the
Warrant shall have been exercised and the Shares purchasable upon the exercise
hereof shall have become deliverable, as provided herein. The holder of this
Warrant will not be entitled to share in the assets of the Company in the event
of a liquidation, dissolution or the winding up of the Company.
11. Notices. All notices and other communications required or permitted
-------
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given upon receipt or, if earlier, (a) five (5) days after
deposit with the U.S. Postal Service or other applicable postal service, if
delivered by first class mail, postage prepaid, (b) upon delivery, if delivered
by hand, (c) one business day after the business day of deposit with Federal
Express or similar overnight courier, freight prepaid or (d) one business day
after the business day of facsimile transmission, if
-6-
<PAGE>
delivered by facsimile transmission with copy by first class mail, postage
prepaid, and shall be addressed (i) if to the Holder, at the Holder's address as
set forth on the books of the Company, and (ii) if to the Company, at the
address of its principal corporate offices (attention: Stephen Dukker, President
and CEO), with a copy to John A. Fore, Wilson Sonsini Goodrich & Rosati, P.C.,
650 Page Mill Road, Palo Alto, California 94304 or at such other address as a
party may designate by ten days advance written notice to the other party
pursuant to the provisions above.
12. Registration Rights Agreement. The registration rights of the Holder
-----------------------------
(including Holders' successors) with respect to the stock underlying this
warrant will be the same as granted to the holders of the Company's Common
Stock.
[Rest of Page Intentionally Left Blank]
-7-
<PAGE>
13. Governing Law. This Warrant and all actions arising out of or in
-------------
connection with this Agreement shall be governed by and construed in accordance
with the laws of the State of California, without regard to the conflicts of law
provisions of the State of California or of any other state.
Issued as of September 15, 1999.
EMACHINES, INC.
By: /s/ Steve Miller
-----------------------------
Title: Chief Financial Officer
--------------------------
<PAGE>
EXHIBIT A
---------
NOTICE OF EXERCISE
------------------
TO: eMachines, Inc.
14350 Myford Road, Suite 100
Irvine, California 92606
Attention: President
1. The undersigned hereby elects to purchase __________ Shares of
eMachines, Inc. pursuant to the terms of the attached Warrant.
2. Method of Exercise (Please initial the applicable blank):
___ The undersigned elects to exercise the attached Warrant by means
of a cash payment, and tenders herewith or by concurrent wire
transfer payment in full for the purchase price of the shares
being purchased, together with all applicable transfer taxes, if
any.
___ The undersigned elects to exercise the attached Warrant by means
of the net exercise provisions of Section 1(b) of the Warrant.
3. Please issue a certificate or certificates representing said Shares in
the name of the undersigned or in such other name as is specified below:
_________________________________
(Name)
_________________________________
_________________________________
(Address)
4. The undersigned hereby represents and warrants that the aforesaid
Shares are being acquired for the account of the undersigned for investment and
not with a view to, or for resale, in connection with the distribution thereof,
and that the undersigned has no present intention of distributing or reselling
such shares and all representations and warranties of the undersigned set forth
in Section 7 of the attached Warrant are true and correct as of the date hereof.
______________________________
(Signature)
Title:__________________________
____________________________
(Date)
<PAGE>
EXHIBIT 10.24
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED
WITHOUT (i) EFFECTIVE REGISTRATION STATEMENTS RELATED THERETO, (ii) AN OPINION
OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS FROM THE
APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE COMPLYING WITH THE
PROVISIONS OF SECTION 7 OF THIS WARRANT.
eMACHINES, INC.
WARRANT TO PURCHASE SHARES
OF COMMON STOCK
No. ______
THIS CERTIFIES THAT, for value received, [HOLDER] and its assignees are
entitled to subscribe for and purchase [number] shares of the fully paid and
nonassessable Common Stock (as adjusted pursuant to Section 4 hereof, the
"Shares") of eMACHINES, INC., a Delaware corporation (the "Company"), at the
price of $____ [$2.4 billion divided by number of eMachines shares outstanding
immediately after the Effective Time on an as-converted basis assuming the
exercise or conversion of all outstanding options, warrants, rights or
convertible securities] per share (such price and such other price as shall
result, from time to time, from the adjustments specified in Section 4 hereof is
herein referred to as the "Warrant Price"), subject to the provisions and upon
the terms and conditions hereinafter set forth. As used herein, (a) the term
"Date of Grant" shall mean [Closing Date]_________, 1999 and (b) the term "Other
Warrants" shall mean any other warrants issued by the Company in connection with
that certain Agreement and Plan of Reorganization dated as of November 24, 1999
by and among the Company, eMachines Acquisition Corp. and FreePC, Inc. (the
"Agreement and Plan of Reorganization"), and any warrant issued upon transfer or
partial exercise of this Warrant. The term "Warrant" as used herein shall be
deemed to include Other Warrants unless the context clearly requires otherwise.
1. Term. The purchase right represented by this Warrant is exercisable, in
----
whole at any time or in part, at any time and from time to time from the Date of
Grant on or before 5:00 P.M., Pacific Time on the date (the "Expiration Date")
that is the earlier of (i) ___________, 2001 [two years after Closing Date] or
(ii) one (1) year after the closing of the Company's initial public offering of
its Common Stock (the "IPO") effected pursuant to a Registration Statement on
form S-1 (or its successor) filed under the Securities Act of 1933, as amended
(the "Act"); provided that, notwithstanding the foregoing, (x) the purchase
-------- ----
right represented by this Warrant shall not be exercisable during the 120 day
period following the closing of the Company's IPO, (y) the purchase right
represented by this Warrant shall not be exercisable until the expiration or
early termination of any applicable waiting periods imposed by the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") and (z) if
on or before the Expiration Date, the holder of this
<PAGE>
Warrant has sent a notice of exercise to Company and holder has not been able to
complete the exercise of the purchase right represented by this Warrant prior to
the Expiration Date because of restrictions under the HSR Act or because the
Expiration Date is within the 120 day period following closing of the Company's
IPO, the holder shall be entitled to complete the process of exercising this
Warrant, for a period of ten (10) business days following termination of such
HSR Act restrictions and/or the 120 day period following the closing of the
Company's IPO, in accordance with the procedures contained herein,
notwithstanding the fact that completion of the exercise of this Warrant would
take place after the Expiration Date.
2. Method of Exercise; Payment; Issuance of New Warrant. Subject to Section
----------------------------------------------------
1 hereof, the purchase right represented by this Warrant may be exercised by the
holder hereof, in whole or in part and from time to time, at the election of the
holder hereof, by (a) the surrender of this Warrant (with the notice of exercise
substantially in the form attached hereto as Exhibit A-1 duly completed and
executed) at the principal office of the Company and by the payment to the
Company, by certified or bank check, or by wire transfer to an account
designated by the Company (a "Wire Transfer") of an amount equal to the then
applicable Warrant Price multiplied by the number of Shares then being purchased
(the "Exercise Amount"); (b) if in connection with a registered public offering
of the Company's securities, the surrender of this Warrant (with the notice of
exercise form attached hereto as Exhibit A-2 duly completed and executed) at the
principal office of the Company together with notice of arrangements reasonably
satisfactory to the Company for payment to the Company either by certified or
bank check or by Wire Transfer from the proceeds of the sale of shares to be
sold by the holder in such public offering of an amount equal to the Exercise
Amount; (c) exercise of the "net issuance" right provided for in Section 10.2
hereof; or (d) by means of any "easy sale" exercise pursuant to Section 10.3
hereof. The person or persons in whose name(s) any certificate(s) representing
the Shares shall be issuable upon exercise of this Warrant shall be deemed to
have become the holder(s) of record of, and shall be treated for all purposes as
the record holder(s) of, the shares represented thereby (and such shares shall
be deemed to have been issued) immediately prior to the close of business on the
date or dates upon which this Warrant is exercised. In the event of any exercise
of the rights represented by this Warrant, certificates for the shares of stock
so purchased shall be delivered to the holder hereof as soon as possible after
such exercise and, unless this Warrant has been fully exercised or expired, a
new Warrant representing the portion of the Shares, if any, with respect to
which this Warrant shall not then have been exercised shall also be issued to
the holder hereof as soon as possible.
3. Stock Fully Paid; Reservation of Shares. The Company hereby covenants
---------------------------------------
that at all times there shall be reserved for issuance and delivery upon
exercise of this Warrant such number of shares of Common Stock or other shares
of capital stock of the Company as are from time to time issuable upon exercise
of this Warrant and, from time to time, will take all steps necessary to amend
its Certificate of Incorporation to provide sufficient reserves of shares of
Common Stock issuable upon exercise of this Warrant. All such shares shall be
duly authorized, and when issued upon such exercise, shall be validly issued,
fully paid and non-assessable, free and clear of all liens, security interests,
charges and other encumbrances or restrictions on sale and free and clear of all
preemptive rights, except encumbrances or restrictions arising (i) under federal
or state securities laws or (ii) pursuant to the Rights and Restrictions
Agreement (as such term is defined in the Agreement and Plan of Reorganization),
if applicable.
-2-
<PAGE>
4. Adjustment of Warrant Price and Number of Shares. The number and kind of
------------------------------------------------
securities purchasable upon the exercise of this Warrant and the Warrant Price
shall be subject to adjustment from time to time upon the occurrence of certain
events, as follows:
(a) Reclassification or Merger. In case of any reclassification, conversion
--------------------------
or other change of securities of the class issuable upon exercise of this
Warrant (other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision or combination),
or in case of any merger of the Company with or into another corporation (other
than a merger with another corporation in which the Company is the acquiring and
the surviving corporation and which does not result in any reclassification or
change of outstanding securities issuable upon exercise of this Warrant), or in
case of any sale of all or substantially all of the assets of the Company, the
Company, or such successor or purchasing corporation, as the case may be, shall
duly execute and deliver to the holder of this Warrant a new Warrant (in form
and substance satisfactory to the holder of this Warrant), so that the holder of
this Warrant shall have the right to receive, at a total purchase price not to
exceed that payable upon the exercise of the unexercised portion of this
Warrant, and in lieu of the shares of Common Stock theretofore issuable upon
exercise of this Warrant, (i) the kind and amount of shares of stock, other
securities, money and property receivable upon such reclassification,
conversion, change or merger by a holder of the number of shares of Common Stock
then purchasable under this Warrant, or (ii) in the case of such a merger or
sale of all or substantially all of the assets of the Company in which the
consideration paid consists all or in part of assets other than securities of
the successor or purchasing corporation, the securities of the successor or
purchasing corporation having a value at the time of the transaction equivalent
to the value of the Common Stock at the time of the transaction. In all events,
appropriate adjustment (as determined in good faith by the Company's Board of
Directors) shall be made in the application of the provisions of this Warrant
with respect to the rights and interests of the holder after the transaction, to
the end that the provisions of this Warrant shall be applicable after that
event, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon exercise of this Warrant. The provisions of
this subparagraph (a) shall similarly apply to successive reclassifications,
conversions, changes, mergers and transfers.
(b) Adjustment for Stock Splits, Stock Subdivisions or Combinations of
------------------------------------------------------------------
Shares. The Warrant Price shall be proportionally decreased and the number of
- ------
shares of Common Stock issuable upon exercise of this Warrant (or any shares of
stock or other securities at the time issuable upon exercise of this Warrant)
shall be proportionally increased to reflect any stock split or subdivision of
the Company's Common Stock. The Warrant Price shall be proportionally increased
and the number of shares of Common Stock issuable upon exercise of this Warrant
(or any shares of stock or other securities at the time issuable upon exercise
of this Warrant) shall be proportionally decreased to reflect any combination of
the Company's Common Stock.
(c) Stock Dividends and Other Distributions. If the Company at any time
---------------------------------------
while this Warrant is outstanding and unexpired shall (i) pay a dividend with
respect to Common Stock payable in Common Stock, then the Warrant Price shall be
adjusted, from and after the date of determination of shareholders entitled to
receive such dividend or distribution, to that price determined by multiplying
the Warrant Price in effect immediately prior to such date of determination by a
fraction (A) the numerator of which shall be the total number of shares of
Common Stock outstanding immediately prior to such dividend or distribution, and
(B) the
-3-
<PAGE>
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution; or (ii) make any
other distribution with respect to Common Stock (except any distribution
specifically provided for in Sections 4(a) and 4(b)), then, in each such case,
provision shall be made by the Company such that the holder of this Warrant
shall receive upon exercise of this Warrant a proportionate share of any such
dividend or distribution as though it were the holder of the Common Stock as of
the record date fixed for the determination of the shareholders of the Company
entitled to receive such dividend or distribution.
(d) Adjustment of Number of Shares. Upon each adjustment in the Warrant
------------------------------
Price, the number of Shares purchasable hereunder shall be adjusted, to the
nearest whole share, to the product obtained by multiplying the number of Shares
purchasable immediately prior to such adjustment in the Warrant Price by a
fraction, the numerator of which shall be the Warrant Price immediately prior to
such adjustment and the denominator of which shall be the Warrant Price
immediately thereafter.
5. Notice of Adjustments. Whenever the Warrant Price or the number of
---------------------
Shares purchasable hereunder shall be adjusted pursuant to Section 4 hereof, the
Company shall give notice of the event requiring the adjustment, the amount of
the adjustment, the method by which such adjustment was calculated, and the
Warrant Price and the number of Shares purchasable hereunder after giving effect
to such adjustment, and shall cause copies of such notice to be mailed, by first
class mail, postage prepaid (notwithstanding Section 13 hereof) to the holder of
this Warrant at such holder's last known address.
6. Fractional Shares. No fractional shares of Common Stock will be issued
-----------------
in connection with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefor based on the fair market value of
the Common Stock on the date of exercise as determined in accordance with
Section 10.2(c)(ii) or 10.2(c)(iii), as applicable.
7. Compliance with Act; Disposition of Warrant or Shares of Common Stock.
---------------------------------------------------------------------
(a) Compliance with Act. The holder of this Warrant, by acceptance hereof,
-------------------
agrees that this Warrant, and the Shares to be issued upon exercise hereof are
being acquired for investment and that such holder will not offer, sell or
otherwise dispose of this Warrant, or any Shares except under circumstances
which will not result in a violation of the Act or any applicable state
securities laws. Upon exercise of this Warrant, unless the Shares being acquired
are registered under the Act and any applicable state securities laws or an
exemption from such registration is available, the holder hereof shall confirm
in writing that the Shares so purchased are being acquired for investment and
not with a view toward distribution or resale in violation of the Act and shall
confirm such other matters related thereto as may be reasonably requested by the
Company. This Warrant and all Shares issued upon exercise of this Warrant
(unless registered under the Act and any applicable state securities laws) shall
be stamped or imprinted with a legend in substantially the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO SALE
OR DISPOSITION MAY BE EFFECTED WITHOUT (i) EFFECTIVE REGISTRATION
STATEMENTS RELATED THERETO, (ii) AN OPINION OF COUNSEL OR OTHER EVIDENCE,
-4-
<PAGE>
REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATIONS ARE NOT
REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS FROM THE APPROPRIATE
GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS
OF SECTION 7 OF THE WARRANT UNDER WHICH THESE SECURITIES WERE ISSUED,
DIRECTLY OR INDIRECTLY."
Said legend shall be removed by the Company, upon the request of a holder, at
such time as the restrictions on the transfer of the applicable security shall
have terminated. In addition, in connection with the issuance of this Warrant,
the holder specifically represents to the Company by acceptance of this Warrant
as follows:
(1) The holder is aware of the Company's business affairs and financial
condition, and has acquired information about the Company sufficient to reach an
informed and knowledgeable decision to acquire this Warrant. The holder is
acquiring this Warrant for its own account for investment purposes only and not
with a view to, or for the resale in connection with, any "distribution" thereof
in violation of the Act.
(2) The holder understands that this Warrant has not been registered under
the Act or registered or qualified under any applicable state securities laws,
in reliance upon a specific exemption therefrom, which exemption depends upon,
among other things, the bona fide nature of the holder's investment intent as
expressed herein.
(3) The holder further understands that this Warrant must be held
indefinitely unless subsequently registered under the Act and qualified under
any applicable state securities laws, or unless exemptions from registration and
qualification are otherwise available. The holder is aware of the provisions of
Rule 144, promulgated under the Act.
(b) Disposition of Warrant or Shares. With respect to any offer, sale or
--------------------------------
other disposition of this Warrant or any Shares acquired pursuant to the
exercise of this Warrant prior to registration of such Warrant or Shares, the
holder hereof agrees to give written notice to the Company prior thereto,
describing briefly the manner thereof, together with a written opinion of such
holder's counsel, or other evidence, if reasonably satisfactory to the Company,
to the effect that such offer, sale or other disposition may be effected without
registration or qualification (under the Act as then in effect or any federal or
state securities law then in effect) of this Warrant or the Shares and
indicating whether or not under the Act certificates for this Warrant or the
Shares to be sold or otherwise disposed of require any restrictive legend as to
applicable restrictions on transferability in order to ensure compliance with
such law. Upon receiving such written notice and opinion or other reasonably
satisfactory evidence, the Company, as promptly as practicable, shall notify
such holder that such holder may sell or otherwise dispose of this Warrant or
such Shares, all in accordance with the terms of the notice delivered to the
Company. If the holder has not delivered an opinion of counsel to such effect
and a determination has been made pursuant to this Section 7(b) that such other
evidence is not reasonably satisfactory to the Company, the Company shall so
notify the holder promptly with details thereof after such determination has
been made. Notwithstanding the foregoing, this Warrant or such Shares may, as to
such federal laws, be offered, sold or otherwise disposed of in accordance with
Rule 144 or 144A (or any successor exemptions) under the Act,
-5-
<PAGE>
provided that the Company shall have been furnished with such information as the
Company may reasonably request to provide a reasonable assurance that the
provisions of Rule 144 or 144A (or any such successor exemption) have been
satisfied. Each certificate representing this Warrant or the Shares thus
transferred (except a transfer pursuant to Rule 144 or 144A (or any such
successor exemption)) shall bear a legend as to the applicable restrictions on
transferability in order to ensure compliance with such laws, unless in the
aforesaid opinion of counsel for the holder, such legend is not required in
order to ensure compliance with such laws. The Company may issue stop transfer
instructions to its transfer agent in connection with such restrictions.
(c) Applicability of Restrictions. Neither any restrictions of any legend
-----------------------------
described in this Warrant nor the requirements of Section 7(b) above shall apply
to any transfer or grant of a security interest in, this Warrant (or the Common
Stock obtainable upon exercise thereof) or any part hereof (i) to a partner of
the holder if the holder is a partnership or to a member of the holder if the
holder is a limited liability company, (ii) to a partnership of which the holder
is a partner or to a limited liability company of which the holder is a member,
or (iii) to any affiliate of the holder if the holder is a corporation;
provided, however, in any such transfer, if applicable, the transferee shall on
- -------- -------
the Company's request agree in writing to be bound by the terms of this Warrant
as if an original holder hereof.
8. Rights as Shareholders. No holder of this Warrant, as such, shall be
----------------------
entitled to vote or receive dividends or be deemed the holder of Shares, nor
shall anything contained herein be construed to confer upon the holder of this
Warrant, as such, any of the rights of a shareholder of the Company or any right
to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or (subject to (S) 10.1 below) to receive
notice of meetings, or to receive dividends or subscription rights or otherwise
until this Warrant shall have been exercised and the Shares purchasable upon the
exercise hereof shall have become deliverable, as provided herein.
9. Rights and Restrictions Agreement. In the case of holders who are
---------------------------------
Warrant Holders (as such term is defined in the Rights and Restrictions
Agreement), the Shares issuable upon the exercise of this Warrant are subject to
certain registration rights and restrictions as set forth in the Rights and
Restrictions Agreement.
10. Additional Rights.
------------------
10.1 Notices of Record Date. In case:
----------------------
(a) the Company shall take a record of the holders of its Common Stock
(or other stock or securities at the time receivable upon the exercise of this
Warrant), for the purpose of entitling them to receive any dividend or other
distribution, or any right to subscribe for or purchase any shares of stock of
any class or any other securities or to receive any other right; or
(b) of any consolidation or merger of the Company with or into another
corporation, any capital reorganization of the Company, any reclassification of
the Capital Stock of the Company, or any conveyance of all or substantially all
of the assets of the Company to another corporation in which holders of the
Company's stock are to receive stock, securities or property of another
corporation; or
-6-
<PAGE>
(c) of any voluntary dissolution, liquidation or winding-up of the
Company; or
(d) of any redemption or conversion of all outstanding Common Stock;
then, and in each such case, the Company will mail or cause to be mailed to the
Registered holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, or (ii) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation,
winding-up, redemption or conversion is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Stock or (such stock or
securities as at the time are receivable upon the exercise of this Warrant),
shall be entitled to exchange their shares of Common Stock (or such other stock
or securities), for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be delivered at least
thirty (30) days prior to the date therein specified.
10.2 Right to Convert Warrant into Stock: Net Issuance.
--------------------------------------------------
(a) Right to Convert. In addition to and without limiting the rights of the
----------------
holder under the terms of this Warrant, the holder shall have the right to
convert this Warrant or any portion thereof (the "Conversion Right") into shares
of Common Stock as provided in this Section 10.2 at any time or from time to
time during the term of this Warrant other than the 120 day period following the
closing of the Company's IPO. Upon exercise of the Conversion Right with respect
to a particular number of shares subject to this Warrant (the "Converted Warrant
Shares"), the Company shall deliver to the holder (without payment by the holder
of any exercise price or any cash or other consideration) that number of shares
of fully paid and nonassessable Common Stock as is determined according to the
following formula:
X = B - A
---------
Y
Where: X = the number of shares of Common Stock that shall be issued
to the holder
Y = the fair market value of one share of Common Stock
A = the aggregate Warrant Price of the specified number of
Converted Warrant Shares immediately prior to the exercise of the
Conversion Right (i.e., the number of Converted Warrant Shares
multiplied by the Warrant Price)
B = the aggregate fair market value of the specified number of
Converted Warrant Shares (i.e. the number of Converted Warrant Shares
multiplied by the fair market value of one Converted Warrant Share)
No fractional shares shall be issuable upon exercise of the Conversion Right,
and, if the number of shares to be issued determined in accordance with the
foregoing formula is other than a whole number, the Company shall pay to the
holder an amount in cash equal to the fair market value of the resulting
fractional share on the Conversion Date (as hereinafter defined). For purposes
of Section 9
-7-
<PAGE>
of this Warrant, shares issued pursuant to the Conversion Right
shall be treated as if they were issued upon the exercise of this Warrant.
(b) Method of Exercise. The Conversion Right may be exercised by the holder
------------------
by the surrender of this Warrant at the principal office of the Company together
with a written statement (which may be in the form of Exhibit A-1 or Exhibit A-2
hereto) specifying that the holder thereby intends to exercise the Conversion
Right and indicating the number of shares subject to this Warrant which are
being surrendered (referred to in Section 10.2(a) hereof as the Converted
Warrant Shares) in exercise of the Conversion Right. Such conversion shall be
effective upon receipt by the Company of this Warrant together with the
aforesaid written statement, or on such later date as is specified therein (the
"Conversion Date"), and, at the election of the holder hereof, may be made
contingent upon the closing of the sale of the Company's Common Stock to the
public in a public offering pursuant to a Registration Statement under the Act
(a "Public Offering"). Certificates for the shares issuable upon exercise of the
Conversion Right and, if applicable, a new warrant evidencing the balance of the
shares remaining subject to this Warrant, shall be issued as of the Conversion
Date and shall be delivered to the holder promptly following the Conversion
Date.
(c) Determination of Fair Market Value. For purposes of this Section 10.2,
"fair market value" of a share of Common Stock as of a particular date (the
"Determination Date") shall mean:
(i) If the Conversion Right is exercised in connection with and
contingent upon a Public Offering, and if the Company's Registration Statement
relating to such Public Offering ("Registration Statement") has been declared
effective by the Securities and Exchange Commission, then the initial "Price to
Public" specified in the final prospectus with respect to such offering.
(ii) If the Conversion Right is not exercised in connection with and
contingent upon a Public Offering, then as follows:
(A) If traded on a securities exchange, the fair market value of
the Common Stock shall be deemed to be the average of the closing prices of
the Common Stock on such exchange over the 30-day period ending five
business days prior to the Determination Date;
(B) If traded on the NASDAQ Stock Market or other over-the-
counter system, the fair market value of the Common Stock shall be deemed
to be the average of the closing bid prices of the Common Stock over the
30-day period ending five business days prior to the Determination Date;
and
(C) If there is no public market for the Common Stock, then fair
market value shall be determined by mutual agreement of the holder of this
Warrant and the Company provided, however, that if the Company and the
-------- -------
Holder cannot agree on such value, such value shall be determined by an
independent valuation firm experienced in valuing businesses such as the
Company and jointly selected in good faith by the Company and the Holder.
Fees and expenses of the valuation firm shall be paid for by the Company.
-8-
<PAGE>
10.3. "Easy Sale" Exercise. In lieu of the payment methods set forth
--------------------
in Section 10.2 above, when permitted by law and applicable regulations
(including Nasdaq and NASD rules), the holder hereof may pay the Exercise Amount
through a "same day sale" commitment from such holder (and if applicable a
broker-dealer that is a member of the National Association of Securities Dealers
(a "NASD Dealer")), whereby the holder irrevocably elects to exercise this
Warrant and to sell at least that number of shares so purchased to pay the
Exercise Amount (and up to all of the shares so purchased) and the Holder (or,
if applicable, the NASD Dealer) commits upon sale (or, in the case of the NASD
Dealer, upon receipt) of such shares to forward the Exercise Amount directly to
the Company, with any sale proceeds in excess of the Exercise Amount being for
the benefit of the holder hereof.
11. Modification and Waiver. This Warrant and any provision hereof may be
-----------------------
changed, waived, discharged or terminated only by an instrument in writing
signed by either (i) the Company and the holders of warrants representing at
least fifty percent (50%) of the Common Stock issuable upon the exercise of all
Other Warrants, or (ii) the party against which enforcement of the same is
sought.
12. Notices. Any notice, request, communication or other document required
-------
or permitted to be given or delivered to the holder hereof or the Company shall
be delivered, or shall be sent by certified or registered mail, postage prepaid,
to each such holder (or its successors or assigns) at its address as shown on
the books of the Company or to the Company at the address indicated therefor on
the signature page of this Warrant.
13. Binding Effect on Successors. This Warrant shall be binding upon any
----------------------------
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets, and all of the obligations of
the Company relating to the Shares issuable upon the exercise or conversion of
this Warrant shall survive the exercise, conversion and termination of this
Warrant and all of the covenants and agreements of the Company shall inure to
the benefit of the successors and assigns of the holder hereof.
14. Lost Warrants or Stock Certificates. The Company covenants to the
-----------------------------------
holder hereof that, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant or any
stock certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation upon surrender and cancellation of such Warrant or stock
certificate, the Company will make and deliver a new Warrant or stock
certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant or stock certificate.
15. "Market Stand-Off" Agreement. By acceptance of this Warrant, the holder
----------------------------
hereof agrees that upon the request of the Company or the underwriters managing
any underwritten offering of the Company's securities, not to sell or otherwise
transfer or dispose of any Common Stock (or other securities) of the Company
acquired upon exercise of this Warrant held by the holder (other than those
included in the registration) during the 120 day period following the effective
date of a registration statement of the Company filed under the Act.
Notwithstanding the foregoing, to the extent the holder hereof is subject to the
market standoff agreement set forth in Section 12 of the
-9-
<PAGE>
Rights and Restrictions Agreement, as amended from time to time, the holder
shall have no obligation under this Section 15.
16. Descriptive Headings. The descriptive headings of the several
--------------------
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant. The language in this Warrant shall be
construed as to its fair meaning without regard to which party drafted this
Warrant.
17. Governing Law. This Warrant shall be construed and enforced in
-------------
accordance with, and the rights of the parties shall be governed by, the laws of
the State of Delaware.
18. Survival of Representations, Warranties and Agreements. All
------------------------------------------------------
representations and warranties of the Company and the holder hereof contained
herein shall survive the Date of Grant, the exercise or conversion of this
Warrant (or any part hereof) or the termination or expiration of rights
hereunder. All agreements of the Company and the holder hereof contained herein
shall survive indefinitely until, by their respective terms, they are no longer
operative.
19. Remedies. In case any one or more of the covenants and agreements
--------
contained in this Warrant shall have been breached, the holders hereof (in the
case of a breach by the Company), or the Company (in the case of a breach by a
holder), may proceed to protect and enforce their or its rights either by suit
in equity and/or by action at law, including, but not limited to, an action for
damages as a result of any such breach and/or an action for specific performance
of any such covenant or agreement contained in this Warrant.
20. No Impairment of Rights. The Company will not, by amendment of its
-----------------------
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holder of this Warrant against impairment.
21. Severability. The invalidity or unenforceability of any provision of
------------
this Warrant in any jurisdiction shall not affect the validity or enforceability
of such provision in any other jurisdiction, or affect any other provision of
this Warrant, which shall remain in full force and effect.
22. Recovery of Litigation Costs. If any legal action or other proceeding
----------------------------
is brought for the enforcement of this Warrant, or because of an alleged
dispute, breach, default, or misrepresentation in connection with any of the
provisions of this Warrant, the successful or prevailing party or parties shall
be entitled to recover reasonable attorneys' fees and other costs incurred in
that action or proceeding, in addition to any other relief to which it or they
may be entitled.
23. Entire Agreement; Modification. This Warrant constitutes the entire
------------------------------
agreement between the parties pertaining to the subject matter contained in it
and supersedes all prior and contemporaneous agreements, representations, and
undertakings of the parties, whether oral or written, with respect to such
subject matter. This Warrant and any provision hereof may only be
-10-
<PAGE>
amended, waived, discharged or terminated by an agreement in writing signed by
the party against which enforcement of the amendment, waiver, discharge or
termination is sought.
24. No Conflicting Agreements. The Company will not on or after the date of
-------------------------
this Warrant enter into any agreement with respect to its securities which
conflicts with the rights granted to the holders hereof or otherwise conflicts
with the provisions hereof. The rights granted to the holder hereunder do not in
any way conflict with the rights granted to holders of the Company's securities
under any other agreements, except rights that have been waived. Notwithstanding
the foregoing, the holders acknowledge that the Company may, from time to time,
issue warrants and other rights to purchase shares of stock of the Company,
including Common Stock
[The remainder of this page is intentionally left blank.]
-11-
<PAGE>
The Company has caused this Warrant to be duly executed and delivered as of
the Date of Grant specified above.
EMACHINES, INC.
By:
----------------------------------
STEPHEN DUKKER
CHIEF EXECUTIVE OFFICER
Address: 14350 Myford Road, Suite 100
Irvine, California 92606
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<PAGE>
EXHIBIT A-1
NOTICE OF EXERCISE
To: eMACHINES, INC. (the "Company")
1. The undersigned hereby:
___ elects to purchase_______ shares of Common Stock of the Company
pursuant to the terms of the attached Warrant, and tenders herewith
payment of the purchase price of such shares in full, or
___ elects to exercise its net issuance rights pursuant to Section 10.2 of
the attached Warrant with respect to____ shares of Common Stock.
2. Please issue a certificate or certificates representing ____ shares in
the name of the undersigned or in such other name or names as are specified
below:
(Name)
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
(Address)
- -----------------------------------------------------------------------
3. The undersigned represents that the aforesaid shares are being acquired
for the account of the undersigned for investment and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned has
no present intention of distributing or reselling such shares, all except as in
compliance with applicable securities laws.
(Signature)
------------------------
Date:
---------------------
-13-
<PAGE>
EXHIBIT A-2
NOTICE OF EXERCISE
To: eMACHINES, INC. (the "Company")
1. Contingent upon and effective immediately prior to the closing (the
"Closing") of the Company's public offering contemplated by the Registration
Statement on Form S, filed, 19, the undersigned hereby:
___ elects to purchase ____ shares of Common Stock of the Company (or such
lesser number of shares as may be sold on behalf of the undersigned at
the Closing) pursuant to the terms of the attached Warrant, or
___ elects to exercise its net issuance rights pursuant to Section 10.2 of
the attached Warrant with respect to____ Shares of Common Stock.
2. Please deliver to the custodian for the selling shareholders a stock
certificate representing such _____________ shares.
3. The undersigned has instructed the custodian for the selling
shareholders to deliver to the Company $_________________ or, if less, the net
proceeds due the undersigned from the sale of shares in the aforesaid public
offering. If such net proceeds are less than the purchase price for such shares,
the undersigned agrees to deliver the difference to the Company prior to the
Closing.
(Signature)
---------------------------
Date:
------------------
-14-
<PAGE>
EXHIBIT B
CHARTER
-15-
<PAGE>
EXHIBIT 10.25
EMACHINES, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 2000 Employee Stock Purchase
Plan of emachines, Inc..
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the common stock of the Company.
------------
(d) "Company" shall mean emachines, Inc. and any Designated Subsidiary
-------
of the Company.
(e) "Compensation" shall mean all base straight time gross earnings
------------
and commissions, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary that has been
---------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first Trading Day of each
---------------
Offering Period.
(i) "Exercise Date" shall mean the last Trading Day of each Purchase
-------------
Period.
<PAGE>
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the date of determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock prior
to the date of determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or
(iv) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
(k) "Offering Periods" shall mean the periods of approximately twenty-
----------------
four (24) months during which an option granted pursuant to the Plan may be
exercised, commencing on the first Trading Day on or after May 1 and November 1
of each year and terminating on the last Trading Day in the periods ending
twenty-four months later; provided, however, that the first Offering Period
under the Plan shall commence with the first Trading Day on or after the date on
which the Securities and Exchange Commission declares the Company's Registration
Statement effective and ending on the last Trading Day on or before April 30,
2002. The duration and timing of Offering Periods may be changed pursuant to
Section 4 of this Plan.
(l) "Plan" shall mean this 2000 Employee Stock Purchase Plan.
----
(m) "Purchase Period" shall mean the approximately six month period
---------------
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date.
(n) "Purchase Price" shall mean 85% of the Fair Market Value of a
--------------
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; provided however, that the Purchase Price may be adjusted by the Board
pursuant to Section 20.
(o) "Reserves" shall mean the number of shares of Common Stock covered
--------
by each option under the Plan which have not yet been exercised and the number
of shares of Common Stock which have been authorized for issuance under the Plan
but not yet placed under option.
-2-
<PAGE>
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock exchanges
-----------
and the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 1 and November 1 each year, or on such other date as
the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
April 30, 2002. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without shareholder approval if such change is announced [at
least five (5) days] prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
-3-
<PAGE>
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription agreement,
he or she shall elect to have payroll deductions made on each pay day during the
Offering Period in an amount not exceeding ten percent (10%) of the Compensation
which he or she receives on each pay day during the Offering Period.
(b) All payroll deductions made for a participant shall be credited to
his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan
as provided in Section 10 hereof, or may increase or decrease the rate of his or
her payroll deductions during the Offering Period by completing or filing with
the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than 5,000
shares of the Company's Common Stock (subject to any adjustment pursuant to
Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. The Board may, for future
Offering Periods, increase or decrease, in its absolute discretion, the maximum
number of
-4-
<PAGE>
shares of the Company's Common Stock an Employee may purchase during each
Purchase Period of such Offering Period. Exercise of the option shall occur as
provided in Section 8 hereof, unless the participant has withdrawn pursuant to
Section 10 hereof. The option shall expire on the last day of the Offering
Period.
8. Exercise of Option.
------------------
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the number of
shares with respect to which options are to be exercised may exceed (i) the
number of shares of Common Stock that were available for sale under the Plan on
the Enrollment Date of the applicable Offering Period, or (ii) the number of
shares available for sale under the Plan on such Exercise Date, the Board may in
its sole discretion (x) provide that the Company shall make a pro rata
allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
shareholders subsequent to such Enrollment Date.
9. Delivery. As promptly as practicable after each Exercise Date on which
--------
a purchase of shares occurs, the Company shall arrange the delivery to each
participant, as appropriate, of a certificate representing the shares purchased
upon exercise of his or her option.
10. Withdrawal.
----------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant
-5-
<PAGE>
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. Termination of Employment. Upon a participant's ceasing to be an
-------------------------
Employee, for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll deductions credited to such participant's account
during the Offering Period but not yet used to exercise the option shall be
returned to such participant or, in the case of his or her death, to the person
or persons entitled thereto under Section 15 hereof, and such participant's
option shall be automatically terminated. The preceding sentence
notwithstanding, a participant who receives payment in lieu of notice of
termination of employment shall be treated as continuing to be an Employee for
the participant's customary number of hours per week of employment during the
period in which the participant is subject to such payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
13. Stock.
-----
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 300,000 shares, plus an annual increase to be added on the first day of
the Company's fiscal year beginning in 2001 equal to the lesser of (i) 300,000
shares, (ii) 1% of the outstanding shares on such date or (iii) a lesser amount
determined by the Board.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
--------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
-6-
<PAGE>
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
-------
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
---------------------------------------------------------------------
Merger or Asset Sale.
- --------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of
-7-
<PAGE>
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its shareholders. Except as provided
in Section 19 and this Section 20 hereof, no amendment may make any change in
any option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any successor rule or provision or any other applicable law, regulation or stock
exchange rule), the Company shall obtain shareholder approval in such a manner
and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount
-8-
<PAGE>
withheld during an Offering Period, establish the exchange ratio applicable to
amounts withheld in a currency other than U.S. dollars, permit payroll
withholding in excess of the amount designated by a participant in order to
adjust for delays or mistakes in the Company's processing of properly completed
withholding elections, establish reasonable waiting and adjustment periods
and/or accounting and crediting procedures to ensure that amounts applied toward
the purchase of Common Stock for each participant properly correspond with
amounts withheld from the participant's Compensation, and establish such other
limitations or procedures as the Board (or its committee) determines in its sole
discretion advisable which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence including, but
not limited to:
(i) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(ii) shortening any Offering Period so that Offering Period ends
on a new Exercise Date, including an Offering Period underway at the time of the
Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
-9-
<PAGE>
24. Automatic Transfer to Low Price Offering Period. To the extent
-----------------------------------------------
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
-10-
<PAGE>
EXHIBIT A
---------
EMACHINES, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ____________________ hereby elects to participate in the emachines, Inc.
2000 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and
subscribes to purchase shares of the Company's Common Stock in accordance
with this Subscription Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 1 to 10%) during the Offering
Period in accordance with the Employee Stock Purchase Plan. (Please note
that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is subject
to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only).
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares at the time such
shares were purchased by me over the price which I paid for the shares. I
-
hereby agree to notify the Company in writing within 30 days after the date
---------------------------------------------------------------------------
of any disposition of my shares and I will make adequate provision for
----------------------------------------------------------------------
Federal, state or other tax withholding obligations, if any, which arise
------------------------------------------------------------------------
upon the disposition of the Common Stock. The Company may, but will not be
----------------------------------------
obligated to, withhold
<PAGE>
from my compensation the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make
available to the Company any tax deductions or benefits attributable to
sale or early disposition of Common Stock by me. If I dispose of such
shares at any time after the expiration of the 2-year and 1-year holding
periods, I understand that I will be treated for federal income tax
purposes as having received income only at the time of such disposition,
and that such income will be taxed as ordinary income only to the extent of
an amount equal to the lesser of (1) the excess of the fair market value of
the shares at the time of such disposition over the purchase price which I
paid for the shares, or (2) 15% of the fair market value of the shares on
the first day of the Offering Period. The remainder of the gain, if any,
recognized on such disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)__________________________________________________
(First) (Middle) (Last)
_________________________ _____________________________________
Relationship
_____________________________________
Address
-2-
<PAGE>
Employee's Social
Security Number: __________________________________
Employee's Address: __________________________________
__________________________________
__________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:______________ ____________________________________________________
Signature of Employee
____________________________________________________
Spouse's Signature (If beneficiary other than spouse)
-3-
<PAGE>
EXHIBIT B
---------
EMACHINES, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the emachines, Inc.
2000 Employee Stock Purchase Plan which began on ____________, ______ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
_______________________________________
_______________________________________
_______________________________________
Signature:
_______________________________________
Date:__________________________________
<PAGE>
EXHIBIT 10.26
eMachines, Inc.
STAND-ALONE STOCK OPTION AGREEMENT
I. NOTICE OF STOCK OPTION GRANT
----------------------------
[Name]
-----------------------
[Address]
-----------------------
-----------------------
You have been granted a Nonstatutory Stock Option to purchase Common Stock
of the Company, subject to the terms and conditions of this Agreement, as
follows:
Date of Grant
-----------------------
Vesting Commencement Date
-----------------------
Exercise Price per Share $
-----------------------
Total Number of Shares Granted
-----------------------
Total Exercise Price $
-----------------------
Term/Expiration Date:
-----------------------
Vesting Schedule:
----------------
This Option shall vest and may be exercised, in whole or in part, in
accordance with the following schedule:
[__% of the Shares subject to the Option shall vest one year after the
Vesting Commencement Date, and 1/__th of the Shares subject to the Option shall
vest each month thereafter, so that the Option shall be fully vested ____(_)
years from the Date of Grant, subject to the Optionee continuing to be a Service
Provider on such dates.]
Termination Period
------------------
This Option may be exercised for [_____ (__) months] after Optionee ceases
to be a Service Provider in accordance with Section 8 of this Agreement. Upon
the death or Disability of the
<PAGE>
Optionee, this Option may be exercised for [___year] after the Optionee ceases
to be a Service Provider in accordance with Sections 9 and 10 of this Agreement.
In no event shall this Option be exercised later that the Term/Expiration Date
provided.
II. AGREEMENT
---------
1. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Agreement" means this stock option agreement between the
---------
Company and Optionee evidencing the terms and conditions of this Option.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock options under U.S. state corporate laws, U.S. federal
and state securities laws, the Code, any stock exchange or quotation system on
which the Common Stock is listed or quoted and the applicable laws of any
foreign country or jurisdiction that may apply to this Option.
(c) "Board" means the Board of Directors of the Company or any
-----
committee of the Board that has been designated by the Board to administer this
Agreement.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Common Stock" means the common stock of the Company.
------------
(f) "Company" means eMachines, Inc. a Delaware corporation.
-------
(g) "Consultant" means any person, including an advisor, engaged by
----------
the Company or a Parent or Subsidiary to render services to such entity.
(h) "Director" means a member of the Board.
--------
(i) "Disability" the Company means total and permanent disability as
----------
defined in Section 22(e)(3) of the Code.
(j) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934,
------------
as amended.
(l) "Fair Market Value" means, as of any date, the value of
-----------------
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or
-2-
<PAGE>
The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such exchange or system for the last market trading
day prior to the time of determination, as reported in The Wall Street Journal
or such other source as the Administrator deems reliable;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination; or
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(m) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an incentive stock option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.
(n) "Notice of Grant" means a written notice, in Part I of this
---------------
Agreement, evidencing certain the terms and conditions of this Option grant. The
Notice of Grant is part of the Option Agreement.
(o) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(p) "Option" means this stock option.
------
(q) "Optioned Stock" means the Common Stock subject to this Option.
--------------
(r) "Optionee" means the person named in the Notice of Grant or such
--------
person's successor.
(s) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(t) "Service Provider" means an Employee, Director or Consultant.
----------------
(u) "Share" means a share of the Common Stock, as adjusted in accordance
-----
with Section 11 of this Agreement.
(v) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
2. Grant of Option. The Board hereby grants to the Optionee named in the
---------------
Notice of Grant attached as Part I of this Agreement the Option to purchase the
number of Shares, as set forth in the Notice of Grant, at the exercise price per
share set forth in the Notice of Grant (the "Exercise Price"), subject to the
terms and conditions of this Agreement.
-3-
<PAGE>
3. Exercise of Option.
------------------
(a) Right to Exercise. This Option is exercisable during its term in
-----------------
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of this Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of an
------------------
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
---------
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company. The
Exercise Notice shall be completed by the Optionee and delivered to Secretary of
the Company. The Exercise Notice shall be accompanied by payment of the
aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed
to be exercised upon receipt by the Company of such fully executed Exercise
Notice accompanied by such aggregate Exercise Price.
(c) Legal Compliance. No Shares shall be issued pursuant to the
----------------
exercise of this Option unless such issuance and exercise complies with
Applicable Laws. Assuming such compliance, for income tax purposes the Exercised
Shares shall be considered transferred to the Optionee on the date the Option is
exercised with respect to such Exercised Shares.
(d) Buyout Provisions. The Board may at any time offer to buy out for a
-----------------
payment in cash or Shares an Option previously granted based on such terms and
conditions as the Board shall establish and communicate to the Optionee at the
time that such offer is made.
4. Optionee's Representations. In the event the Shares have not been
--------------------------
registered under the Securities Act of 1933, as amended, at the time this Option
is exercised, the Optionee shall, if required by the Company, concurrently with
the exercise of all or any portion of this Option, deliver to the Company his or
her Investment Representation Statement in the form attached hereto as Exhibit
-------
B.
- -
5. Method of Payment. Payment of the aggregate Exercise Price shall be
-----------------
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash or check;
(b) consideration received by the Company under a cashless
exercise program implemented by the Company; or
(c) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.
6. Non-Transferability of Option. This Option may not be transferred
-----------------------------
in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Optionee only by the Optionee. The
terms of this Agreement shall be binding upon the executors, administrators,
heirs, successors and assigns of the Optionee.
-4-
<PAGE>
7. Term of Option. This Option may be exercised only within the term
--------------
set out in the Notice of Grant, and may be exercised during such term only in
accordance with the terms of this Agreement.
8. Termination of Relationship as a Service Provider. If the Optionee
-------------------------------------------------
ceases to be a Service Provider (other than for death or Disability), this
Option may be exercised for a period of three (3) months after the date of such
termination (but in no event later than the expiration date of this Option as
set forth in the Notice of Grant) to the extent that the Option is vested on the
date of such termination. To the extent that the Optionee does not exercise this
Option within the time specified herein, the Option shall terminate.
9. Disability of Optionee. If the Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, this Option may be exercised
for a period of twelve (12) months after the date of such termination (but in no
event later than the expiration date of this Option as set forth in the Notice
of Grant) to the extent that the Option is vested on the date of such
termination. To the extent that Optionee does not exercise this Option within
the time specified herein, the Option shall terminate.
10. Death of Optionee. If the Optionee dies while a Service Provider,
-----------------
the Option may be exercised at any time within twelve (12) months following the
date of death (but in no event later than the expiration date of this Option as
set forth in the Notice of Grant), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent that the Optionee was entitled to exercise the Option at the date of
death. If, after death, the Optionee's estate or a person who acquired the right
to exercise the Option by bequest or inheritance does not exercise the Option
within the time specified herein, the Option shall terminate.
11. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
- ----------
(a) Changes in Capitalization. Subject to any required action by
-------------------------
the stockholders of the Company, the number of shares of Common Stock covered by
this Option, as well as the price per share of Common Stock covered by this
Option, shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of issued shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to this Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Board shall notify Optionee as
soon as practicable prior to the effective date of such proposed transaction.
The Board in its discretion may provide for the Optionee to have the right to
exercise his or her Option until fifteen (15) days prior to such
-5-
<PAGE>
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. To the extent it has not
been previously exercised, the Option will terminate immediately prior to the
consummation of such proposed
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company, the Option shall be assumed or an equivalent option substituted
by the successor corporation or a Parent or Subsidiary of the successor
corporation. In the event that the successor corporation refuses to assume or
substitute for the Option, the Optionee shall fully vest in and have the right
to exercise the Option as to all of the Optioned Stock, including Shares as to
which it would not otherwise be vested or exercisable. If the Option becomes
fully vested and exercisable in lieu of assumption or substitution in the event
of a merger or sale of assets, the Board shall notify the Optionee in writing or
electronically that the Option shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the Option shall terminate
upon the expiration of such period. For the purposes of this paragraph, the
Option shall be considered assumed if, following the merger or sale of assets,
the option confers the right to purchase or receive, for each Share of Optioned
Stock subject to the Option immediately prior to the merger or sale of assets,
the consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets by holders of Common Stock for each
Share held on the effective date of the transaction (and if holders were offered
a choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
12. Lock-Up Period. Optionee hereby agrees that, if so requested by
--------------
the Company or any representative of the underwriters (the "Managing
Underwriter") in connection with any registration of the offering of any
securities of the Company under the Securities Act, Optionee shall not sell or
otherwise transfer any Shares or other securities of the Company during the 180-
day period (or such other period as may be requested in writing by the Managing
Underwriter and agreed to in writing by the Company) (the "Market Standoff
Period") following the effective date of a registration statement of the Company
filed under the Securities Act. Such restriction shall apply only to the first
registration statement of the Company to become effective under the Securities
Act that includes securities to be sold on behalf of the Company to the public
in an underwritten public offering under the Securities Act. The Company may
impose stop-transfer instructions with respect to securities subject to the
foregoing restrictions until the end of such Market Standoff Period.
13. Notices. Any notice to be given to the Company hereunder shall
-------
be in writing and shall be addressed to the Company. at its then current
principal executive office or to such other address as the Company may hereafter
designate to the Optionee by notice as provided in this Section. Any notice to
be given to the Optionee hereunder shall be addressed to the Optionee at the
address set forth beneath his signature hereto, or at such other address as the
Optionee may hereafter designate to the Company by notice as provided herein. A
notice shall be deemed to have been duly
-6-
<PAGE>
given when personally delivered or mailed by registered or certified mail to the
party entitled to receive it.
14. Tax Consequences. Some of the federal tax consequences relating to this
----------------
Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
(a) Exercising the Option. The Optionee may incur regular federal
---------------------
income tax liability upon exercise of a Nonstatutory Stock Option (an "NSO").
The Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value
of the Exercised Shares on the date of exercise over their aggregate Exercise
Price. If the Optionee is an Employee or a former Employee, the Company will be
required to withhold from his or her compensation or collect from Optionee and
pay to the applicable taxing authorities an amount in cash equal to a percentage
of this compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
(b) Disposition of Shares. If the Optionee holds NSO Shares for at
---------------------
least one year, any gain realized on disposition of the Shares will be treated
as long-term capital gain for federal income tax purposes.
15. Entire Agreement; Governing Law. This Agreement constitute the entire
-------------------------------
agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and
Optionee with respect to the subject matter hereof, and may not be modified
adversely to the Optionee's interest except by means of a writing signed by the
Company and Optionee. This agreement is governed by the internal substantive
laws, but not the choice of law rules, of [ ].
16. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES
---------------------------------
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUES ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.
-7-
<PAGE>
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of this Agreement. Optionee has reviewed this Agreement in
its entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Agreement and fully understands all provisions of this Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Board upon any questions relating to this Agreement.
Optionee further agrees to notify the Company upon any change in the residence
address indicated below.
OPTIONEE EMACHINES, INC.
- --------------------------- --------------------------------
Signature By
- --------------------------- --------------------------------
Print Name Title
- ---------------------------
Residence Address
- ---------------------------
- ---------------------------
-8-
<PAGE>
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of this Agreement. In consideration of the Company's granting
his or her spouse the right to purchase Shares as set forth in this Agreement,
the undersigned hereby agrees to be irrevocably bound by the terms and
conditions of this Agreement and further agrees that any community property
interest shall be similarly bound. The undersigned hereby appoints the
undersigned's spouse as attorney-in-fact for the undersigned with respect to any
amendment or exercise of rights under this Agreement.
----------------------------------
Spouse of Optionee
<PAGE>
EXHIBIT A
---------
eMACHINES, INC.
EXERCISE NOTICE
eMACHINES, INC.
[Address]
Attention:
1. Exercise of Option. Effective as of today, ________________, 199__, the
------------------
undersigned ("Purchaser") hereby elects to purchase ______________ shares (the
"Shares") of the Common Stock of eMACHINES, INC. (the "Company") under and
pursuant to the Stock Option Agreement dated [_____________] (the "Option
Agreement"). The purchase price for the Shares shall be [$_______], as required
by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the full
-------------------
purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser has
----------------------------
received, read and understood the Option Agreement and agrees to abide by and be
bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
---------------------
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a stockholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 11 of the
Option Agreement.
5. Company's Right of First Refusal. Before any Shares held by Optionee or
--------------------------------
any transferee (either being sometimes referred to herein as the "Holder") may
be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall deliver
---------------------------
to the Company a written notice (the "Notice") stating: (i) the Holder's bona
fide intention to sell or otherwise transfer such Shares; (ii) the name of each
proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number
of Shares to be transferred to each Proposed Transferee; and (iv) the bona fide
cash price or other consideration for which the Holder proposes to transfer the
-2-
<PAGE>
Shares (the "Offered Price"), and the Holder shall offer the Shares at the
Offered Price to the Company or its assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty (30)
----------------------------------
days after receipt of the Notice, the Company and/or its assignee(s) may, by
giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the Shares
--------------
purchased by the Company or its assignee(s) under this Section shall be the
Offered Price. If the Offered Price includes consideration other than cash, the
cash equivalent value of the non-cash consideration shall be determined by the
Board in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the option
-------
of the Company or its assignee(s), in cash (by check), by cancellation of all or
a portion of any outstanding indebtedness of the Holder to the Company (or, in
the case of repurchase by an assignee, to the assignee), or by any combination
thereof within 30 days after receipt of the Notice or in the manner and at the
times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice, that any such sale or
other transfer is effected in accordance with any applicable securities laws and
that the Proposed Transferee agrees in writing that the provisions of this
Section shall continue to apply to the Shares in the hands of such Proposed
Transferee. If the Shares described in the Notice are not transferred to the
Proposed Transferee within such period, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First Refusal
-------------------------------------
shall terminate as to any Shares upon the first sale of Common Stock of the
Company to the general public pursuant to a registration statement filed with
and declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
-3-
<PAGE>
6. Tax Consultation. Purchaser understands that Purchaser may suffer
----------------
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
7. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. Optionee understands and agrees that the Company shall
-------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal 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, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY
COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE
THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE
BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A
COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE
ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL
ARE BINDING ON TRANSFEREES OF THESE SHARES.
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Exercise Notice or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.
8. Successors and Assigns. The Company may assign any of its rights under
----------------------
this Exercise Notice to single or multiple assignees, and this Exercise Notice
shall inure to the benefit of the successors and assigns of the Company. Subject
to the restrictions on transfer herein set forth, this Exercise Notice shall be
binding upon Optionee and his or her heirs, executors, administrators,
successors and assigns.
-4-
<PAGE>
9. Interpretation. Any dispute regarding the interpretation of this
--------------
Exercise Notice shall be submitted by Optionee or by the Company forthwith to
the Administrator which shall review such dispute at its next regular meeting.
The resolution of such a dispute by the Administrator shall be final and binding
on all parties.
10. Entire Agreement; Governing Law. The Option Agreement is incorporated
-------------------------------
herein by reference. This Agreement, and the Option Agreement constitute the
entire agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the Company
and Purchaser with respect to the subject matter hereof, and may not be modified
adversely to the Purchaser's interest except by means of a writing signed by the
Company and Purchaser. This agreement is governed by the internal substantive
laws, but not the choice of law rules, of [___].
Submitted by: Accepted by:
OPTIONEE eMACHINES, INC.
- ------------------------
Signature
- ------------------------
Print Name
- ------------------------ ------------------------
Address Address
- ------------------------ ------------------------
- ------------------------ ------------------------
Date Received:
----------
-5-
<PAGE>
EXHIBIT B
---------
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE:
------------------------
COMPANY: eMACHINES, INC.
SECURITY: COMMON STOCK
AMOUNT:
--------------------------
DATE:
---------------------------
In connection with the purchase of the above-listed Securities, the
undersigned Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Optionee is
acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities constitute
"restricted securities" under the Securities Act and have not been registered
under the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Optionee's
investment intent as expressed herein. In this connection, Optionee understands
that, in the view of the Securities and Exchange Commission, the statutory basis
for such exemption may be unavailable if Optionee's representation was
predicated solely upon a present intention to hold these Securities for the
minimum capital gains period specified under tax statutes, for a deferred sale,
for or until an increase or decrease in the market price of the Securities, or
for a period of one year or any other fixed period in the future. Optionee
further understands that the Securities must be held indefinitely unless they
are subsequently registered under the Securities Act or an exemption from such
registration is available. Optionee further acknowledges and understands that
the Company is under no obligation to register the Securities. Optionee
understands that the certificate evidencing the Securities will be imprinted
with a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the opinion of counsel
satisfactory to the Company, and any other legend required under applicable
state securities laws.
<PAGE>
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144, each
promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly
from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of the grant of the Option to the
Optionee, the exercise will be exempt from registration under the
Securities Act. In the event the Company becomes subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
ninety (90) days thereafter (or such longer period as any market stand-off
agreement may require) the Securities exempt under Rule 701 may be resold,
subject to the satisfaction of certain of the conditions specified by Rule
144, including: (1) the resale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a
market maker (as said term is defined under the Securities Exchange Act of
1934); and, in the case of an affiliate, (2) the availability of certain
public information about the Company, (3) the amount of Securities being
sold during any three month period not exceeding the limitations specified
in Rule 144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the
time of grant of the Option, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires the
resale to occur not less than one year after the later of the date the
Securities were sold by the Company or the date the Securities were sold by an
affiliate of the Company, within the meaning of Rule 144; and, in the case of
acquisition of the Securities by an affiliate, or by a non-affiliate who
subsequently holds the Securities less than two years, the satisfaction of the
conditions set forth in sections (1), (2), (3) and (4) of the paragraph
immediately above.
(d) Optionee further understands that in the event all of the applicable
requirements of Rule 701 or 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
Signature of Optionee:
----------------------------------------
Date:
----------------------------------------
