Marketing Agreement Between Registrant & Aol

EXHIBIT 10.8


Confidential
MARKETING AGREEMENT*
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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
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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.
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TERMS
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1. eMachines Distribution of the AOL Software. eMachines shall distribute the
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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".


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* 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. eMachines Promotion of the AOL Software.
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2.1 Desktop Icons. For each Bundled Product, eMachines shall include one
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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
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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
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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
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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.


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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,
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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
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connection with the fulfillment of its obligations hereunder.


4. Payments. AOL shall pay eMachines a fee of [*] for each Qualified New
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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.


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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
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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
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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
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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
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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
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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


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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
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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
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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.


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12. Warrants and Investment.
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12.1 Grant of Warrants. Subject to the closing of the AOL Investment (as
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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
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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
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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
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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


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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
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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 ...