EXHIBIT 10.26
Execution Copy
SECOND AMENDMENT TO MARKETING AGREEMENT
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This Second Amendment to Marketing Agreement (this "Amendment"), effective
as of October 5, 2000, is made and entered into by and between America Online,
Inc. ("AOL"), a Delaware corporation, with offices at 00000 XXX Xxx, Xxxxxx,
Xxxxxxxx 00000, and eMachines, Inc. ("eMachines"), a Delaware corporation, with
offices at 00000 Xxxxxx Xxxxx, Xxxxx 000, Xxxxxx, Xxxxxxxxxx 00000. AOL and
eMachines may be referred to individually as a "Party" and collectively as
"Parties."
INTRODUCTION
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WHEREAS, AOL and eMachines have entered into that certain Marketing
Agreement, dated June 17, 1999, as amended by First Amendment to Marketing
Agreement dated as of May 25, 2000 (including all exhibits thereto, the
"Original Agreement"); and
WHEREAS, the Parties desire to amend and supplement the terms of the
Original Agreement to implement a new promotional program pursuant to the terms
provided below.
NOW, THEREFORE, in consideration of the terms and conditions set forth in
this Amendment and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, AOL and eMachines hereby agree to
amend and supplement the Original Agreement in accordance with the following
terms and conditions:
TERMS
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1. 3 Month AOL Offer. Section 23 of the Original Agreement is hereby amended
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by adding the following language to the end of the section:
"After the expiration of the promotional program set forth above in this
Section 23, and during the period from October 5, 2000 through September
30, 2001, eMachines and AOL hereby agree to participate in a new program
offering consumers three (3) months of AOL in accordance with the terms and
conditions set forth on Exhibit E attached hereto (the "New Program").
Irrespective of the New Program, AOL and eMachines shall continue to engage
in all other distribution and promotional programs set forth in the
Original Agreement, as it is now, or subsequently shall be, amended. The
New Program is in addition to and in no way modifies or replaces all other
distribution and promotional programs set forth in the Original Agreement,
as it is now, or subsequently shall be, amended."
2. Definitions. Capitalized terms used but not defined herein shall have the
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meanings given thereto in the Original Agreement.
3. Original Agreement. Except as specifically amended and supplemented hereby,
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the Original Agreement remains in full force and effect.
4. Counterparts. This Amendment may be executed in counterparts, each of which
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will be deemed an original and all of which together will constitute one and the
same document.
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[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
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IN WITNESS WHEREOF, the Parties hereto have executed this Amendment as of
the date first above written.
AMERICA ONLINE, INC. eMACHINES, INC.
By: /s/ Xxxx Xxxxxx By: /s/ Xxxx Xxxxxxxxx
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Print Name: Xxxx Xxxxxx Print Name: Xxxx Xxxxxxxxx
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Title: SVP, Business Affairs Title: Senior VP
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Exhibit E
3 Month AOL Classic Service Offer
1. eMachines' Distribution of the AOL Software. During the Offer Term, defined
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in Section 5 below, eMachines and AOL agree that the AOL Classic Service shall
be promoted under a new program (the "Three-Month Included Promo Offer") that
will entitle the end user to three (3) months of the AOL Classic Service at no
cost to the end user upon registration in accordance with the terms and
conditions set forth below. eMachines agrees to make this Three-Month Included
Promo Offer the primary Interactive Service promotional offer on all of its
Products and throughout all of its marketing and sales channels in the United
States. For purposes of this Exhibit E, "Products" shall be as defined in the
Original Agreement, but shall exclude any devices which do not use a Windows
based operating system or successor operating system. As set forth in Section
1.3, eMachines agrees to promote the Three-Month Included Promo Offer during the
Offer Term as the primary Interactive Service during the initial installation
and set-up of each Bundled Product and Three-Month Included Package Bundled
Product (as defined in Section 1.4 below), and said agreement to provide AOL
with this primary promotional position shall supercede any conflicting provision
contained in Section 2 of the Original Agreement. eMachines shall distribute
through all Products a special version of the AOL Classic Software containing
the Three-Month Included Promo Offer as follows:
1.1(a) Software Testing. AOL shall submit to eMachines a Gold Master of
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its AOL Software, that AOL has already tested using AOL's then
standard virus-checking procedures, upon execution of this
Amendment. eMachines shall test the AOL Software and shall notify
AOL of its acceptance or rejection of such software within ten (10)
business days of its receipt of such software. Both Parties shall
cooperate on a timely, priority basis in order to report and
resolve issues associated with the testing process. The foregoing
testing process and rights and obligations set forth in this
Section 1.1(a) shall also be applicable to the AOL Software
included on the Three-Month Included Packages and on the SOAF/MTM
Kit, and to any updated versions of the AOL Software provided to
eMachines under the production time guidelines set forth by
eMachines.
1.1(b) Special Software Build. Upon satisfactory testing of the AOL
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Software as set forth in Section 1.1(a), eMachines shall pre-
install the AOL Software, including the special version of the AOL
Classic Software containing the Three-Month Included Promo Offer,
onto each Product by burning the AOL Software into the hard drive
or other applicable storage mechanism of such Products. The AOL
Software combined with an eMachines Product is referred to herein
and in the Original Agreement as a "Bundled Product." The AOL
Software to be pre-installed shall include, in each case, the then-
current version of the AOL Classic Service (as modified by the
Three-Month Included Promo Offer), 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 pre-installed in each Product (i.e., not in setup.exe file
form). AOL shall, at its expense, provide to eMachines the AOL
Software for use in distribution, marketing or promotion
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by eMachines in accordance with this Section 1. A Master of the AOL
Software will be delivered in the form of a master diskette, Gold
Master or CD-ROM to be tested as set forth in Section 1.1(a) and
pre-installed as set forth in this Section 1.1(b).
1.2 Special Three-Month Included Promo Offer Desktop Icon. eMachines
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shall ensure that the pre-installed AOL Software installed upon
each Bundled Product results in the placement of a special AOL-
designed desktop icon that promotes the Three-Month Included Promo
Offer (the "Promo Icon"). If an end-user clicks on the Promo Icon,
this will initiate the process for the end-user to register for AOL
Classic Service under the terms and conditions of the Three-Month
Included Promo Offer. AOL shall, at its expense, design and provide
to eMachines the necessary visuals and copy related to the Promo
Icon, and eMachines shall have the opportunity to approve such
Promo Icon.
1.3 Increased Promotion of the Three-Month Included Promo Offer during
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MS OOBE. eMachines shall increase the placement and promotion of
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the Three-Month Included Promo Offer during an end-user's initial
installation and set-up of the Bundled Product as follows:
eMachines may continue to promote xXxxxxxxx.xxx, provided that the
Three-Month Included Promo Offer shall be the primary Interactive
Service offer promoted during MS OOBE, and xXxxxxxxx.xxx shall be
promoted less-favorably. AOL shall, at its expense, provide art and
copy to eMachines for such MS OOBE increased promotion, and
eMachines shall have the opportunity to approve such MS OOBE
increased promotion. Such MS OOBE promotion shall not be
implemented until the next MS OOBE is included with the Products,
which is anticipated to be January 2001.
1.4 Three-Month Included Package Bundled Product. Provided that the
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requirements in Section 1.1(a) are met, the Parties anticipate that
eMachines will be able to pre-install the AOL Software on the
Products as set forth in Section 1.1(b) in January 2001. Until
eMachines is able to pre-install the AOL Software pursuant to
Section 1.1(b), eMachines shall bundle a Three-Month Included
Package with each eMachines Product by placing the Three-Month
Included Package inside the cardboard box packaging of each
Product. The "Three-Month Included Package" shall mean an AOL-
supplied diskette or CD-ROM containing the special AOL Classic
Software containing the Three-Month Included Promo Offer and
related promotional and packaging materials. eMachines shall have
the right to approve the size of the Three-Month Included Package
so that it fits in the box without modification of the existing
box. The Three-Month Included Package combined with the Product is
referred to herein as a "Three-Month Included Package Bundled
Product." AOL shall, at its expense, provide and deliver to
eMachines the Three-Month Included Packages to eMachines'
distribution center (the "DC") of the Three-Month Included Package
Bundled Products. eMachines shall provide AOL a written request for
a sufficient quantity of Three-Month Included Packages to meet its
production expectations. eMachines acknowledges and agrees that AOL
may require at least thirty (30) days to complete the preparation
and delivery of such quantity of Three-Month Included Packages to
eMachines. After the Three-Month Included Packages arrive at the
DC, and through the Offer Term, defined in Section 5 below,
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eMachines shall use its best efforts to enclose a Three-Month
Included Package inside each Product that eMachines distributes
until the AOL Software is pre-installed pursuant to Section 1.1(b).
If AOL does not distribute sufficient Three-Month Included Packages
to eMachines within thirty (30) days of a written request for such
packages, then eMachines shall not have any obligation under this
Section 1.4 with respect to those Products for which there are no
Three-Month Included Packages. In the event that eMachines
instructs AOL to deliver the Three-Month Included Packages to a
destination outside the United States, then AOL shall be permitted
forty-five (45) days to deliver the Three-Month Included Packages,
before eMachines shall be relieved of its obligation to bundle such
packages as set forth in this Section 1.4.
1.5 SOAF/MTM Bundling Obligation. On the date that eMachines complies
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with Section 1.1(b) above, eMachines shall not be obligated to
carry out the bundling obligations set forth in Section 1.4 above;
provided that eMachines thereafter agrees to use commercially
reasonable efforts to bundle a SOAF/MTM Kit with any Bundled
Product. A "SOAF/MTM Kit" shall mean an AOL-supplied Sign-On A
Friend/Month-to-Month Offer diskette or CD-ROM containing the
special AOL Classic Software containing one (1) month of pre-paid
AOL Service included and related promotional and packaging
materials. AOL shall, at its expense, provide to eMachines the
SOAF/MTM Kits, delivered at AOL's expense, to such location as
determined by eMachines. eMachines shall have the right to approve
the size of the SOAF/MTM Kit so that it fits in the box without
modification of the existing box. eMachines shall provide AOL a
written request for a sufficient quantity of SOAF/MTM Kits to meet
its production expectations. eMachines acknowledges and agrees that
AOL may require at least thirty (30) days to complete the
preparation and delivery of such quantity of SOAF/MTM Kits to
eMachines. If AOL does not distribute sufficient SOAF/MTM Kits to
eMachines within thirty (30) days of a written request for such
kits, then eMachines shall not have any obligation under this
Section 1.5 with respect to those Products for which there are no
SOAF/MTM Kits. In the event that eMachines instructs AOL to deliver
the SOAF/MTM Kits to a destination outside the United States, then
AOL shall be permitted forty-five (45) days to deliver the SOAF/MTM
Kits, before eMachines shall be relieved of its obligation to
bundle such packages as set forth in this Section 1.5. AOL will pay
to eMachines the fee set forth in Section 4 of the Original
Agreement for Qualified New Members who register for the AOL
Classic Service through the SOAF/MTM Kit and AOL shall provide
eMachines with the reports as set forth in Section 8 of the
Original Agreement with respect to Qualified New Members who
register for the AOL Classic Service through the SOAF/MTM Kit.
1.6 Post Manufacturing Insertion Costs. The Parties mutually understand
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that in order for the Three-Month Included Packages to be included
in the boxes of Products (as set forth in Section 1.4) scheduled to
be distributed during the period between the effective date of this
Amendment and December 31, 2000 (the "Immediate Distribution
Period"), eMachines may have to open previously sealed Product
containers. In the event this occurs, eMachines will incur costs to
insert the Three-Month Included Packages into the sealed boxes of
such Products (the "Post Manufacturing Insertion Costs"). AOL
agrees to pay eMachines the Post Manufacturing Insertion Cost per
Product, requiring reopening in order to
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bundle a Three-Month Included Package as set forth in Section 1.4
above, in an amount equal to $1.00 per such Product. AOL shall pay
such Post Manufacturing Insertion Cost for the first 400,000 Products
requiring such Post Manufacturing Insertion Costs during the Immediate
Distribution Period. In the event that eMachines will incur Post
Manufacturing Insertion Costs for any Product after the first 400,000
Products, eMachines shall provide written notice to AOL prior to its
incurring any further Post Manufacturing Insertion Costs, and AOL
shall have the discretion to choose to allow those Products to be
distributed without including the Three-Month Included Package. AOL
shall notify eMachines in writing of its choice within two (2)
business days of its receipt of eMachines' written notice. Further,
AOL shall not pay Post Manufacturing Insertion Costs for any eMachines
Products that are distributed after the Immediate Distribution Period.
Notwithstanding the above, AOL shall have the right upon two (2)
business days prior written notice to stop eMachines from including
the Three-Month Included Packages in the Product boxes as set forth in
Section 1.4; provided, that (a) AOL shall be responsible for disposing
of or removing the remaining Three-Month Included Packages from the
DC; and (b) AOL shall pay to eMachines the Post Manufacturing
Insertion Costs with respect to Products which include the Three-Month
Included Packages in the box up to and including the date of
termination pursuant to this sentence.
1.7 Post Manufacturing Insertion Cost Reporting. eMachines will report to
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AOL the number of Products distributed each week that required Post
Manufacturing Insertion Costs. AOL agrees to pay eMachines the Post
Manufacturing Insertion Costs within thirty (30) days of the end of
the month during which eMachines reports such costs.
1.8 General Distribution Obligations. eMachines shall not bundle the AOL
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Software with any other products other than eMachines' Products or
otherwise distribute the AOL Software in a manner not expressly set
forth herein. eMachines may, however, request in writing that AOL
permit eMachines to bundle the AOL Software or distribute the AOL
Software in a manner not provided for in this Exhibit so long as any
such request is made at least thirty (30) calendar days in advance of
any such desired bundling or distribution arrangement. Any request
not affirmatively approved by AOL in writing within fifteen (15) days
of the notice from eMachines shall be deemed denied.
2. eMachines Promotion of the Three-Month Included Promo Offer. In addition
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to the distribution obligations in Section 1 above, during the Offer Term,
eMachines shall promote the Three-Month Included Promo Offer as follows:
2.1 eMachines Web Site. eMachines shall use all commercially reasonable
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efforts to promote the Three-Month Included Promo Offer on eMachines'
Internet web site located at the URL xxx.x0xx.xxx, with a prominently
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placed promotion, as soon as commercially possible.
2.2 Print, Radio and Television Advertising. eMachines agrees to use all
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commercially reasonable efforts to promote prominently the Three-Month
Included Promo Offer, in a manner to be approved by AOL, in all of
eMachines'
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own offline media promotions, including but not limited to print,
radio, and TV advertising, where eMachines' Products are featured, if
any of such media are being used at such time.
2.3 Offline Retailer Promotions. eMachines agrees to use all commercially
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reasonable efforts to promote the Three-Month Included Promo Offer
through offline retailers mutually agreed to by the Parties that
distribute and sell the Bundled Products or Three-Month Included
Package Bundled Products.
2.4 QVC Promotions. eMachines agrees to use all commercially reasonable
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efforts to cause QVC to market the Three-Month Included Promo Offer
and promote the availability of the Three-Month Included Promo Offer
through its promotions (e.g. on-air and special visuals) of the
Bundled Products or Three-Month Included Package Bundled Products on
QVC.
2.5 Online Retailer Promotions. eMachines agrees to use all commercially
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reasonable efforts to promote the Three-Month Included Promo Offer
through online retailers that distribute the Bundled Products or
Three-Month Included Package Bundled Products, including but not
limited to Xxx.xxx and Xxxxxxx.xxx.
2.6 "Caller-on-Hold" Promotions. eMachines shall use all commercially
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reasonable efforts to promote the Three-Month Included Promo Offer on
all of the "caller-on-hold" music or messages played on its telephone
system including but not limited to calls made to eMachines' technical
support lines, customer support lines, and product purchasing and/or
ordering lines.
2.7 Packaging. eMachines also agrees as soon as commercially practicable
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to incorporate AOL-provided promotional artwork on the front bezel of
each Bundled Product or Three-Month Included Package Bundled Product
through the use of special adhesive stickers (as specified by
eMachines) supplied by AOL to such destination as directed by
eMachines. Such stickers and the delivery thereof will be fully paid
for by AOL. eMachines shall have the right to approve such stickers
prior to using them. Such stickers will replace the current stickers
used on the Bundled Products and may be different for each model of
Bundled Product.
2.8 Joint Targeted Retailer Promotions. eMachines and AOL agree to work
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together with Target Retailers to promote the Three-Month Included
Promo Offer in Retail Stores in an effort to increase registration
rates. For registrations realized in-store under the Three-Month
Included Promo Offer, through an eMachines promo/tracking code through
only these Target Retailers, through kiosks and the like (and not
through Three-Month Included Package Bundled Products, Bundled
Products, the MS OOBE, the SOAF/MTM Kits or the Promo Icon), eMachines
agrees to contribute 25% of its bounty payments under Section 4 below
to help fund this program. eMachines' contribution will take the form
of a 25% reduced bounty payment for registrations realized in-store
under the Three-Month Included Promo Offer, through an eMachines
promo/tracking code through only these Target Retailers. "Target
Retailers" shall be defined as those retailers agreeing to sign up end
users under this Three-Month Included Promo Offer.
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AOL shall be responsible for acquiring such Target Retailers. These
registrations will fall under a special tracking code that AOL will be
responsible for tracking. AOL agrees to provide eMachines reasonable
advance written notice of Target Retailer activities under this
Section 2.8 (e.g. cancellation, continuation, or new sign-ups).
Notwithstanding the above, any registrations resulting from the Three-
Month Included Package Bundled Products, the Bundled Products, the MS
OOBE, the SOAF/MTM Kits or the Promo Icon shall not be subject to the
25% decrease described above in this Section 2.8.
3. Three-Month Included Promo Offer Materials. All visuals, logos, artwork,
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and copy used in marketing, advertising, or other materials related to the
Three-Month Included Promo Offer shall be provided by AOL at AOL's expense. AOL
and eMachines shall have approval rights (which shall not be unreasonably
withheld or delayed) over any and all advertising programs related to the Three-
Month Included Promo. Without limiting the foregoing, eMachines agrees that the
Three-Month Included Promo Offer shall be offered as being brought to you by
eMachines (e.g. "compliments of eMachines") not by AOL.
4. Payments. AOL shall pay eMachines a promotional bounty for each Qualified
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First Tier Registered Program Member and Qualified Second Tier Registered
Program Member. The promotional bounties set forth in this Section 4 shall be
the only payments made by AOL to eMachines for any Bundled Products or Three-
Month Included Package Bundled Products sold under this Three-Month Included
Promo Offer. The amount of the promotional bounty paid for each Qualified
Registered Program Member shall vary in accordance with the following
qualification schedule:
4.1 Qualified First Tier Registered Program Members. For each person or
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entity who is a Qualified First Tier Registered Program Member, AOL
shall pay eMachines a promotional bounty of thirty-five dollars
($35.00), within thirty (30) days from the end of the month in which
such qualification takes place. A "Qualified First Tier Registered
Program Member" shall be any person or entity who is among the first
seventy-five thousand (75,000) to register for the AOL Classic Service
through a unique promo code identifier specific to eMachines and
associated with the Three-Month Included Promo Offer (whether through
Bundled Products, Three-Month Included Packaged Bundled Products, the
MS OOBE or the Promo Icon), including such promo codes assigned to the
Target Retailers under Section 2.8, during the Offer Term (subject to
the last sentence of Section 5), and who pays the then-standard fees
required for membership to such service through at least two (2)
consecutive billing cycles after the three (3) months of the AOL
Classic Service included for free upon registration has been completed
(the "3 Month Included Free Period"). Upon the qualification of the
seventy-five thousandth (75,000th) Qualified First Tier Registered
Program Member, the promotional bounty payment set forth in this
Section 4.1 shall no longer apply, and all future promotional bounty
payments for additional registrants under this Three-Month Included
Promo Offer shall be paid in accordance with Section 4.2 below.
4.2 Qualified Second Tier Registered Program Members. A "Qualified Second
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Tier Registered Program Member" shall be any person or entity who
registers for the AOL Classic Service through a unique promo code
identifier specific to
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eMachines and associated with the Three-Month Included Promo Offer
(whether through Bundled Products, Three-Month Included Packaged
Bundled Products, the MS OOBE or the Promo Icon), including such promo
codes assigned to the Target Retailers under Section 2.8, during the
Offer Term (subject to the last sentence of Section 5) after the
qualification of the first seventy-five thousand (75,000) Qualified
First Tier Registered Program Members, and who pays the then-standard
fees required for membership to such service through at least one (1)
billing cycle after the 3 Month Included Free Period. For each
Qualified Second Tier Registered Program Member, AOL shall pay
eMachines a promotional bounty payment up to a maximum of fifty-five
dollars ($55), as follows: (a) thirty-five dollars ($35.00) upon
completion and payment of one (1) billing cycle after the 3 Month
Included Free Period; (b) ten dollars ($10) upon completion and
payment of three (3) consecutive billing cycles after the 3 Month
Included Free Period; and (c) ten dollars ($10) upon completion and
payment of nine (9) consecutive billing cycles after the 3 Month
Included Free Period. All such bounty payments earned by eMachines in
Section 4.2 shall be paid by AOL within thirty (30) days of the end of
the completed and paid billing cycle in which each bounty payment
specified in 4.2(a), (b) or (c) is earned.
5. Offer Term. The term of the Three-Month Included Promo Offer shall be
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from October 1, 2000 until September 30, 2001 (the "Offer Term").
Notwithstanding the foregoing, AOL shall have the right to terminate the
Three-Month Included Promo Offer at any time upon reasonable written notice
to eMachines if it determines that the Three-Month Included Promo Offer is
not resulting in sufficient registrations to justify the cost of the
promotional program, such determination to be reasonably made by AOL. In
the event that AOL terminates the Three-Month Included Promo Offer prior to
September 30, 2001, the Offer Term shall end on such date of termination
and AOL and eMachines agree that the Parties shall continue to engage in
all other distribution and promotional programs set forth in the Original
Agreement, as it is now, or subsequently shall be, amended. Notwithstanding
the above, AOL shall honor all Three-Month Included Promo Offers that have
been bundled on Products prior to termination of the Offer Term and shall
make payments pursuant to Sections 4.1 and 4.2 related thereto, through the
term of the Original Agreement.
6. Reports. AOL shall provide eMachines with reports within thirty (30) days
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of the end of each month that sets forth the number of Qualified First Tier
Registered Program Members and the number of Qualified Second Tier
Registered Program Members acquired by AOL through the distribution of the
Bundled Products and the Three-Month Included Package Bundled Products
during the previous month and the promo code that such Qualified First Tier
Registered Program Member or Qualified Second Tier Program Member used. In
addition such reports shall set forth, with respect to a Qualified Second
Tier Program Member, which subsection of 4.2 is applicable and the amount
to be paid to eMachines.
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