Document:

EXHIBIT 10.62

                    Second Modification of License Agreement
                            dated December 30, 1999,
                                     between
                          Empire State Building Company
                                       And
                             New York Skyline, Inc.

<PAGE>
                    SECOND MODIFICATION OF LICENSE AGREEMENT

                  This Second Modification of License Agreement,  made as of the
30th day of December, 1999 among Empire State Building Company ("ESBC"),  having
an office at 350 Fifth Avenue, New York, New York 10118,  Empire State Building,
Inc. ("ESB, Inc."), having an office at 60 East 42nd Street, New York, New York,
(hereinafter  together referred to as "Licensor"),  and New York Skyline,  Inc.,
having an office at 350 Fifth  Avenue,  New York,  New York  10118  (hereinafter
referred to as "Licensee").

     WHEREAS,  Licensor is the Lessor of the building  known as the Empire State
Building (the  "Building"),  and ESB, Inc. is the operator of the observatory on
the 86th floor of the Building (the "Observatory"); and

     WHEREAS, ESBC and Licensee have entered into certain leases (the "Leases");
and

     WHEREAS,  ESBC and Licensee  entered into that certain  License  Agreement,
made as of  February  26,  1993,  pursuant  to which ESBC  granted to Licensee a
license to have tickets to the  Attraction  (defined  therein)  sold by Licensor
under  the  terms,  covenants  and  conditions  set forth  therein  (hereinafter
referred to as the "License"),  and whereas certain  disputes arose with respect
thereto; and

     WHEREAS,  ESBC and  Licensee  entered into a certain  License  Modification
Agreement, made as of March, 1996, and whereas certain disputes have arisen with
respect thereto; and

     WHEREAS,  Licensor  and  Licensee  desire to resolve  their  disputes;  and

     WHEREAS,  Licensor and Licensee  wish to further  modify the License as set
forth  herein.  NOW,  THEREFORE,   in  consideration  of  the  covenants  herein
contained, the parties hereto agree as follows:

<PAGE>
                  1.       License:

     Article  1 of the  License  shall be  deleted  and the  following  shall be
substituted in its place and stead:

                           License:  Licensor  hereby  grants to  Licensee,  and
                           Licensee  hereby accepts from Licensor,  a license to
                           have tickets to the Attraction  sold by Licensor,  in
                           accordance   with  the   provisions  of  the  License
                           Agreement,  as modified  by the License  Modification
                           Agreement   dated   March,   1996,   and  the  Second
                           Modification of License  Agreement dated December 30,
                           1999.

                  2.       Annual License Fee and Contingent License Fee:

                  Article  3 of the  License  Agreement  and  Article  11 of the
License  Modification  Agreement are hereby  deleted and the following set forth
below is substituted in their place and stead:

                  2.1 Annual License Fee: Licensee shall pay to Licensor a fixed
license fee (the  "Annual  Fee") at the  following  rates per annum,  payable to
Licensor in advance in equal monthly installments on the first day of each month
without any setoff or deduction whatsoever:

               - $100,000.00  per annum  ($8,333.33 per month) through March 31,
                  1995;

               - $150,000.00 per annum ($12,500.00 per month) from April 1, 1995
                  through March 31, 1998;

               - $175,000.00 per annum ($14,583.33 per month) from April 1, 1998
                  through March 31, 2002;

<PAGE>
               - $200,000.00 per annum ($16,666.66 per month) from April 1, 2002
                  through March 31, 2006;

               - $225,000.00 per annum ($18,750.00 per month) from April 1, 2006
                  through April 30, 2013; and

               - $186,250.00  per annum  ($15,520.84 per month) from May 1, 2013
                  through June 30, 2016.

                  All payments,  charges or  reimbursements  due hereunder  from
Licensee shall be deemed additional  license fees and payable on demand,  unless
otherwise herein provided.

                  The  Annual Fee  payable  hereunder  shall be payable  without
regard to whether the Attraction is open for business.

                  2.2 Contingent  License Fee: In addition to the Annual Fee, as
an  incentive  for  Licensor  to sell  tickets  to the  Attraction  ("Attraction
Tickets"),  Licensee shall pay to Licensor,  in accordance with Schedule A which
is annexed hereto,  and upon the terms and conditions set forth below, an annual
contingent  license fee (the "Annual  Contingent License Fee") at the end of the
calendar year.

                  (a) No  Annual  Contingent  License  Fee shall be paid for any
calendar  year unless and until the Capture Rate  (defined  below) equals and/or
exceeds 10.5% for that calendar  year.  The Capture Rate,  which is set forth in
COLUMN 1 of Schedule A, is a percentage  equaling the total number of Attraction
Tickets sold by Licensor in a given  calendar  year  (numerator)  divided by the
total admissions to the Observatory in such calendar year (denominator).  By way
of example  only, if 100,000  tickets are sold by Licensor to the  Attraction in
the  calendar  year  1999,  and  1,000,000  are  the  total  admissions  to  the
Observatory in the calendar year 1999, then the 1999 Capture Rate is 10.0%.

<PAGE>
                  e.g.,    (Annual Attraction Tickets
                           sold by Licensor)              100,000 = 10.0%
                           --------------------------------------
                           (Annual Admissions to the    1,000,000
                            Observatory)

The applicable  Capture Rate shall be the highest listed  percentage in COLUMN 1
of  Schedule  A which was  actually  obtained.  By way of example  only,  if the
Capture  Rate  is  10.8%,  the  applicable  Capture  Rate  shall  be  10.5%.  In
determining  the Capture Rate, it is expressly  understood that the numerator of
the above  formula  shall also  include  sales by  Licensor  through the vending
machines as set forth in paragraph 3 hereof.

                  (b) Licensor  shall  provide  Licensee  with weekly,  monthly,
quarterly  and  annual  reports  ("Reports"),  certified  by a  duly  authorized
representative  of Licensor,  setting  forth:  the number of  admissions  to the
Observatory and the number of tickets sold by Licensor to the Attraction, with a
breakdown of daily tallies.  The Reports shall be  substantially  in the form of
the reports annexed hereto as Schedule B. The annual reports ("Annual  Reports")
shall also set forth the Capture Rate.  Weekly Reports shall be provided  within
seven days of each week;  monthly  Reports shall be provided within fifteen days
of the end of each month;  quarterly Reports shall be provided within twenty-one
days of the end of each calendar  quarter;  and Annual Reports shall be provided
within thirty days of the end of each calendar year. To the extent  permitted by
law,  Licensee  shall not further  disseminate,  publish or disclose  Licensor's
Reports to any third party,  other than: (i) Licensee's  accountants,  (ii) in a
lawsuit, arbitration or administrative proceeding in which Licensor and Licensee
are both parties; or (iii) pursuant to a court order or other legal mandate.

<PAGE>
                  (c) Provided that Licensee does not dispute Licensor's Capture
Rate as set forth in the Annual  Report,  Licensee  shall pay Licensor an Annual
Contingent  License Fee in accordance  with  Articles  2.2(d) within thirty (30)
days of the receipt of Licensor's Annual Report for the applicable period.

                  (d) If the Capture  Rate shall equal  and/or  exceed 10.5% for
any calendar  year,  Licensee  shall pay to Licensor the  applicable  Contingent
License Fee, in accordance with COLUMN 2 of the table set forth in Schedule A.

                  (e)  Notwithstanding  any  restrictions to the contrary in the
License Agreement and/or the License  Modification  Agreement,  the parties have
mutually  agreed to implement the  Contingent  License Fee system which shall be
effective  August 1, 1999, and continue for the term of this Agreement.  For the
calendar year 1999,  one-half of the applicable  Contingent License Fee shall be
payable if the Capture Rate for the period  August 1, 1999 through  December 31,
1999 shall equal and/or exceed 10.5%.

                  (f) The  certified  Annual  Reports  furnished  by Licensor to
Licensee shall constitute a final determination as between Licensor and Licensee
as to  the  Capture  Rate,  unless  Licensee,  within  thirty  (30)  days  after
Licensee's receipt of the certified Annual Reports shall give a notice ("Dispute
Notice")  to Licensor  that it disputes  the  accuracy of the  certified  Annual
Reports,  which notice shall specify the particular respects in which the Annual
Report is inaccurate.  Licensee shall have the right, during reasonable business
hours and upon not less than five (5)  business  days' prior  written  notice to
Licensor,  to examine Licensor's books and records  (including,  but not limited
to, back-up  documentation  such as ticket stubs,  and receipts) with respect to
the Capture  Rate.  Licensee  shall notify  Licensor in detail of the results of
such examination within fourteen (14) days after concluding such examination. If
Licensee shall give a Dispute Notice, upon not less than five (5) business days'
prior written notice to Licensee,  Licensor shall also have the right to examine
Licensee's   books  and  records   (including,   but  not  limited  to,  back-up
documentation  such as ticket stubs,  and receipts)  with respect to the Capture
Rate.

<PAGE>
                  (g) Any dispute as to the Capture  Rate  Figures  which is not
resolved by the parties shall be resolved in accordance  with the procedures set
forth in Article 6 herein.

                  3.  Ticket Computer Vending Machines at Concourse Area:

                  Notwithstanding  anything  to  the  contrary  in  the  License
Agreement or License Modification Agreement, Licensor hereby authorizes Licensee
to install,  at a location (in the Concourse  area of the Building)  selected by
Licensor,  two (2) ticket computer vending machines to sell Observatory  Tickets
and/or Combination Tickets (defined below). The ticket computer vending machines
shall accept as payment for the tickets credit cards,  but not cash. The cost of
such  ticket  computer  vending  machines  (including,  installation),  and  all
expenses incurred in connection with the maintenance,  repair and replacement of
such  machines,  shall be borne  by  Licensee.  However,  if  Licensor  requires
Licensee to move the  location of such ticket  computer  vending  machines,  the
Licensor  shall  bear  all  costs  and  expenses   associated  with  moving  and
re-installing such machines, in accordance with Article 8.1 herein.

                  (a) Any payments  received for Observatory  Tickets  purchased
from the ticket  computer  vending  machines shall be segregated into a separate
account  created and maintained by Licensor;  Licensor shall be responsible  for
all costs, fees and/or charges associated with such account (including,  but not
limited to, the reduction in any manner by credit card company fees or any other
costs associated with credit cards or other forms of payment).

<PAGE>
                  (b) Any payments  received for Combination  Tickets  purchased
from the ticket  computer  vending  machines shall be segregated into a separate
account  created and  maintained by Licensor.  Licensor's  share of the receipts
from such Combination  Tickets shall not be reduced in any manner by credit card
company fees or any other costs  associated  with credit cards or other forms of
payment. Within five (5) business days of the expiration of each month, Licensor
shall: (i) pay to Licensee that portion of the Combination Ticket payments which
belongs to Licensee;  and (ii) provide  Licensee  with a report,  certified by a
duly  authorized  representative  of  Licensor,  setting  forth  the  number  of
Combination Tickets sold by the ticket computer vending machines and the amounts
collected by such  machines  for the  applicable  period.  Any dispute as to the
above  report  which  is not  resolved  by the  parties  shall  be  resolved  in
accordance with the procedures set forth in Article 6 herein.

                  4.       Purchase of Observatory Tickets by Licensee:

                  Article 1(D) of the License  Modification  Agreement  shall be
amended to add the following provisions at the end of the first sentence:

                  "Licensee shall be permitted to purchase  Observatory  Tickets
                  from  Licensor's  office at the  Building  or from  Licensor's
                  Concourse  Ticket Office or in  accordance  with the terms and
                  conditions  of the  voucher  system  described  in  Article  5
                  herein.

                  It is expressly  understood  and agreed to by the parties that
                  beginning  on  August  1,  1999,  Licensee  has the  right  to
                  purchase  tickets to the Observatory  ("Observatory  Tickets")
                  from Licensor at the lowest  wholesale price charged to anyone
                  at that particular time ("Licensor's  Lowest Wholesale Rate").
                  For the  period  August  1,  1999  through  January  2,  2000,
                  Licensor's Lowest Wholesale Rate is $4.20 for an adult ticket,
                  $2.80 for a student  ticket,  $2.10  for a senior  ticket  and
                  $2.00 for a child's ticket.  For the period beginning  January
                  3,  2000  (until  there is a  subsequent  change),  Licensor's
                  Lowest  Wholesale  Rate  shall be $5.25  for an adult  ticket,
                  $4.00 for a student  ticket,  $4.00  for a senior  ticket  and
                  $3.00 for a child's ticket.

<PAGE>
                  Licensor's Lowest Wholesale Rate shall be provided to Licensee
                  irrespective  of how the  rates  are  determined,  whether  by
                  number of tickets purchased, category or any other means. Upon
                  written  request  of  Licensee,  Licensor  further  agrees  to
                  furnish  to  Licensee  a  written  list  of the  then-existing
                  Licensor's Lowest Wholesale Rate within ten (10) business days
                  of Licensee's written request.

                  Licensor  warrants and represents  that the Licensor's  Lowest
                  Wholesale  Rates set  forth  above  are the  lowest  wholesale
                  prices for the  Observatory  Tickets charged to anyone for the
                  periods of time set forth.

                  Licensee  shall  not  sell  Observatory  Tickets  alone at its
                  ticket  window in The Empire  State  Building,  but shall sell
                  them  only  as   Combination   Tickets  with  tickets  to  the
                  Attraction Tickets.

                  To the extent  permitted  by law,  Licensee  shall not further
                  disseminate, publish or disclose Licensor's Wholesale Rates or
                  updated  Wholesale  Rates to any third party,  other than: (i)
                  Licensee's  accountants,  (ii) in a  lawsuit,  arbitration  or
                  administrative  proceeding in which  Licensor and Licensee are
                  both  parties;  or (iii)  pursuant  to a court  order or other
                  legal mandate."

                  5.  Voucher System:

                  5.1  The  first  sentence  of  Article  4(f)  of  the  License
Agreement  shall be deleted and the following  sentence  shall be substituted in
its place and stead:

               "Licensor  shall  have  no  obligation  to  handle  discount
               coupons, rebates or other promotional items of any kind."

<PAGE>
     5.2  Notwithstanding  anything to the contrary in the License  Agreement or
License  Modification  Agreement,   Licensor  and  Licensee  mutually  agree  to
implement a voucher  system  which shall be effective no earlier than January 1,
2000, and continue for the term of this Agreement.

     5.3 Licensee shall make an initial deposit of twenty thousand  ($20,000.00)
dollars into Licensor's  bank account  designated by Licensor for the purpose of
purchasing   Observatory  Tickets  from  Licensor   ("Observatory  Voucher  Bank
Account"). At present, Licensor intends to use Fleet Bank.

     5.4 When a customer  purchases a  Combination  Ticket from Licensee to both
the Attraction and the  Observatory,  Licensee shall provide the customer with a
printed Observatory  Voucher  ("Observatory  Voucher").  The Observatory Voucher
shall  contain an identical  serial  number on both ends of its face,  and shall
contain  information as required by Article 44 of the lease for rooms  216-WP232
and  325-328.  Licensee  shall  retain  one-half of a sold  Observatory  Voucher
(containing  the  serial  number  on one  end) to a  customer;  the  other  half
(containing  the serial  number on the other end) shall be given to the customer
who, in turn,  shall remit such partial  Observatory  Voucher to Licensor or its
agents to gain admittance to the Observatory.

     5.5 For each  Observatory  Voucher  remitted to  Licensor,  Licensor  shall
deduct  the cost of an  Observatory  Ticket  (in  accordance  with the terms and
conditions set forth in Article 1(D) of the License  Modification  Agreement and
Article 4 herein) from the Observatory Voucher Bank Account.

     5.6 (a)  Licensor  shall  authorize  Licensee  to check the  balance of the
Observatory  Voucher Bank Account on a daily basis and shall forward  Licensee a
copy of all bank statements for such account.

<PAGE>
     (b)  Following  the  expiration  of each month,  Licensor  shall  submit to
Licensee a statement, certified by a duly authorized representative of Licensor,
setting forth the number of Observatory  Vouchers it received from customers for
the applicable period (the "Observatory Voucher Statement").

     (c) The  Observatory  Voucher  Statement  thus  furnished to Licensee shall
constitute  a final  determination  as between  Licensor  and Licensee as to the
amount of  Observatory  Vouchers  sold for the period  covered  thereby,  unless
Licensee,  within thirty (30) days after  Licensee's  receipt of the Observatory
Voucher  Statement  shall give a Dispute Notice to Licensor that it disputes the
accuracy of the Observatory  Voucher  Statement,  which notice shall specify the
particular respects in which the Observatory Voucher Statement is inaccurate.

     (d) Any  dispute  as to the  above  figures  which is not  resolved  by the
parties shall be resolved in accordance with the procedures set forth in Article
6 herein.

     (e) If the Observatory Voucher Statement,  as finally  determined,  shows a
variance  between the amount of  Observatory  Vouchers  sold by Licensee and the
amount for which the  Observatory  Voucher  Bank  Account  was  charged  for the
applicable monthly period, Licensee or Licensor, as the case may be, will pay to
the other  within  five (5) days of such final  determination  the amount of any
excess or deficiency in Licensee's payments.

     5.7 Licensor shall give Licensee  written notice anytime the balance of the
Observatory  Voucher  Bank  Account  equals  or is less than two  thousand  five
hundred ($2,500.00)  dollars, and Licensee shall restore the balance to at least
twenty  thousand  ($20,000.00)  dollars no less than five (5) business days from
the receipt of such written notice.

<PAGE>
                  6.  Arbitration:

     6.1 Any controversy,  dispute,  or claim arising out of or relating to this
Agreement, the License Agreement,  and/or the License Modification Agreement, or
the  performance,   interpretation,   application,   implementation,  breach  or
enforcement  thereof,  shall be subject to  mandatory  arbitration  as  provided
herein.  In the event any party has breached or defaulted in the  performance of
any obligation under this Agreement,  the License Agreement,  and/or the License
Modification  Agreement,  the party  claiming  a default  or breach or a dispute
shall provide  written notice to the other party of the default and/or breach or
any other dispute, and the other party shall have ten (10) days from the date of
receipt of the notice of default  (the "Notice of Default") to cure said default
or resolve the dispute (the "Cure Period").

     6.2 (a) In the event the  default or breach is not cured or the  dispute is
not resolved after the steps required by Article 6.1 are taken, the matter shall
be  submitted  to  binding   arbitration   conducted  in  accordance   with  the
then-current  Commercial  Arbitration  Rules of the  AAA,  except  as  otherwise
modified by this Agreement.

     (b) Each  arbitration  shall be  conducted  by three (3)  arbitrators.  The
parties  agree that the  arbitration  shall be conducted  on an expedited  basis
irrespective  of the amount of the claims  and/or  counterclaims.  All  notices,
however, from the AAA must be done in writing.

     (c) Upon payment of the service charge, the AAA shall submit simultaneously
to each party an identical list of ten (10) proposed arbitrators, drawn from the
National Panel of Commercial Arbitrators,  from which three arbitrators shall be
appointed.  Each party may  strike  three  names  from the list on a  peremptory
basis.  The list is returnable to the AAA within seven (7) days from the date of
the AAA's mailing to the parties. If for any reason the appointment of the three
arbitrators  cannot be made from the list, the AAA shall send additional  lists,
in accordance with the procedure set forth above, until the appointment of three
(3)  arbitrators.  The parties shall be given notice by the AAA, in writing,  of
the three arbitrators,  who shall be subject to disqualification for the reasons
specified in Section 19 of the AAA rules.  The parties  shall notify the AAA, in
writing,  within seven (7) days of any objection to the arbitrators appointed in
accordance with Section 19.

<PAGE>
     (d) The  arbitrators  shall set the date, time and place of the arbitration
hearing,  and provide  the  parties  with at least  fourteen  (14) days  advance
written notice of the hearing date.  Unless  otherwise  agreed by the parties in
writing,  both parties shall be given a full and fair  opportunity  to engage in
discovery  and prosecute  and/or  defend the claims,  and shall not be forced to
have the hearing in one day. The award shall be rendered not later than fourteen
(14) days from the date of the closing of the  hearing.  The  arbitration  panel
must  adhere  to and  apply  the  substantive  laws of the  State  of New  York,
including the rules of evidence.

     (e) An award made by the  arbitration  panel  shall be final,  binding  and
conclusive  on all parties  hereto for all  purposes,  and  judgment on an award
granted by the arbitrators may be entered and enforced in any court of competent
jurisdiction.

     (f) Each  arbitration  shall take place at the New York City  Office of the
AAA. Each party's costs of arbitration shall be borne to the respective parties,
except that the costs and expenses of the arbitrators shall be shared equally by
the parties. If any party does not comply with the final award, such party shall
bear all resulting costs of enforcing the award.

     (g) Notwithstanding  the provisions of this Article,  each party shall have
the  right to apply to an  arbitrator  selected  by the AAA for the  purpose  of
temporary or preliminary injunctive relief and/or an order directing arbitration
pursuant  hereto,  or to a court  of  appropriate  jurisdiction  for the same or
similar relief.

                  6.3 Nothing  contained in this Article shall modify,  amend or
otherwise change the parties' rights and remedies under the Leases.

<PAGE>
                  7.  Sharing Marketing Information:

                  The parties' respective marketing departments shall meet on or
before  January 14, 2000,  and at least on a quarterly  basis  thereafter  (at a
mutually agreeable time), at the Building, or at a location otherwise agreed to,
to  discuss  sharing  marketing   information  and  exchanging  marketing  ideas
regarding,  inter alia: (i) information on group tours and sales;  (ii) mailings
for group  solicitations;  (iii)  trade  show  information;  and (iv)  educating
prospective customers about the Observatory and the Attraction.

                  8.  Ticket Sales:

                  8.1      The  following  shall be  added as the last  sentence
to Article 4(a) of the License Agreement:

                  "It  is  expressly  understood,   however,  that  if  Licensor
                  subsequently  requires  Licensee to move the  location of such
                  machines,  then  Licensor  shall  bear all costs and  expenses
                  associated  with moving and  re-installing  such machines,  in
                  accordance with Article 3 herein."

                                    8.2 The third  sentence  in Article  4(c) of
                  the License Agreement shall be deleted and the following shall
                  be substituted  in its place and stead" "At present,  Licensor
                  intends to use Fleet Bank." 8.3 The following  sentence  shall
                  be added to the end of Article 4(c) of the License Agreement:

                  "Licensee   may  seek  to  recover  any  disputed   amount  in
                  accordance with Article 6 herein."

                  8.4      The last paragraph in Article 4(e) entitled
"Statement, Disputes, Etc." of the License Agreement shall be deleted and the
following shall be substituted in its place and stead:

                  "Any dispute as to the above  Statements which is not resolved
                  by the  parties  shall  be  resolved  in  accordance  with the
                  procedures set forth in Article 6 herein."

<PAGE>
                  9.  Signage, Etc.:

                  Article 5 of the License  Agreement  shall be  supplemented as
follows:

                  "Licensor   shall  also  post  the  admission  price  for  the
                  Attraction,  and the price for a ticket  covering  Observatory
                  and Attraction admission ("Combination Ticket") directly below
                  the  posting  of  the  Observatory   admission  price  in  the
                  Observatory ticket sales office room.

                  Licensee  shall  permit  Licensor  to post one (1) sign,  at a
                  mutually  agreeable  location  at the site of the  Attraction,
                  listing  the  current   weather   and/or   visibility  at  the
                  Observatory. Licensor shall be solely responsible for: (i) the
                  cost and  expense of the sign;  and (ii)  removing,  altering,
                  changing,  and/or updating the sign during Licensee's  regular
                  business hours.  The sign's size shall be mutually agreed upon
                  by the parties."

                  Licensee  shall  post one (1) sign,  at a  mutually  agreeable
                  location at the site of the Attraction,  stating that Licensee
                  is not affiliated with Licensor.

                  10.      Cost Reimbursements:

                  The third  sentence of Article  6(a) of the License  Agreement
shall be deleted and the following shall be substituted in its place and stead:

                  "Any  dispute  as to  whether  the  number  of man  hours  was
                  increased, or as to the cost thereof, which is not resolved by
                  the  parties,   shall  be  resolved  in  accordance  with  the
                  procedures set forth in Article 6 herein."

<PAGE>
                  11.  Default:

                  The following phrase shall be deleted from clause (b) of
Article 10 of the License Agreement:

               "or hereinafter promulgated by Licensor hereunder or thereunder,"

                  12.  Brokerage:

                  Licensee  and  Licensor  represent  and warrant  that  neither
consulted  nor  negotiated  with  any  broker  or  finder  with  regard  to this
Agreement. Licensee and Licensor agree to indemnify, defend and save one another
harmless  from and  against  any  claims  for fees or  commissions  from  anyone
claiming  to have  dealt  with the  respective  party in  connection  with  this
Agreement.

                  13.  Indemnity:

                  The  following  shall be added to the last sentence of Article
                  21 of the  License  Agreement:

                         "provided that the injuries  and/or  damages  allegedly
                    sustained  were  not  caused  in  whole  or in  part  by the
                    culpable conduct (including, negligence, lack of care, fault
                    and/or  the  assumption  of the  risk) of  Licensor,  or its
                    employees, agents or contractors."

                  14.  Right to Cancel:

                  The  following  shall be added  after the second  sentence  in
                  Article  24 of the  License  Agreement:

                         "Licensor  shall give Licensee  written  notice fifteen
                    (15) days in advance, setting forth in reasonable detail the
                    reasons for Licensor's determination. Any dispute under this
                    Article  which  is not  resolved  by the  parties  shall  be
                    resolved  in  accordance  with the  procedures  set forth in
                    Article 6 herein."

                  15.  Daily Attendance Figures:

                  The  following  shall be added to the last sentence of Article
1(H) of the License Modification Agreement:

                  "to any third parties, other than: (i) Licensee's accountants,
                  (ii) in a lawsuit, arbitration or administrative proceeding to
                  which Licensee and Licensor are parties,  or (iii) pursuant to
                  a court order or other legal mandate."

<PAGE>
                  16.      Entertainment Facility:

                  Article 1(I) of the License  Modification  Agreement  shall be
deleted.

                  17.  Ratification:

                  The amendments  set forth herein,  shall not affect any of the
terms,  covenants  and  conditions  of the  License  Agreement  and the  License
Modification  Agreement,  which  Agreements,  as amended  hereby,  are and shall
remain in full  force and  effect,  and are  hereby  confirmed  and agreed to by
Licensor  and  Licensee.  The  amendments  set forth herein shall not affect any
terms, covenants and conditions of the Leases.

                  18. Storage Space:

                  The parties agree that they will discuss the  possibility of a
Storage  Lease  Agreement for the storage of  Licensee's  promotional  material,
brochures,  signs,  etc.  (the  "Storage  Lease  Agreement").  The Storage Lease
Agreement,  if agreed to by the parties, shall be for a term to be determined by
the parties.  Nothing herein shall obligate either Licensor or Licensee to enter
into such a Storage Lease Agreement.

                  19.  Non-cash sales:

                  The following shall be added after the last sentence of
Article 4(g) of the License Agreement:

                    "(vi)  Notwithstanding  the above,  Licensor  is  permitting
               visitors to pay for admission to the  Observatory  and Attraction
               by non-cash  payment such as credit card. It is expressly  agreed
               that Licensee is not responsible for any costs, fees, credit card
               charges,   expenses,   equipment  or  other  items   relating  to
               transactions  which do not involve the sale of Attraction Tickets
               and/or Combination Tickets."

                  20.      Miscellaneous:

                  (a)      The captions in this  Agreement  are for  convenience
only and are not to be considered in construing this Agreement.

                  (b)  Nothing  in this  Agreement  shall be  construed  to give
benefits to any person or corporation  or other entity,  other than the Licensor
and Licensee,  and this Agreement shall be for the sole and exclusive benefit of
the Licensor and Licensee.

<PAGE>
                  (c)  Nothing  contained  herein  shall be  deemed  to create a
partnership,  joint venture or other similar relationship between the parties or
as appointing either party as the agent for the other party. However, nothing in
this  clause  shall  be  deemed  to  waive  or  otherwise  obviate  any  rights,
privileges,  obligations  or other legal  entitlements  that either  Licensor or
Licensee have under the relevant applicable law.

                  (d) This  Agreement  shall be construed  without regard to any
presumption or other rule requiring  construction against the party causing this
Agreement to be drafted.

                  (e) It is further expressly understood and agreed that neither
party to this Agreement, nor any of their agents or those under their control or
otherwise acting on behalf of the parties,  shall make any defamatory statements
or disparaging or negative statements about the other party's attraction.

                  (f) Terms used in this  Agreement  and not  otherwise  defined
herein  shall have the  respective  meanings  ascribed  thereto  in the  License
Agreement and the License Modification Agreement.

                  (g) If any provision of this  Agreement or its  application to
any person or  circumstances  is invalid or  unenforceable  to any  extent,  the
remainder of this  Agreement,  or the  applicability  of such provision to other
persons or  circumstances,  shall be valid and enforceable to the fullest extent
permitted  by law and shall be  deemed  to be  separate  from  such  invalid  or
unenforceable provisions and shall continue in full force and effect.

                  (h) The  definition of  "Licensor" in the License is hereby
modified and amended to include ESB, Inc. in the definition.

EMPIRE STATE BUILDING COMPANY

By: /s/ John B. Trainor, Jr.
-------------------------
John B. Trainor, Jr.
Senior Vice President

EMPIRE STATE BUILDING, INC.

By:____________________________

NEW YORK SKYLINE, INC.

By: /s/ Robert Brenner
Robert Brenner
President<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

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00002-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00002-of-00352.parquet"}]]