<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 14, 1999
REGISTRATION STATEMENT NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FAIRMARKET, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7389 04-3351937
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
400 UNICORN PARK DRIVE
WOBURN, MA 01801
(781) 935-7090
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
------------------------
SCOTT T. RANDALL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
FAIRMARKET, INC.
400 UNICORN PARK DRIVE
WOBURN, MA 01801
(781) 935-7090
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
DAVID F. DIETZ, P.C. DANIEL S. EVANS, ESQ.
GOODWIN, PROCTER & HOAR LLP DAVID B. WALEK, ESQ.
EXCHANGE PLACE ROPES & GRAY
BOSTON, MASSACHUSETTS 02109-2881 ONE INTERNATIONAL PLACE
(617) 570-1000 BOSTON, MASSACHUSETTS 02110-2624
(617) 951-7000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ------------------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
TITLE OF EACH PROPOSED MAXIMUM AMOUNT OF
CLASS OF SECURITIES AGGREGATE REGISTRATION
TO BE REGISTERED OFFERING PRICE(1) FEE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.001 par value per share............... $40,000,000 $10,560
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SEC, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER
TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED DECEMBER 14, 1999
[fairmarket LOGO] FAIRMARKET, INC.
- --------------------------------------------------------------------------------
Shares
Common Stock
- --------------------------------------------------------------------------------
This is the initial public offering of FairMarket, Inc. We are offering
shares of our common stock.
At the request of FairMarket, the underwriters have reserved, at the initial
public offering price, up to shares of common stock for sale to
employees, customers and other business associates of FairMarket.
Prior to this offering, there has been no public market for FairMarket's common
stock. We currently estimate that the initial public offering price per share
will be between $ and $ . We have applied for quotation of the
common stock on the Nasdaq National Market under the symbol "FAIM".
SEE "RISK FACTORS" BEGINNING ON PAGE 4 TO READ ABOUT FACTORS YOU SHOULD CONSIDER
BEFORE BUYING SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
PER SHARE TOTAL
<S> <C> <C>
Initial public offering price $ $
Underwriting discount $ $
Proceeds, before expenses, to FairMarket $ $
</TABLE>
If the underwriters sell more than shares of common stock, the
underwriters have the option to purchase up to an additional
shares from FairMarket at the initial public offering price less
the underwriting discount.
The underwriters expect to deliver the shares against payment in New York, New
York on , 2000.
DEUTSCHE BANC ALEX. BROWN
ROBERTSON STEPHENS
PRUDENTIAL VOLPE TECHNOLOGY
A UNIT OF PRUDENTIAL SECURITIES
PROSPECTUS DATED , 2000.
<PAGE> 3
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and FairMarket's financial statements and the notes to those
statements appearing elsewhere in this prospectus.
This prospectus contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about FairMarket and our
industry. These forward-looking statements involve risks and uncertainties. Our
actual results could differ materially from those anticipated in these forward-
looking statements as a result of various factors, as more fully described in
the "Risk Factors" section and elsewhere in this prospectus.
FAIRMARKET, INC.
FairMarket is a leading provider of outsourced dynamic pricing solutions to
business merchants and web communities. Our primary offering is a private-label
online auction solution that enables our customers to rapidly deploy a flexible,
custom-branded Internet auction site without making a significant investment in
technology, personnel or other infrastructure. By maintaining customer auction
sites on a central system, we are able to aggregate the goods and services from
our customers' auction sites and distribute these listings across the FairMarket
Network. The result is a highly liquid auction environment with a large number
of potential buyers and a broad range of products available for purchase.
Our primary sources of revenue are monthly service and support fees and
transaction-related fees.
Today, over 90 businesses, including Outpost.com, CompUSA and
SportsLine.com, Inc., and several top Internet portal sites, including MSN.com,
Excite@Home and Lycos, are members of the FairMarket Network. Media Metrix
estimates that user traffic across the main web sites of our portal customers is
over 40 million unique users per month.
Our goal is to become the leading provider of outsourced, networked
e-commerce services. Key elements of our strategy include:
- expanding the reach and scope of the FairMarket Network;
- increasing traffic and transactions across the FairMarket Network;
- continuing to provide new service offerings;
- expanding into additional international markets; and
- leveraging our expertise to further penetrate the business-to-business
market.
We are a Delaware corporation formed in February 1997. Our executive
offices are located at 400 Unicorn Park Drive, Woburn, Massachusetts 01801 and
our telephone number is (781) 935-7090.
The names FairMarket, FairMarket Network, AuctionPlace and our logo are
names and service marks that belong to us. We have registrations for other names
and marks used in this prospectus. This prospectus also contains the trademarks
and trade names of other entities which are the property of their respective
owners.
1
<PAGE> 4
THE OFFERING
Shares offered by FairMarket....... shares(1)
Common stock to be outstanding
after this offering................ shares(1)
Estimated net proceeds to
FairMarket......................... $
Use of proceeds.................... For general corporate purposes, including
product and market development, capital
expenditures and potential acquisitions.
See "Use of Proceeds."
Proposed Nasdaq National Market
symbol........................... FAIM
Risk factors....................... See "Risk Factors" for a discussion of
factors you should carefully consider
before deciding to invest in shares of our
common stock.
- -------------------------
(1) The number of shares of our common stock that will be outstanding after this
offering is based on 5,119,500 shares of common stock and 16,312,885 shares
of convertible preferred stock (which will convert into a total of
16,312,885 shares of common stock at the closing of this offering)
outstanding as of November 30, 1999. It excludes:
- any shares of common stock to be issued upon exercise of the
overallotment option granted to the underwriters;
- 3,694,874 shares of common stock issuable upon exercise of employee stock
options outstanding as of November 30, 1999;
- 328,487 shares of common stock available for future grant under our
employee stock option plans as of November 30, 1999;
- 5,225,000 shares of common stock issuable upon exercise of warrants
outstanding as of November 30, 1999 that are currently exercisable; and
- 595,000 shares of common stock issuable upon exercise of a performance
warrant outstanding as of November 30, 1999 that is not currently
exercisable.
2
<PAGE> 5
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The tables below present summary financial data of FairMarket which should
be read together with our financial statements and related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" presented elsewhere in this prospectus.
The following table sets forth our statement of operations data for the
periods presented. The pro forma information in the following table gives
effect, as of September 30, 1999, to the issuance of 16,312,885 shares of common
stock upon the conversion of all of our outstanding preferred stock into common
stock immediately prior to the closing of this offering.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED SEPTEMBER
DECEMBER 31, 30,
----------------- ----------------
1997(1) 1998 1998 1999
------- ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $ 3 $ 4 $ 2 $ 891
Operating expenses:
Cost of revenue........................................... -- -- -- 422
Sales and marketing....................................... 279 683 546 3,144
Development and engineering............................... 94 314 196 1,265
General and administrative................................ 234 426 273 1,058
Equity related charges.................................... -- -- -- 1,037
------ ------- ------ -------
Total operating expenses................................ 607 1,423 1,015 6,926
------ ------- ------ -------
Loss from operations........................................ (604) (1,419) (1,013) (6,035)
Interest income, net........................................ 3 31 27 279
------ ------- ------ -------
Net loss.................................................... $ (601) $(1,388) $ (986) $(5,756)
====== ======= ====== =======
Basic and diluted net loss per share........................ $(0.15) $ (0.30) $(0.22) $ (1.16)
====== ======= ====== =======
Shares used in computing basic and diluted net loss per
share..................................................... 4,073 4,571 4,527 4,970
Unaudited pro forma basic and diluted net loss per share.... $ (0.21) $ (0.43)
======= =======
Shares used in computing pro forma basic and diluted net
loss per share............................................ 6,764 13,480
</TABLE>
- -------------------------
(1) Period from February 20, 1997 (date of inception) to December 31, 1997.
The following table sets forth a summary of our balance sheet at September 30,
1999:
- on an actual basis;
- on a pro forma basis giving effect to: (1) the issuance of 16,312,885
shares of common stock upon the conversion of all of our outstanding
preferred stock into common stock immediately prior to the closing of
this offering; (2) the expiration of a put option on 2,500,000 shares of
our Series D Convertible Preferred Stock (which will convert into
2,500,000 shares of common stock) upon the closing of this offering; and
(3) the receipt of $5.0 million from Excite, Inc. due upon the closing of
this offering. See Note 6 to the financial statements included elsewhere
in the prospectus; and
- on a pro forma as adjusted basis to reflect the preceding pro forma
adjustments and the sale of shares of common stock in this
offering, assuming an initial public offering price of $ per share
and after deducting underwriting discounts and commissions and our
estimated offering expenses of $ .
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $18,855 $23,855 $
Working capital............................................. 18,152 23,152
Total assets................................................ 22,046 27,046
Total stockholders' equity.................................. 2,992 25,492
</TABLE>
3
<PAGE> 6
RISK FACTORS
You should carefully consider the following risks and all other information
contained in this prospectus before purchasing our common stock. The risks and
uncertainties described below are not the only ones we face. Additional risks
and uncertainties not known to us or that we now believe to be unimportant could
also impair our business. If any of the following risks occur, our business,
results of operations or financial condition could be harmed. In that case, the
trading price of our common stock could decline, and you could lose all or part
of your investment. This prospectus also contains forward-looking statements
that involve risks and uncertainties, such as statements of our plans,
objectives, expectations and intentions. When used in this prospectus, the words
"may," "will," "should," "believes," "estimates," "predicts," "potential,"
"continue," "expects," "anticipates," "intends" and "plans" and similar
expressions are intended to identify certain of these forward-looking
statements. The cautionary statements made in this prospectus should be read as
being applicable to all related forward-looking statements wherever they appear
in this prospectus. Our actual results could differ materially from those
anticipated in the forward-looking statements as a result of specific factors,
including the risks described below and elsewhere in this prospectus.
RISKS RELATED TO OUR BUSINESS
WE HAVE ONLY BEEN IN BUSINESS FOR A SHORT TIME AND YOUR BASIS FOR EVALUATING US
IS LIMITED.
We were formed in February 1997 and have only been executing our current
business model since December 1998. Accordingly, there is only a limited basis
upon which you can evaluate our business and prospects. Because of our limited
operating history, you have limited operating and financial data about our
business upon which to base an evaluation of our performance and an investment
in our common stock. An investor in our common stock should consider the risks,
expenses and difficulties that we will face as a development stage company
seeking to develop a new Internet-based service. There can be no assurance that
we will be successful in accomplishing our objectives and our failure to do so
could have a material adverse effect on our business, results of operations and
financial condition.
WE EXPECT TO CONTINUE TO INCUR SUBSTANTIAL OPERATING LOSSES.
As of September 30, 1999, we had an accumulated deficit of approximately
$7.7 million. We have not achieved profitability and we will continue to incur
net losses until we can produce sufficient revenues to cover our costs, which
may not occur. Even if we do achieve profitability, we may be unable to sustain
or increase our profitability in the future because we intend to invest heavily
in the marketing and promotion of our service offerings and further development
of our service offerings, technology and operating infrastructure.
WE EXPECT TO CONTINUE TO HAVE NEGATIVE OPERATING CASH FLOW WHICH WILL REQUIRE
US TO SEEK ADDITIONAL FINANCING, WHICH COULD BE DIFFICULT TO OBTAIN.
We expect to continue to experience significant negative operating cash
flows for the foreseeable future because we intend to continue hiring personnel,
acquiring equipment and expanding our facilities in anticipation of receiving
revenues in future periods. We also plan to increase expenditures for our sales
and marketing efforts, development of technology, capital improvements and
improvement of our operational and financial systems. As a result, we may need
to raise additional capital in the future to meet our cash requirements. We may
not be able to find additional financing, if required, on favorable terms or at
all. Furthermore, if we raise additional funds through the issuance of equity,
equity-related or debt securities, these securities may have rights, preferences
or privileges senior to those of our common stock, and our stockholders may
experience additional dilution to their equity ownership.
4
<PAGE> 7
WE MAY NOT BE ABLE TO SUCCESSFULLY EXPAND THE FAIRMARKET NETWORK.
Our business model depends in large part on our continued ability to
increase the number of customers in the FairMarket Network. The primary benefits
of the network model to our customers are increased traffic to their web sites,
a higher number of bidders and increased revenue. The market for our services
may grow more slowly than anticipated or become saturated with competitors. If
we cannot continue to bring new customers to the FairMarket Network or maintain
our existing customer base, we may be unable to offer the benefits of the
network model at levels sufficient to attract and retain customers and sustain
our business.
THE RELATIONSHIPS WE FORM WITH OUR STRATEGIC PARTNERS MAY NOT BE SUCCESSFUL.
One way we seek to increase the amount of traffic and the number of
transactions across the FairMarket Network is by entering into selected
strategic partnerships. In order for these relationships to be successful, our
partners must drive sufficient numbers of users to their web sites, they must
devote sufficient resources to making their sites attractive to buyers and
sellers and there must be demand for the products being offered on those sites.
There can be no assurance that our partners will be successful in accomplishing
any of these objectives and the failure to do so could have a material adverse
effect on our business, financial condition and results of operations. There
also can be no assurance that we will be able to benefit from existing and
potential strategic relationships.
BUYERS AND SELLERS MIGHT NOT ADOPT ONLINE AUCTIONS OR OTHER ONLINE PRICING
SOLUTIONS AS A MEANS FOR BUYING AND SELLING GOODS AND SERVICES.
Online auctions and other pricing solutions are relatively new methods of
buying and selling that market participants may not adopt at levels sufficient
to sustain our business. Traditional purchasing is often based on long-standing
relationships or familiarity with sellers. For online auctions and other pricing
solutions to succeed, buyers and sellers must adopt new purchasing practices.
Buyers must be willing to rely less upon traditional relationships in making
purchasing decisions, and merchants and Internet communities must be willing to
offer products for sale through online auctions and other pricing solutions. We
cannot assure you that buyers, merchants or Internet communities will choose to
utilize dynamic pricing solutions at levels sufficient to sustain our business.
WE MAY HAVE DIFFICULTY MANAGING THE EXPANSION OF OUR OPERATIONS.
We are undergoing rapid growth in the number of our employees and the scope
of our operations and anticipate that further expansion will be required to
address potential growth in our customer base and market opportunities. Such
rapid expansion could place a significant strain on our senior management team
and operational and financial resources. To manage the expected growth of our
operations and personnel, we will need to improve existing and implement new
transaction processing, operational and financial systems, procedures and
controls, and to expand, train and manage our growing employee base. We also
will be required to expand our finance, administrative and operations staff.
Further, we may be required to enter into additional relationships with various
service providers and other third parties necessary to our business. There can
be no assurance that our current and planned systems, procedures and controls
will be adequate to support our future operations, that management will be able
to hire, train, retain, motivate and manage required personnel or that
management will be able to identify, manage and benefit from existing and
potential strategic relationships and market opportunities. Difficulties in
effectively managing the budgeting, forecasting and other process control issues
presented by such a rapid expansion could have a material adverse effect on our
business, results of operations and financial condition. If we are unable to
undertake new business due to a shortage of staff or technology resources, our
growth will be
5
<PAGE> 8
impeded. Therefore, there may be times when our opportunities for revenue growth
may be limited by the capacity of our internal resources rather than by the
absence of market demand.
THE LOSS OF OUR CHIEF EXECUTIVE OFFICER WOULD SIGNIFICANTLY DISRUPT OUR
BUSINESS.
We rely on the leadership and vision of our President, Chief Executive
Officer and founder, Scott T. Randall, who created FairMarket and has been
instrumental in the management and growth of our business. The loss of Mr.
Randall could significantly disrupt our growth, result in lost revenues or
otherwise materially adversely affect our business.
OUR SYSTEMS INFRASTRUCTURE MAY NOT KEEP PACE WITH THE DEMANDS OF OUR CUSTOMERS.
We intend to generate a high volume of traffic and transactions on the
FairMarket Network. Interruptions of service may diminish the attractiveness of
our services and our ability to attract and retain customers. We have
experienced periodic minor system interruptions, which we believe will continue
to occur from time to time. There can be no assurance that we will be able to
accurately project the rate or timing of increases, if any, in the use of our
service, or that we will be able to expand and upgrade our systems and
infrastructure to accommodate such increases in a timely manner. Any failure to
expand or upgrade our systems could have a material adverse effect on our
results of operations and financial condition. Any such failure could also have
a material adverse effect on the business of our customers, which could damage
our reputation and expose us to a risk of loss or litigation and potential
liability, which could have a material adverse effect on our business, results
of operations and financial condition.
BECAUSE OUR INDUSTRY IS HIGHLY COMPETITIVE AND HAS LOW BARRIERS TO ENTRY, WE MAY
NOT BE ABLE TO EFFECTIVELY COMPETE.
The U.S. market for e-commerce solutions is extremely competitive. We
expect competition to intensify as current competitors expand their product
offerings and new competitors enter the market. We cannot assure you that we
will be able to compete successfully against current or future competitors, or
that competitive pressures we face will not harm our business, operating results
or financial condition. Furthermore, e-commerce markets are characterized by
rapidly changing technologies and frequent new product and service
introductions. We may fail to introduce new online auction or other dynamic
pricing technologies on a timely basis or at all. If we fail to introduce new
technologies or to improve our existing technology in response to industry
developments, we could lose customers, which could lead to a loss of revenues.
In addition to facing competition from internally-developed solutions by
individual organizations, we face competition from a number of third party
providers in several areas, including:
- Hosted auction services: bid.com, DealDeal.com and OpenSite;
- Software and application service providers: Auction Broker, Moai
Technologies, TradingDynamics and Open Site;
- Destination auction sites: eBay, Yahoo! Auctions and Amazon.com; and
- Companies with specific dynamic pricing mechanisms: OutletZoo, Accompany
and FreeMarkets, Inc.
Because there are relatively low barriers to entry in the e-commerce
market, competition from other established and emerging companies may develop in
the future. In addition, our customers and partners may become competitors in
the future. Certain of our competitors may be able to negotiate alliances with
strategic partners on more favorable terms than we are able to negotiate. Many
of our competitors may also have well-established relationships with our
6
<PAGE> 9
existing and prospective customers. Increased competition is likely to result in
fee reductions, reduced margins, longer sales cycles for our services and a
decrease or loss of our market share, any of which could harm our business,
operating results or financial condition.
Many of our competitors have, and new potential competitors may have, more
experience developing Internet-based software and integrated purchasing
solutions, larger technical staffs, larger customer bases, more established
distribution channels, greater brand recognition and greater financial,
marketing and other resources than we have. In addition, competitors may be able
to develop products and services that are superior to our services and
solutions, that achieve greater customer acceptance or that have significantly
improved functionality as compared to our existing and future services and
solutions. We cannot assure you that the e-commerce solutions offered by our
competitors now or in the future will not be perceived by merchants, Internet
communities, buyers and sellers as superior to ours. If they are, it could have
an adverse effect on our business, financial condition and results of
operations.
WE MAY NOT BE ABLE TO SUCCESSFULLY EXPAND INTO INTERNATIONAL MARKETS.
A component of our strategy is to expand internationally. Expansion into
international markets will require management attention and resources. We have
limited experience in localizing our services, and some of our competitors are
also undertaking expansion into foreign markets. There can be no assurance that
we will be successful in expanding into international markets. In addition to
the uncertainty regarding our ability to generate revenues from foreign
operations and expand our international presence, there are certain risks
inherent in doing business internationally, including, among others, regulatory
requirements, legal uncertainty regarding liability, ownership and protection of
intellectual property, tariffs and other trade barriers, difficulties in
staffing and managing foreign operations, longer payment cycles, different
accounting practices, problems in collecting accounts receivable, political
instability, seasonal reductions in business activity and potentially adverse
tax consequences, any of which could adversely affect the success of our
international operations. To the extent we expand our international operations
and have increasing portions of our international revenues denominated in
foreign currencies, we could become subject to increased risks relating to
foreign currency exchange rate fluctuations. There can be no assurance that one
or more of the factors discussed above will not have a material adverse effect
on our future international operations and, consequently, on our business,
results of operations and financial condition.
WE MAY HAVE TO MAKE MINIMUM PAYMENTS TO SOME OF OUR CUSTOMERS UNDER OUR SERVICE
CONTRACTS.
Our agreements with Microsoft Corporation and Excite, Inc. provide that if
these companies drive more than a specified level of Internet traffic to the
FairMarket Network through their Internet portal sites, we will guarantee them a
minimum level of transaction revenue regardless of actual transaction fee
revenue earned by the companies. Our agreements currently provide for aggregate
annual minimum guaranteed revenue starting at approximately $5.8 million in 2000
and increasing to approximately $28.4 million in 2004. If transaction-based fees
paid to these companies under our agreements are less than the minimum
guaranteed revenue, the additional payments we will have to make to satisfy the
minimum requirements could have a material adverse effect on our business,
financial condition and results of operations.
OUR BUSINESS MAY SUFFER IF WE ARE NOT ABLE TO PROTECT IMPORTANT INTELLECTUAL
PROPERTY.
Our ability to compete effectively against other companies in our industry
will depend, in part, on our ability to protect our proprietary technology and
systems designs. While we have attempted to safeguard and maintain our
proprietary rights, we do not know whether we have
7
<PAGE> 10
been or will be completely successful in doing so. Further, our competitors may
independently develop or patent technologies that are substantially equivalent
or superior to ours.
We have applied for patents on aspects of our technology and processes, but
we do not know whether any patents will be issued. In addition, even if some or
all of these patents are issued, we cannot assure you that they will not be
successfully challenged by others or invalidated, that they will adequately
protect our technology and processes or that they will result in commercial
advantages for us. We have also applied for trademark registrations for some of
our brand names and our marketing materials are copyrighted, but these
protections may not be adequate. In addition, effective patent, trademark,
service mark, copyright and trade secret protection may not be available in
every country where we provide online auction services. We may, at times, have
to incur significant legal costs and spend time defending our copyrights and, if
issued, our service marks and patents. Any defense efforts, whether successful
or not, would divert both time and resources from the operation and growth of
our business.
There is also significant uncertainty regarding the applicability to the
Internet of existing laws regarding matters such as property ownership,
copyrights and other intellectual property rights. Legislatures adopted the vast
majority of these laws prior to the advent of the Internet and, as a result,
these laws do not contemplate or address the unique issues of the Internet and
related technologies. Legislatures are also actively considering proposed new
laws that regulate or otherwise apply to Internet-related activities. We cannot
be sure what laws and regulations may ultimately affect our business or
intellectual property rights.
We rely, in part, on contractual provisions to protect our trade secrets
and proprietary knowledge. These agreements may be breached, and we may not have
adequate remedies for any breach. Our trade secrets may also be known without
breach of such agreements or may be independently developed by competitors. Our
inability to maintain the proprietary nature of our technology could harm our
business, results of operations and financial condition.
OTHERS MAY ASSERT THAT OUR TECHNOLOGY INFRINGES THEIR INTELLECTUAL PROPERTY
RIGHTS.
We believe that we do not infringe the proprietary rights of others, and to
date, no third parties have asserted an infringement claim against us, but we
may be subject to infringement claims in the future. The defense of any claims
of infringement made against us by third parties could involve significant legal
costs and require our management to divert time from our business operations.
Either of these consequences of an infringement claim could have a material
adverse effect on our operating results. If we are unsuccessful in defending any
claims of infringement, we may be forced to obtain licenses or to pay royalties
to continue to use our technology. We may not be able to obtain any necessary
licenses on commercially reasonable terms or at all. If we fail to obtain
necessary licenses or other rights, or if these licenses are costly, our
operating results may suffer either from reductions in revenues through our
inability to serve customers or from increases in costs to license third-party
technology.
OUR SERVICE OFFERING DEPENDS UPON THE CONTINUED AVAILABILITY OF LICENSED
TECHNOLOGY FROM THIRD PARTIES.
We license and will continue to license certain technology integral to our
services and systems from third parties, including Microsoft and Intel. Our
inability to acquire any third-party product licenses, or integrate the related
third-party technologies into our services and systems, could result in delays
in our services and systems developments and enhancements until equivalent
technologies can be identified, licensed and integrated. We also expect to
require new licenses in the future as our business grows and technology evolves.
We cannot assure you that these licenses will be available to us on commercially
reasonable terms, if at all.
8
<PAGE> 11
A SYSTEM FAILURE COULD CAUSE DELAYS OR INTERRUPTIONS OF SERVICE TO OUR
CUSTOMERS.
Service offerings involving complex technology often contain errors or
performance problems. Many serious defects are frequently found during the
period immediately following introduction and initial implementation of new
services or enhancements to existing services. Although we attempt to resolve
all errors that we believe would be considered serious by our customers before
implementation, our solutions are not error-free. Errors or performance problems
could result in lost revenues or cancellation of customer agreements and would
be detrimental to our business and reputation and may expose us to litigation
and potential liability. In the past, we have discovered errors in software
underlying the FairMarket Network after its incorporation into the FairMarket
Network. We cannot assure you that undetected errors or performance problems in
our existing or future services will not be discovered or that known errors
considered minor by us will not be considered serious by our customers. Some of
our contracts are subject to termination by the customer if we are unable to
maintain specified levels of service and, in some cases, provide for money
damages to the customer based upon network downtime. Additionally, reduced
market acceptance of our services due to errors or defects in our technology
would harm our business by damaging our reputation and reducing our revenues.
THE FUNCTIONING OF OUR SYSTEMS OR THE SYSTEMS OF THIRD PARTIES ON WHICH WE RELY
COULD BE DISRUPTED BY FACTORS OUTSIDE OUR CONTROL.
Our success depends on the efficient and uninterrupted operation of our
computer and communications hardware systems. Substantially all of our computer
hardware for operating our service is currently located at the facilities of
NaviSite, Inc. in Andover, Massachusetts. These systems are vulnerable to damage
or interruption from natural disasters, fires, power loss, telecommunication
failures, break-ins, sabotage, computer viruses, intentional acts of vandalism
and similar events. We do not currently have a backup system in place. Despite
any precautions we take or plan to take, the occurrence of a natural disaster or
other unanticipated problems at the NaviSite facility could result in
interruptions in our services. In addition, if NaviSite fails to provide the
data communications capacity we require, as a result of human error, natural
disaster or other operational disruption, interruptions in our service could
result. Any damage to or failure of our systems could result in reductions in,
or terminations of, our service, which could have a material adverse effect on
our business, results of operations and financial condition.
OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO ATTRACT OR RETAIN KEY PERSONNEL.
Based on our planned expansion, we will require a significant increase in
the number of our employees and outside contractors. Our future success,
therefore, will depend, in part, on attracting and retaining additional
qualified management, marketing and technical personnel. We do not know whether
we will be successful in hiring or retaining qualified personnel. The industry
in which we compete has a high level of employee mobility and aggressive
recruiting of skilled personnel. In particular, we face intense competition for
qualified personnel in the areas of software development, network engineering
and product management. Our inability to hire qualified personnel on a timely
basis, or the departure of key employees, could harm our development plans.
WE MAY HAVE TO MONITOR OR CONTROL ACTIVITIES ON THE FAIRMARKET NETWORK.
The law relating to the liability of providers of online services for the
activities of users of their services is currently unsettled. While our service
automatically screens by key word all listings submitted by end-users for
certain types of goods this screening is not foolproof and certain goods that
may be subject to regulation by local, state or federal authorities may be sold
through our service. There can be no assurance that we will be able to prevent
the unlawful exchange of goods on our service or that we will successfully avoid
civil or criminal liability for
9
<PAGE> 12
unlawful activities carried out by users through our service. The potential
imposition of liability for unlawful activities of end-users of our customers
could require us to implement measures to reduce our exposure to such liability,
which may require us, among other things, to spend substantial resources and/or
to discontinue certain service offerings. Any costs incurred as a result of such
liability or asserted liability could have a material adverse effect on our
business, results of operations and financial condition.
FUTURE GOVERNMENT REGULATION OF THE INTERNET AND ONLINE AUCTIONS MAY ADD TO OUR
OPERATING COSTS.
Like many Internet-based businesses, we operate in an environment of
tremendous uncertainty as to potential government regulation. We believe that we
are not currently subject to direct regulation of online commerce, other than
regulations applicable to businesses generally. However, the Internet has
rapidly emerged as a commerce medium, and governmental agencies have not yet
been able to adapt all existing regulations to the Internet environment. Laws
and regulations have been introduced or are under consideration and court
decisions have been or may be reached that affect the Internet or other online
services, covering issues such as pricing, user privacy, freedom of expression,
access charges, content and quality of products and services, advertising,
intellectual property rights and information security. In the area of user
privacy, the recently adopted EU Privacy Directive may affect our ability to
expand into Europe if we or our customers do not afford adequate privacy to end-
users. In addition, the worldwide availability of Internet web sites often
results in sales of goods to buyers outside the U.S., and foreign jurisdictions
may claim that we are required to comply with their laws. Any future regulation
may have a negative impact on our business by restricting our methods of
operation or imposing additional costs.
Numerous jurisdictions have laws and regulations regarding the conduct of
auctions and the liability of auctioneers. We believe that these laws and
regulations, which were enacted for consumer protection many years ago, do not
apply to our online auction services. However, one or more jurisdictions are
attempting or may attempt to impose these laws and regulations on our operations
or the operations of our customers in the future.
As an Internet company, it is unclear in which jurisdictions we are
actually conducting business. Our failure to qualify to do business in a
jurisdiction that requires us to do so could subject us to fines or penalties
and could result in our inability to enforce contracts in that jurisdiction.
WE MAY ACQUIRE OTHER BUSINESSES OR TECHNOLOGIES WHICH COULD RESULT IN DILUTION
TO OUR STOCKHOLDERS, OR OPERATIONAL OR INTEGRATION DIFFICULTIES WHICH COULD
IMPAIR OUR FINANCIAL PERFORMANCE.
If appropriate opportunities present themselves, we may acquire businesses,
technologies, services or products that we believe are strategic. We do not
currently have any commitments or agreements with respect to any acquisition. We
may not be able to identify, negotiate or finance any future acquisition
successfully. Even if we do succeed in acquiring a business, technology, service
or product, the process of integration may produce unforeseen operating
difficulties and expenditures and may require significant attention from our
management that would otherwise be available for the ongoing development of our
business. Moreover, we have not made any acquisitions, have no experience in
integrating an acquisition into our business and may never achieve any of the
benefits that we might anticipate from a future acquisition. If we make future
acquisitions, we may issue shares of stock that dilute other stockholders, incur
debt, assume contingent liabilities or create additional expenses related to
amortizing goodwill and other intangible assets, any of which might harm our
financial results and cause our stock price to decline. Any financing that we
might need for future acquisitions may only be available to us on terms that
restrict our business or that impose on us costs that reduce our revenue.
10
<PAGE> 13
RISKS RELATED TO OUR INDUSTRY
OUR SUCCESS DEPENDS ON THE CONTINUED GROWTH OF THE INTERNET AND ONLINE COMMERCE.
Our future revenues and profits depend upon the widespread acceptance and
use of the Internet and other online services as a medium for commerce by
merchants and consumers. The use of the Internet and e-commerce may not continue
to develop at past rates and a sufficiently broad base of business and
individual customers may not adopt or continue to use the Internet as a medium
of commerce. The market for the sale of goods and services over the Internet is
a new and emerging market. Demand and market acceptance for recently introduced
services and products over the Internet are subject to a high level of
uncertainty, and there exist few proven services and products. Growth in our
customer base depends on obtaining merchants and consumers who have historically
used traditional means of commerce to purchase goods. For us to be successful,
these market participants must accept and use novel ways of conducting business
and exchanging information.
E-commerce may not prove to be a viable medium for purchasing for the
following reasons, any of which could seriously harm our business:
- the necessary infrastructure for Internet communications may not develop
adequately;
- our potential customers, buyers and suppliers may have security and
confidentiality concerns;
- complementary products, such as high-speed modems and high-speed
communication lines, may not be developed;
- alternative purchasing solutions may be implemented;
- buyers may dislike the reduction in the human contact inherent in
traditional purchasing methods;
- use of the Internet and other online services may not continue to
increase or may increase more slowly than expected;
- the development or adoption of new technology standards and protocols may
be delayed or may not occur; and
- new and burdensome governmental regulations may be imposed.
OUR SUCCESS DEPENDS ON THE CONTINUED RELIABILITY OF THE INTERNET.
The Internet continues to experience significant growth in the number of
users, frequency of use and bandwidth requirements. There can be no assurance
that the infrastructure of the Internet and other online services will be able
to support the demands placed upon them. Furthermore, the Internet has
experienced a variety of outages and other delays as a result of damage to
portions of its infrastructure, and could face such outages and delays in the
future, including outages and delays resulting from the inability of certain
computers or software to distinguish dates in the 21st century from dates in the
20th century. These outages and delays could adversely affect the level of
Internet usage and also the level of traffic and the processing of transactions.
In addition, the Internet or other online services could lose their viability
due to delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet or other online service
activity, or due to increased governmental regulation. Changes in or
insufficient availability of telecommunications services or other Internet
service providers to support the Internet or other online services also could
result in slower response times and adversely affect usage of the Internet and
other online services generally and our service in particular. If use of the
Internet and other online services does not continue to grow or grows more
slowly than expected, if the infrastructure of the Internet and other online
services does not effectively support growth that may occur, or if the Internet
and other online
11
<PAGE> 14
services do not become a viable commercial marketplace, our business, results of
operations and financial condition will be materially adversely affected.
NEW TAXES MAY BE IMPOSED ON INTERNET COMMERCE.
We do not collect sales or other similar taxes on goods sold by customers
and end-users through the FairMarket Network. However, one or more states may
seek to impose sales tax collection obligations on out-of-state companies which
engage in or facilitate online commerce, and a number of proposals have been
made at the state and local level that would impose additional taxes on the sale
of goods and services through the Internet. Such proposals, if adopted, could
substantially impair the growth of electronic commerce, and could adversely
affect our opportunity to derive financial benefit from such activities.
Moreover, a successful assertion by one or more states or any foreign country
that we should collect sales or other taxes on the exchange of merchandise or
that we or our customers should collect Internet-based taxes could have a
material adverse effect on our business, results of operations and financial
condition.
THERE MAY BE SIGNIFICANT SECURITY RISKS AND PRIVACY CONCERNS RELATING TO ONLINE
COMMERCE.
A significant barrier to online commerce and communications is the secure
transmission of confidential information over public networks. A compromise or
breach of the technology used to protect our customers' and their end-users'
transaction data could result from, among other things, advances in computer
capabilities, new discoveries in the field of cryptography, or other events or
developments. Any such compromise could have a material adverse effect on our
reputation and, therefore, on our business, results of operations and financial
condition. Furthermore, a party who is able to circumvent our security measures
could misappropriate proprietary information or cause interruptions in our
operations. We may be required to expend significant capital and other resources
to protect against such security breaches or to alleviate problems caused by
such breaches. Concerns over the security of transactions conducted on the
Internet and other online services and the privacy of users may also inhibit the
growth of the Internet and other online services generally, especially as a
means of conducting commercial transactions. We currently have practices and
procedures in place to protect the confidentiality of our customers' and their
end-users' information. However, our security procedures to protect against the
risk of inadvertent disclosure or intentional breaches of security might fail to
adequately protect information that we are obligated to keep confidential. We
may not be successful in adopting more effective systems for maintaining
confidential information, so our exposure to the risk of disclosure of the
confidential information of others may grow with increases in the amount of
information we possess. To the extent that our activities involve the storage
and transmission of proprietary information, such as credit card numbers,
security breaches could damage our reputation and expose us to a risk of loss or
litigation and possible liability. Our insurance policies may not be adequate to
reimburse us for losses caused by security breaches. There can be no assurance
that our security measures will prevent security breaches or that failure to
prevent such security breaches will not have a material adverse effect on our
business, results of operations and financial condition.
WE COULD BE SUBJECT TO POTENTIAL PRODUCT LIABILITY CLAIMS AND THIRD PARTY
LIABILITY CLAIMS RELATED TO PRODUCTS AND SERVICES PURCHASED THROUGH OUR
CUSTOMERS' AUCTION SITES.
Our customers use our services to manage their operating resources and any
errors, defects or other performance problems in our services and systems could
result in financial or other damages to our customers. Although our agreements
with our customers typically contain provisions designed to limit our exposure
to product liability claims, existing or future laws or unfavorable judicial
decisions could negate these limitation of liability provisions.
12
<PAGE> 15
Our service automatically screens by keyword all listings submitted by
end-users for certain types of goods. This screening is not foolproof and some
of these products and services could contain performance or other problems. We
may not be able to successfully avoid civil or criminal liability for problems
related to the products and services sold through the FairMarket Network. Even
if we are successful, any such claims or litigation could still require
expenditure of management time and other resources to defend ourselves.
Liability of this sort could require us to implement measures to reduce our
exposure to this liability, which may require us, among other things, to expend
substantial resources or to discontinue certain service offerings or to take
precautions to ensure that certain products and services are not available
through the FairMarket Network.
In addition, deliveries of products purchased through the FairMarket
Network that are nonconforming, late or are not accompanied by information
required by applicable law or regulations, could expose us to liability or
result in decreased adoption and use of our Internet-based purchasing solutions,
which could have a negative effect on our business, results of operations and
financial condition.
RISKS RELATED TO THIS OFFERING OF OUR COMMON STOCK
THERE HAS BEEN NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK.
Before this offering, there has been no public market for our common stock.
Although we expect our common stock to be quoted on the Nasdaq National Market,
an active trading market for our shares may not develop or be sustained
following this offering. Purchasers in this offering may not be able to resell
their shares at prices equal to or greater than the initial public offering
price. The initial public offering price will be determined through negotiations
between us and the underwriters and may not be indicative of the market price
for these shares following this offering. You should read "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price.
OUR EXISTING STOCKHOLDERS WILL CONTROL ALL MATTERS REQUIRING A STOCKHOLDER VOTE.
Upon the closing of this offering, our management and principal
stockholders will control approximately % of our outstanding stock. If all
of these stockholders were to vote together as a group, they would have the
ability to exert significant influence over our Board of Directors and its
policies. For instance, these stockholders will be able to control the outcome
of all stockholder votes, including votes concerning director elections, by-law
amendments and possible mergers, corporate control contests and other
significant corporate transactions. See "Principal Stockholders." Accordingly,
such concentration of ownership may have the effect of delaying, deferring or
preventing a change in control, impeding a merger, consolidation, takeover or
other business combination involving FairMarket or discouraging a potential
acquirer from making a tender offer or otherwise attempting to obtain control of
FairMarket, which in turn could have an adverse effect on the market price of
our common stock. See "Principal Stockholders."
PROVISIONS OF DELAWARE LAW AND OF OUR CHARTER AND BY-LAWS MAY MAKE A TAKEOVER
MORE DIFFICULT.
Provisions in our certificate of incorporation and by-laws and in the
Delaware corporate law may make it difficult and expensive for a third party to
pursue a tender offer, change in control or takeover attempt which is opposed by
our management and Board of Directors. Public stockholders who might desire to
participate in such a transaction may not have an opportunity
13
<PAGE> 16
to do so. In addition, prior to the closing of this offering, we will have a
staggered Board of Directors, which will make it difficult for stockholders to
change the composition of the Board of Directors in any one year. These
anti-takeover provisions could substantially impede the ability of public
stockholders to change our management and Board of Directors, which may reduce
the market price of our common stock.
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION.
The initial public offering price per share will be substantially higher
than the net tangible book value per share immediately after the offering. If
you purchase common stock in this offering, you will incur immediate and
substantial dilution in the net tangible book value per share of the common
stock from the price you paid. We also have a large number of outstanding
warrants and employee stock options to purchase our common stock with exercise
prices significantly below the initial public offering price of the common
stock. To the extent these warrants or options are exercised, there will be
further dilution. See "Dilution" and "Principal Stockholders."
OUR STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE.
The stock market has, from time to time, experienced extreme price and
volume fluctuations. Many factors may cause the market price for our common
stock to decline, perhaps substantially, following this offering, including:
- failure to meet our development milestones;
- the demand for our common stock;
- revenues and operating results failing to meet the expectations of
securities analysts or investors in any quarter;
- downward revisions in securities analysts' estimates or changes in
general market conditions;
- technological innovations by competitors or in competing technologies;
- investor perception of our industry or our prospects; and
- general technology or economic trends.
In the past, companies that have experienced volatility in the market price
of their stock have been the subject of securities class action litigation. We
may be involved in securities class action litigation in the future. Such
litigation often results in substantial costs and a diversion of management's
attention and resources and could have a material adverse effect on our
business, financial condition and results of operations.
FUTURE SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT OUR STOCK PRICE.
Sales of substantial amounts of our common stock in the public market
following this offering, or the perception that a large number of shares are
available for sale, could cause the market price of our common stock to decline.
After this offering, shares owned by our current stockholders and holders of
options and warrants to acquire our common stock, on a fully diluted basis
assuming exercise of all options and warrants, including those held by our
executive officers and directors, are expected to constitute approximately %
of the outstanding shares of our common stock, or % if the underwriters'
over-allotment option is exercised in full. Following the expiration of a
180-day "lock-up" period to which substantially all of the shares held by our
current stockholders will be subject, the holders of those shares will in
general be entitled to dispose of those shares. Moreover, Deutsche Bank
Securities, Inc. may, in its sole discretion and at any time without notice,
release those holders from the sale
14
<PAGE> 17
restrictions on their shares. In addition to the adverse effect a price decline
could have on holders of our common stock, such a decline would likely impede
our ability to raise capital through the issuance of additional shares of our
common stock or other equity securities.
After this offering, the holders of approximately shares of our
common stock (including shares issuable upon the exercise of outstanding
warrants) will have rights, subject to some conditions, to require us to file
registration statements covering their shares, or to include their shares in
registration statements that we may file for FairMarket or other stockholders.
By exercising their registration rights and selling a large number of shares,
these holders could cause the price or our common stock to decline. Furthermore,
if we were to include in a FairMarket-initiated registration statement shares
held by those holders pursuant to the exercise of their registration rights,
those sales could impair our ability to raise needed capital by depressing the
price at which we could sell our common stock.
WE MAY SUFFER SERVICE INTERRUPTIONS OR TECHNICAL FAILURES DUE TO THE YEAR 2000
COMPUTER PROBLEM ON OUR OWN SYSTEMS OR SYSTEMS OF THIRD PARTIES.
The failure of our internal systems to be year 2000 compliant could
temporarily prevent us from providing service to our customers, issuing invoices
and developing new services and service enhancements, and could require us to
devote significant resources to correct such problems. Due to the general
uncertainty inherent in the year 2000 computer problem, which results from the
uncertainty of the year 2000 readiness of third-party suppliers and vendors, we
are unable to determine at this time whether the consequences of year 2000
failures will have a material impact on our business, results of operations or
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
WE WILL HAVE BROAD DISCRETION AS TO THE USE OF THE PROCEEDS FROM THIS OFFERING.
Our Board of Directors and our management will have broad discretion over
the use of the net proceeds of this offering. Investors will be relying on the
judgment of our Board of Directors and our management regarding the application
of the proceeds of this offering. See "Use of Proceeds."
WE DO NOT INTEND TO PAY DIVIDENDS.
We have never declared or paid any cash dividends on shares of our common
stock. We currently intend to retain our earnings, if any, for future growth
and, therefore, do not anticipate paying any dividends in the foreseeable
future.
FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" and elsewhere in this prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different than any expressed or implied by these forward-looking statements. In
some cases, you can identify forward-looking statements by terminology such as
"may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," "continue" or the negative of these terms
or other comparable terminology. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements. We are under no
duty to update
15
<PAGE> 18
any of the forward-looking statements after the date of this prospectus to
conform these statements to actual results.
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of our common stock
in this offering will be approximately $ million, at an assumed initial
offering price of $ per share and after deducting the estimated underwriting
discounts and commissions and our estimated offering expenses. We anticipate
that we will use the net proceeds for general corporate purposes, including
working capital, funds for operations, capital expenditures and potential
acquisitions. Until allocated for specific use, we will invest these proceeds in
government securities and other short-term, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any dividends on our common stock. We
currently intend to retain our future earnings, if any, to finance the expansion
of our business and do not expect to pay any dividends in the foreseeable
future. Payment of future cash dividends, if any, will be at the discretion of
our Board of Directors after taking into account various factors, including our
financial condition, operating results, current and anticipated cash needs and
plans for expansion, and restrictions imposed by lenders, if any.
16
<PAGE> 19
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999:
- on an actual basis;
- on a pro forma basis giving effect to: (1) the issuance, as of September
30, 1999, of 16,312,885 shares of common stock in connection with the
conversion of all our outstanding preferred stock into common stock; (2)
the expiration of a put option on 2,500,000 shares of our Series D
Convertible Preferred Stock, which convert into 2,500,000 shares of
common stock, upon the closing of this offering; and (3) the receipt of
$5.0 million of stock subscriptions receivable from Excite, Inc. due upon
the closing of this offering; and
- on a pro forma as adjusted basis to reflect the preceding pro forma
adjustments and the sale of shares of common stock in this
offering at an assumed initial public offering price of $ per share,
after deduction of estimated underwriting discounts and commissions and
our estimated offering expenses and the use of the net proceeds as
described in "Use of Proceeds."
The table excludes 9,046,062 shares of common stock issuable upon exercise
of warrants and employee stock options outstanding at September 30, 1999 at a
weighted average exercise price of $1.14 per share.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ---------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Series D Convertible Preferred Stock $0.001 par value,
10,000,000 shares authorized, 2,500,000 shares issued and
outstanding, subject to a put option at $7.00 per share,
actual; none issued and outstanding on a pro forma and pro
forma as adjusted basis................................... $ 17,500 $ -- $--
Stockholders' equity (deficit)
Series A Convertible Preferred Stock, $0.001 par value;
754,603 shares authorized, 754,603 shares issued and
outstanding, actual; none issued and outstanding on a
pro forma and pro forma as adjusted basis.............. 498 -- --
Series B Convertible Preferred Stock, $0.001 par value;
1,890,000 shares authorized, 1,890,000 issued and
outstanding, actual; none issued and outstanding on a
pro forma and pro forma as adjusted basis.............. 2,083 -- --
Series C Convertible Preferred Stock, $0.001 par value;
6,168,282 shares authorized, 6,168,282 issued and
outstanding, actual; none issued and outstanding on a
pro forma and pro forma as adjusted basis.............. 10,527 -- --
Series D Convertible Preferred Stock, $0.001 par value;
10,000,000 shares authorized, 5,000,000 issued and
outstanding, actual; none issued and outstanding on a
pro forma and pro forma as adjusted basis.............. 34,970 -- --
Common Stock, $0.001 par value; 36,000,000 shares
authorized, 5,049,992 shares issued and outstanding,
actual; 21,362,877 and shares issued and
outstanding on a pro forma and pro forma as adjusted
basis.................................................. 5 21
Additional paid-in capital................................ 33,745 99,307
Deferred compensation and equity related charges.......... (53,590) (53,590)
Stock subscription receivable............................. (17,500) (12,500)
Accumulated deficit....................................... (7,746) (7,746)
-------- --------
Total stockholders' equity............................. 2,992 25,492
-------- -------- --
Total capitalization.............................. $ 20,492 $ 25,492 $--
======== ======== ==
</TABLE>
17
<PAGE> 20
DILUTION
As of September 30, 1999, we had a pro forma net tangible book value of
$25,492,251, or $1.19 per share of common stock. Pro forma net tangible book
value per share is equal to our total tangible assets less total liabilities,
divided by the pro forma number of shares of our outstanding common stock. After
giving effect to the issuance of shares of common stock offered hereby
at an assumed initial public offering price of $ per share, and after
deducting the estimated underwriting discounts and commissions and our estimated
offering expenses, our pro forma net tangible book value as adjusted, as of
September 30, 1999, would have been approximately $ , or approximately
$ per pro forma share of common stock. This represents an immediate increase
in pro forma net tangible book value of $ per share to our existing
stockholders and an immediate dilution of $ per share to new investors in
this offering. If the initial public offering price is higher or lower than
$ per share, the dilution to new stockholders will be higher or lower,
respectively. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share before this
offering.................................................... $
Increase per share attributable to new investors.......... $
-----
Pro forma net tangible book value per share after this
offering.................................................. $
------
Dilution per share to new investors......................... $
======
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1999, the difference between existing stockholders and the new investors with
respect to the number of shares of common stock purchased, the total
consideration paid and the average price per share paid. The table assumes that
the initial public offering price will be $ . If the underwriters'
over-allotment option is exercised in full, the number of shares held by
existing stockholders will decrease to , or % of the total number of
shares of common stock outstanding after the offering, and will increase the
number of shares held by new investors to , or % of the
total number of shares of common stock outstanding after the offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... % $ % $
New investors...........
---------- ----- ------------ ----- ------
Total................. 100.0% $ 100.0% $
========== ===== ============ ===== ======
</TABLE>
The discussion and table exclude:
- shares that may be issued by us upon exercise of the underwriters'
over-allotment option;
- 9,046,062 shares of common stock subject to outstanding warrants and
employee stock options at September 30, 1999 at a weighted average
exercise price of $1.14 per share; and
- an aggregate of 857,987 shares available for future grant under our stock
option plans.
To the extent the warrants and options are exercised and the underlying
shares are issued, there will be further dilution to new investors. See "Risk
Factors" and the notes to our financial statements included elsewhere in this
prospectus.
18
<PAGE> 21
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
our financial statements and related notes and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and other financial
data included elsewhere in this prospectus.
The following tables present selected financial data for the period from
February 20, 1997 (date of inception) through December 31, 1997, the year ended
December 31, 1998 and the nine-month periods ended September 30, 1998 and 1999.
The statement of operations data for the period from inception through December
31, 1997 and for the year ended December 31, 1998 and the balance sheet data as
of December 31, 1997 and 1998 have been derived from our audited financial
statements included elsewhere in this prospectus. The statement of operations
data for the nine months ended September 30, 1998 and 1999 and the balance sheet
data as of September 30, 1999 are derived from our unaudited financial
statements which, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of our results of operations and financial position for those
periods. The data for the nine-month period ended September 30, 1999 are not
necessarily indicative of results for the year ending December 31, 1999 or any
future period.
Unaudited pro forma basic and diluted net loss per share have been
calculated assuming the conversion of all outstanding shares of preferred stock
into common stock as if such shares had converted immediately upon issuance.
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------- -----------------
1997(1) 1998 1998 1999
---------- ------- ------ -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................... $ 3 $ 4 $ 2 $ 891
Operating expenses
Cost of revenue......................... -- -- -- 422
Sales and marketing..................... 279 683 546 3,144
Development and engineering............. 94 314 196 1,265
General and administrative.............. 234 426 273 1,058
Equity related charges.................. -- -- -- 1,037
---------- ------- ------ -------
Total operating expenses............. 607 1,423 1,015 6,926
---------- ------- ------ -------
Loss from operations...................... (604) (1,419) (1,013) (6,035)
Interest income, net...................... 3 31 27 279
---------- ------- ------ -------
Net loss.................................. $ (601) $(1,388) $ (986) $(5,756)
========== ======= ====== =======
Basic and diluted net loss per share...... $ (0.15) $ (0.30) $(0.22) $ (1.16)
========== ======= ====== =======
Shares used in computing basic and diluted
net loss per share...................... 4,073 4,571 4,527 4,970
Unaudited pro forma basic and diluted net
loss per share.......................... ($ 0.21) $ (0.43)
------- -------
------- -------
Shares used in computing pro forma basic
and diluted net loss per share.......... 6,764 13,480
</TABLE>
- -------------------------
(1) Period from February 20, 1997 (date of inception) to December 31, 1997.
19
<PAGE> 22
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
DECEMBER 31, ----------------------
--------------- PRO FORMA
1997 1998 ACTUAL AS ADJUSTED
------- ---- ------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents, net................ $ 1,129 $540 $18,855 $
Property, plant and equipment, net............ 49 199 2,340
Working capital............................... 1,123 458 18,152
Total assets.................................. 1,260 771 22,046
Series D Convertible Preferred Stock $0.001
par value, 2,500,000 shares issued and
outstanding subject to a put option at $7.00
per share and none issued and outstanding on
a pro forma and pro forma as adjusted
basis....................................... -- -- 17,500
Total stockholders' equity.................... $ 1,172 $658 $ 2,992 $
</TABLE>
20
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with our financial statements and the
notes to those statements included elsewhere in this prospectus. This prospectus
contains forward-looking statements that involve risks and uncertainties, such
as statements of our plans, objectives, expectations and intentions. Our actual
results could differ materially from those contained in the forward-looking
statements. Factors that may cause such differences include, but are not limited
to, those discussed in "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
FairMarket, Inc. was formed as a Delaware corporation in February 1997 and
is headquartered in Woburn, Massachusetts. From our inception through May 1998,
we devoted substantially all of our efforts to our initial business model of
matching buyers and sellers of computer products and peripherals utilizing our
own Internet auction web site. Product sales were transacted directly between
the buyer and the seller, with the Company earning a transaction fee based on
the dollar amount of completed sales and, beginning in May 1998, a fee for
listing products on our auction site. In December 1998, we began to execute our
current business model involving the offering of outsourced, private-label
auction solutions as described under "Business." From December 31, 1998 to
November 30, 1999, our employee base has grown from 11 to 133 employees.
Our primary offering is a private-label online auction solution that
enables our customers to rapidly deploy a flexible, custom-branded Internet
auction site without making a significant investment in technology, personnel or
other infrastructure. By maintaining customer auction sites on a central system,
we are able to aggregate the goods and services from our customers' auction
sites and distribute these listings across the FairMarket Network. The result is
a highly liquid auction environment with a large number of potential buyers and
a broad range of products available for purchase. Two important and distinct
customer groups form the FairMarket Network: merchants and online community
sites.
From December 31, 1998 to September 30, 1999, the number of auction sites
in the FairMarket Network grew to more than 60 auction sites. The number of
registered users of auction sites provided and maintained by FairMarket has
grown to over 200,000 as of September 30, 1999.
We derive revenue from service fees, which consist of site implementation,
monthly operating and support fees and professional service fees, and network
fees. We generally charge a one time set-up fee for the design, development and
implementation of an auction site. The set-up fee varies depending on the nature
of the auction site, the anticipated complexity of the auction site and whether
standard or expedited implementation is requested. The set-up fee is deferred
and recorded as revenue over the term of the related agreement. Monthly service
fees are generally charged to customers and cover hosting services, basic direct
customer support services, end-user customer support services, services for
online billing and collection of fees, and fraud protection services. Service
fees vary by customer depending on the required level of services and
anticipated level of auction site activity. We also offer premium direct
customer services and other professional services for additional fees.
Network fees consist of our share of transaction, listing and merchandizing
fees charged to our customers or their end-users. Merchant customers pay
transaction fees at varying percentages based on the gross proceeds from the
sale of their listed products and services, whether sold on their auction sites
or on other FairMarket Network sites. Community customers
21
<PAGE> 24
pay transaction fees from the sale of the items that are listed through the
community auction site and are sold either on their auction sites or on other
member sites of the FairMarket Network. The fee percentages vary by customer
depending on the anticipated level of auction activity on the customer's site.
Communities receive a percentage of the gross proceeds from the sale of items
that are listed directly through other auction sites in the FairMarket Network
and sold through the community auction site. We record revenue net of amounts
shared with our customers.
At no point during the auction process do we take possession of either the
products being sold or the buyers' payment for the item. Because merchants and
individual sellers, rather than FairMarket, sell the items listed, we have no
cost of goods sold, procurement, or carrying or shipping costs and no inventory
risk related to the items sold at auction. Our rate of expense growth is
primarily driven by increases in personnel, increases in advertising and
promotional activities and increases in product development and engineering
costs.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, certain
quarterly data from our statements of operations. The unaudited quarterly
information has been derived from our unaudited financial statements which, in
management's opinion, have been prepared on a basis consistent with the
financial statements contained elsewhere in this prospectus and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial information for the periods presented. This
information should be read in conjunction with our financial statements and
related notes included elsewhere in this prospectus. The operating results for
any quarter are not necessarily indicative of the results that may be expected
for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1998 1998 1999 1999 1999
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue................. $ 1,419 $ 1,336 $ 55,150 $ 164,269 $ 672,003
Operating expenses:
Cost of revenue.... -- -- 46,719 89,205 286,518
Sales and
marketing........ 96,988 137,318 211,604 836,511 2,096,372
Development and
engineering...... 80,201 117,405 196,071 403,379 665,163
General and
administrative... 84,152 153,513 152,418 373,978 531,136
Equity related
charges.......... -- -- 1,993 48,033 987,227
--------- --------- --------- ----------- -----------
Total operating
expenses...... 261,341 408,236 608,805 1,751,106 4,566,416
--------- --------- --------- ----------- -----------
Loss from
operations......... (259,922) (406,900) (553,655) (1,586,837) (3,894,413)
Interest income,
net................ 6,834 4,275 47,162 108,386 123,511
--------- --------- --------- ----------- -----------
Net loss.............. $(253,088) $(402,625) $(506,493) $(1,478,451) $(3,770,902)
========= ========= ========= =========== ===========
</TABLE>
REVENUES
Our revenues did not materially change during the last two quarters of the
year ended December 31, 1998 and increased during each of the first three
quarters of 1999. During the last two quarters of 1998, our revenue was derived
primarily from transaction fees from the sale of computer equipment and
peripherals on our former auction web site. In December 1998, we began offering
an outsourced, private-label auction solution. Revenue increased during each
22
<PAGE> 25
of the first three quarters of 1999 primarily as a result of the increase in the
number of our customers, growth in the number of listings in the FairMarket
Network and growth in the number of auction transactions that have successfully
been completed.
COST OF REVENUE
Cost of revenue consists of costs of providing direct customer support
services (which includes costs associated with the implementation of a
customer's auction site and the cost of ongoing direct customer support
services), end-user customer support services, depreciation of network
equipment, fees paid to network providers for bandwidth, and monthly fees paid
to third-party network providers. Cost of revenue increased substantially
between the first and second quarters of 1999 in absolute dollars but decreased
over such period as a percentage of revenue. In the third quarter of 1999, cost
of revenue increased substantially both in absolute dollars and as a percentage
of revenue compared to the second quarter of 1999. The increases in cost of
revenue during 1999 are primarily due to increases in personnel-related expenses
relating to increased hiring to support our anticipated growth and, to a lesser
extent, an increase in costs for the provision and maintenance of the FairMarket
Network.
SALES AND MARKETING
Our sales and marketing expenses primarily consist of compensation for
sales and marketing personnel, advertising, trade show and other promotional
costs, expenses for creative design of advertising and marketing programs, and
related overhead costs. Sales and marketing expenses have increased
substantially from the third quarter of 1998 through the third quarter of 1999,
primarily due to increases in compensation associated with additional sales and
marketing personnel and, in the second and third quarters of 1999, increases in
advertising and promotional expenses. We expect to continue to substantially
increase our sales and marketing activities in future quarters, particularly our
advertising and promotional activities, and to substantially increase our sales
force over the next year, and therefore anticipate that sales and marketing
expenses will continue to increase substantially over the near term. We also
anticipate that sales and marketing expenses will increase as a result of our
advertising agreement with Excite, Inc., pursuant to which we have committed to
purchase online banner and other advertising services from Excite in an amount
equal to $2.5 million during each quarter of the years 2000 and 2001, for a
total of $20 million, of which $17.5 million has been prepaid to Excite through
Excite's withholding the payment for 2,500,000 shares of our Series D
Convertible Preferred Stock.
DEVELOPMENT AND ENGINEERING
Our development and engineering expenses primarily consist of compensation
for development and engineering personnel, payments to outside contractors and,
to a lesser extent, depreciation of equipment and related overhead costs. We
expense development and engineering costs as they are incurred. Development and
engineering costs have increased substantially during each quarter since the
third quarter of 1998 as a result of increases in the number of our development
and engineering personnel. We expect that development and engineering expenses
will continue to increase in future quarters, primarily as a result of the
hiring of additional development and engineering personnel to support our
anticipated growth.
GENERAL AND ADMINISTRATIVE
Our general and administrative expenses primarily consist of compensation
for general and administrative personnel and fees for outside contractors.
General and administrative expenses have increased significantly since the third
quarter of 1998. The increases have primarily
23
<PAGE> 26
resulted from an increase in fees for outside contractors used in recruiting
personnel across all functional areas. We expect that general and administrative
expenses will continue to increase in future quarters as we continue to build
our infrastructure.
EQUITY RELATED CHARGES
Equity related charges consist of the amortization of (1) deferred stock
compensation resulting from the grant of stock options to employees at exercise
prices subsequently deemed to be less than the fair value of the common stock on
the grant date and (2) the fair value of warrants issued to strategic partners
and shares of our Series D Convertible Preferred Stock issued to strategic
partners at prices below their fair value. At September 30, 1999, deferred stock
compensation relating to employee stock options, which is a component of
stockholders' equity, totaled approximately $3.7 million, net of amortization of
$216,070. This amount is being amortized ratably over the vesting periods of the
applicable stock options, typically four years, with 25% vesting on the first
anniversary of the grant date and the balance vesting 6.25% quarterly
thereafter. We expect to incur equity related compensation expense of at least
$471,000 in 1999, $981,000 in 2000, $979,000 in 2001, $979,000 in 2002 and
$506,000 in 2003.
At September 30, 1999, other deferred equity related charges, which is a
component of stockholders' equity, totaled approximately $49.9 million, net of
amortization of $821,183. This amount is being amortized ratably over the terms
of the related agreements, from three to five years. We expect to incur expenses
of at least $3.7 million in 1999, $11.7 million in 2000, $11.7 million in 2001,
$10.6 million in 2002, $7.8 million in 2003, and $5.2 million in 2004.
In connection with our auction services agreement with Lycos, we issued to
Lycos a performance-based warrant for the purchase of common stock which will be
valued when earned, recorded as deferred equity related charges and amortized
over the remaining term of the contract.
INTEREST INCOME, NET
Interest income, net, consists of interest earned on cash and cash
equivalents, offset by interest expense. Interest expense has not been material
during any of the quarters since the third quarter of 1998. Interest income
increased substantially in the first quarter of 1999 compared to the prior
quarter due to higher average cash balances resulting from the sale of shares of
our Series C Convertible Preferred Stock in February 1999, the proceeds of which
totaled approximately $10.5 million. The increase in interest income in the
second quarter of 1999 compared to the first quarter of 1999 reflects a full
quarter's impact of the investment of the proceeds from the sale of the Series C
Convertible Preferred Stock, partially offset by cash used in operations.
Interest income increased from the second to the third quarter of 1999 due to
higher average cash balances resulting from the sale of the Series D Convertible
Preferred Stock in August and September 1999, the cash proceeds of which totaled
approximately $14.0 million.
RESULTS OF OPERATIONS FOR PERIOD OF INCEPTION THROUGH DECEMBER 31, 1997 AND THE
YEAR ENDED DECEMBER 31, 1998
For the period from inception through December 31, 1997 ("fiscal 1997") our
net loss was $601,575. For year ended December 31, 1998, our net loss was
approximately $1.4 million. The net loss increased $786,722 from fiscal 1997 to
1998 due to an increase in total operating expenses of $816,174, partially
offset by an increase in interest income.
24
<PAGE> 27
REVENUE
During fiscal 1997 and 1998, our revenue was derived primarily from
transaction fees from the sale of computer equipment and peripherals on our
former auction web site. Our revenue increased from $2,523 for fiscal 1997 to
$3,784 in 1998 primarily due to the growth in transaction fees on transactions
conducted through our former auction site.
OPERATING EXPENSES
Total operating expenses increased by $816,174, from $607,082 for fiscal
1997 to approximately $1.4 million for 1998. Sales and marketing expenses
increased by $404,511, from $278,633 for fiscal 1997 to $683,144 in 1998. This
increase was primarily due to increased personnel expenses and, to a lesser
extent, increases in advertising and promotional expenses and related overhead
expenses. Development and engineering expenses increased by $219,248, from
$94,406 for fiscal 1997 to $313,654 in 1998, primarily due to increased
engineering personnel expenses in 1998. General and administrative expenses
increased by $192,415, from $234,043 for fiscal 1997 to $426,458 in 1998. This
increase was primarily attributable to contract services relating to business
development and accounting and finance.
INTEREST INCOME
Interest income was $4,415 for fiscal 1997 and $31,256 for the year ended
December 31, 1998. The increase in interest income of $26,841 is primarily due
to a higher average cash balance during 1998 compared to fiscal 1997. In
December 1997, we completed the sale of 1,170,000 shares of our Series B
Convertible Preferred Stock, the net proceeds of which totaled approximately
$1.3 million, and in August 1998, we completed the sale of 720,000 additional
shares of our Series B Convertible Preferred Stock, the net proceeds of which
totaled $795,066.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND THE NINE
MONTHS ENDED SEPTEMBER 30, 1999
For the nine months ended September 30, 1998, our net loss was $985,672.
For the nine months ended September 30, 1999, our net loss was approximately
$5.8 million. The increase in net loss of approximately $4.8 million is
primarily due to an increase in total operating expenses of approximately $5.9
million over such periods, partially offset by an increase in revenue of
$888,974 and an increase in interest income of $257,305.
REVENUE
During 1998, our revenue was derived primarily from transaction fees
charged to sellers of computer equipment and peripherals on our former auction
web site. In December 1998, we began offering an outsourced, private-label
auction solution to merchant customers and online community customers, deriving
our revenue from monthly service fees and a share of fees from transactions
completed on auction sites participating in the FairMarket Network. Total
revenue was $2,448 for the nine months ended September 30, 1998 and $891,442 for
the nine months ended September 30, 1999. The increase in revenue is primarily
due to an increase in monthly service revenue generated from customers that
joined the FairMarket Network in 1999. The one-time set-up fees we charge for
the implementation of auction sites are deferred and recorded as revenue over
the term of the related contracts. At September 30, 1999, there was $252,531 of
deferred revenue relating to set-up fees. We also defer recognition of
transaction fee revenue arising from our contracts with Microsoft and Excite.
See "-- Microsoft and Excite Contracts" below.
25
<PAGE> 28
COST OF REVENUE
Cost of revenue was not material during 1998. For the nine months ended
September 30, 1999, cost of revenue was $422,442. Cost of revenue consists of
costs for both direct and auction site end-user customer support, depreciation
of network equipment, fees paid to network providers for bandwidth and monthly
fees paid to third-party network providers. The increase in cost of revenue is
primarily due to increases in personnel-related expenses relating to the
increase in our employee base across all functions to support our anticipated
growth, and, to a lesser extent, an increase in costs for the provision and
maintenance of the FairMarket Network.
SALES AND MARKETING
Sales and marketing expenses increased by approximately $2.6 million, from
$545,826 for the nine months ended September 30, 1998 to approximately $3.1
million for the nine months ended September 30, 1999. This increase primarily
resulted from the building of a sales and marketing organization, and the
commencement during the third quarter of 1999 of a significant increase in
advertising and promotional activities.
DEVELOPMENT AND ENGINEERING
Development and engineering expenses increased by approximately $1.1
million, from $196,249 for the nine months ended September 30, 1998 to
approximately $1.3 million for the nine months ended September 30, 1999. This
increase was primarily due to the hiring of additional engineering personnel and
other engineering costs incurred to enhance and scale our online auction system
and the FairMarket Network.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased by $784,587, from $272,945
for the nine months ended September 30, 1998 to approximately $1.1 million for
the nine months ended September 30, 1999. This increase was primarily due to
building finance and human resources departments combined with external
recruiting contractor costs supporting all functional areas.
EQUITY RELATED CHARGES
Equity related charges consist of the amortization of (1) deferred stock
compensation resulting from the grant of stock options to employees at exercise
prices subsequently deemed to be less than the fair value of the common stock on
the grant date and (2) the fair value of warrants issued to strategic partners
and shares of our Series D Convertible Preferred Stock issued to strategic
partners at prices below their fair value. At September 30, 1999, deferred stock
compensation, which is a component of deferred compensation and equity related
charges in stockholders' equity, totaled approximately $3.7 million, net of
amortization of $216,070. This amount is being amortized ratably over the
vesting periods of the applicable stock options, typically four years, with 25%
vesting on the first anniversary of the grant date and the balance vesting 6.25%
quarterly thereafter. We expect to incur equity related compensation expense of
at least $471,000 in 1999, $981,000 in 2000, $979,000 in 2001, $979,000 in 2002
and $506,000 in 2003.
At September 30, 1999, other deferred equity related charges, which is a
component of stockholders' equity, totaled approximately $49.9 million, net of
amortization of $821,183. This amount is being amortized ratably over the terms
of the related agreements, from three to five
26
<PAGE> 29
years. We expect to incur expenses of at least $3.7 million in 1999, $11.7
million in 2000, $11.7 million in 2001, $10.6 million in 2002, $7.8 million in
2003 and $5.2 million in 2004.
INTEREST INCOME
Interest income was $26,981 for the nine months ended September 30, 1998
and $284,286 for the nine months ended September 30, 1999. The increase in
interest income of $257,305 is primarily due to a higher average cash balance
during 1999 compared to 1998. The average cash balance increased in 1999
compared to 1998 primarily due to the sale of shares of our convertible
preferred stock, partially offset by increases in the use of cash in operations
and in investing activities. In February 1999, we completed the sale of
approximately 6,168,000 shares of our Series C Convertible Preferred Stock, from
which the net proceeds totaled approximately $10.5 million, and in August and
September 1999, we completed the sale of 5,250,000 and 2,250,000 shares,
respectively, of our Series D Convertible Preferred Stock, the net cash proceeds
of which totaled approximately $14.0 million.
MICROSOFT AND EXCITE CONTRACTS
We have agreements with Microsoft and Excite which provide that, if these
companies drive more than a specified level of Internet traffic to the
FairMarket Network through their Internet portal sites, we will guarantee them a
minimum level of transaction fee revenue regardless of actual transaction fee
revenue earned by the companies. If the minimum revenues are not met, we will be
obligated to make payments for the difference between the actual revenue earned
by each of the companies and the minimum guaranteed revenue. Our agreement with
Microsoft provides for minimum guaranteed revenue of $5.0 million, $10.0
million, $10.0 million, $15.0 million and $20.0 million for 2000, 2001, 2002,
2003 and 2004, respectively. Our agreement with Excite provides for minimum
guaranteed revenue of $0.8 million, $2.1 million, $4.6 million, $7.0 million and
$8.4 million for 2000, 2001, 2002, 2003 and 2004, respectively.
We defer recognition of revenue on our share of transaction fees under
these agreements until Microsoft and Excite receive the minimum guaranteed
revenue or until they fail to meet their performance targets.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily through
private sales of capital stock to financial and strategic investors, the net
proceeds of which totaled approximately $26.6 million as of September 30, 1999.
At September 30, 1999, cash and cash equivalents totaled approximately $18.9
million.
Cash used in operating activities was $953,844 for the nine months ended
September 30, 1998 and approximately $3.9 million for the nine months ended
September 30, 1999. Net cash flows from operating activities in each period
reflect increasing net losses and, to a lesser extent, an increase in accounts
receivable and prepaid expenses, offset in part by increases in accounts
payable, deferred revenue and accrued expenses.
Cash used in investing activities was $89,730 for the nine months ended
September 30, 1998 and approximately $2.3 million for the nine months ended
September 30, 1999. Net cash used for investing activities in each period
reflects purchases of property and equipment, primarily the purchase of computer
equipment. During the nine months ended September 30, 1999, we purchased
computers and servers at a total cost of approximately $2.2 million to support
the expansion of the FairMarket Network and to provide computers and equipment
for new employees hired during that period.
27
<PAGE> 30
Cash provided by financing activities was $847,494 for the nine months
ended September 30, 1998 and approximately $24.5 million for the nine months
ended September 30, 1999. Cash provided by financing activities for these
periods was derived primarily from private sales of our convertible preferred
stock.
In addition to other costs relating to the expansion of our business, we
anticipate making substantial expenditures during the first quarter of 2000 as
part of the continued expansion of the FairMarket Network, the build-out of our
additional office space and the acquisition of back-up computer facilities.
We believe that the net proceeds from this offering, together with our
current cash and cash equivalents, will be sufficient to meet our anticipated
cash needs for working capital and capital expenditures for at least the next 12
months. If cash generated from operations is insufficient to satisfy our
liquidity requirements, we may seek to sell additional equity or debt
securities. If additional funds are raised through the issuance of debt
securities, these securities could have rights, preferences and privileges
senior to those accruing to holders of our common stock, and the terms of this
debt could impose restrictions on our operations. The sale of additional equity
or convertible debt securities could result in additional dilution to our
stockholders, and we cannot be certain that additional financing will be
available in amounts or on terms acceptable to us, if at all. If we are unable
to obtain this additional financing, we may be required to reduce the scope of
our planned technology, services or product development and sales and marketing
efforts, which could harm our business, financial condition and operating
results.
We consider all highly liquid investment instruments purchased with an
original maturity of three months or less to be cash equivalents. We invest our
cash and cash equivalents in an overnight investment account, commercial paper
and a money market account. We place our cash and temporary cash investments
with financial institutions which management believes are of high credit
quality.
We have not entered into any financial derivative instruments that expose
us to material market risk.
YEAR 2000 COMPLIANCE
Impact of Year 2000 Computer Problem. The year 2000 computer problem
refers to the potential for system and processing failures of date-related data
as a result of computer-controlled systems using two digits rather than four to
define the applicable year. For example, computer programs that have
time-sensitive software may recognize a date represented as "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculation causing disruption of operations, including, among other things,
a temporary inability to process transactions, send invoices or engage in
similar normal business activities.
State of Readiness of our Service. We have designed the FairMarket Network
and our service offerings for use in the year 2000 and beyond. We believe they
are year 2000 compliant. We have successfully tested the FairMarket Network and
our service offerings for year 2000 compliance. However, our network is
constructed from sophisticated hardware and software products supplied by other
vendors. We cannot evaluate whether all of these constituent products are year
2000 compliant. We may face claims based on year 2000 problems in other
companies' products or based on issues arising from the integration of multiple
third-party products within the overall network. Although no such claims have
been made against us, we may in the future be required to defend our service in
legal proceedings, which could be expensive regardless of the merits of such
claims.
28
<PAGE> 31
State of Readiness of our Internal Systems. Our business may be affected
by year 2000 issues related to noncompliant internal systems developed by us or
by third-party vendors. Our material third-party vendors have stated that they
are year 2000 compliant. We are not currently aware of any year 2000 problems
relating to any of our material internal systems. We have successfully tested
all such systems for year 2000. We do not believe that we have any significant
systems that contain embedded chips that are not year 2000 compliant. Our
internal operations and business are also dependent upon the computer-controlled
systems of third parties such as our suppliers, customers or other service
providers. We believe that, absent a systemic failure outside our control, such
as a prolonged loss of electrical or telephone service, year 2000 problems at
third parties such as manufacturers, suppliers, customers and service providers
will not have a material impact on our operations. If our manufacturers,
suppliers, vendors, partners, customers and service providers fail to correct
their year 2000 problems, these failures could result in an interruption in, or
a failure of, our normal business activities and services. If a year 2000
problem occurs, it may be difficult to determine which party's products have
caused the problem. These failures could interrupt our operations and damage our
relationships with our customers. Due to the general uncertainty inherent in the
year 2000 problem resulting from the readiness of third-party manufacturers,
suppliers and vendors, we are unable to determine at this time whether year 2000
failures could harm our business and our financial results.
Risks. The failure of our internal systems to be year 2000 compliant could
temporarily prevent us from providing service to our customers, issuing invoices
and developing new services and service enhancements, and could require us to
devote significant resources to correct such problems. Due to the general
uncertainty inherent in the year 2000 computer problem, which results from the
uncertainty of the year 2000 readiness of third-party suppliers and vendors, we
are unable to determine at this time whether the consequences of year 2000
failures will have a material impact on our business, results of operations or
financial condition. To date, we have incurred expenses of approximately $50,000
in connection with our efforts to become year 2000 compliant and do not
anticipate that any future costs associated with our year 2000 compliance
efforts will be material. To mitigate the risks associated with the year 2000,
we have conducted an extensive internal audit of our systems, hardware and
software, and run a full-scale test of the year 2000 change on our systems. We
will have engineering and systems operations staff on site for the year 2000
change in the United States.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. To date, we have not engaged in derivative and hedging
activities, and accordingly do not believe that the adoption of SFAS No. 133
will have a material impact on our financial reporting and related disclosures.
We will adopt SFAS No. 133 as required by SFAS No. 137, "Deferral of the
Effective Date of FASB Statement No. 133," in fiscal year 2000.
We have adopted Statement of Position ("SOP") 98-1, which requires computer
software costs associated with internal use software to be charged to operations
as incurred until certain capitalization criteria are met. Costs eligible for
capitalization under SFAS No. 86 and SOP 98-1 have been insignificant to date.
29
<PAGE> 32
BUSINESS
OVERVIEW
FairMarket is a leading provider of networked, online dynamic pricing
solutions designed to allow e-commerce participants to expand their distribution
channels and create new revenue opportunities. Our primary service offering is
an outsourced, private-label online auction solution for business merchants and
online web communities. A key component of our auction solution, the FairMarket
Network, combines goods and services from our customers' auction sites into a
single seamless auction market that is accessible to potential buyers from any
member community auction site. The result is a highly liquid auction environment
with a large number of potential buyers and a broad range of products available
for purchase. Conducting online auctions benefits our customers in several ways:
- Merchant businesses gain a cost-effective method for selling goods, an
efficient mechanism for gathering price and marketing data and the
ability to attract additional traffic to their web sites.
- Online community web sites gain an added service that increases the
breadth of their offerings, enhances the experience of their users and
promotes increased user traffic and loyalty, while at the same time
providing the sites with expanded revenue opportunities.
As an Internet application service provider, we provide an array of
services to our customers through our scalable and reliable central operating
system. Through our experience with a broad range of customers, we have
developed expertise in implementing, maintaining and supporting online auction
sites. This expertise allows us to significantly decrease our customers' time to
market and minimize their investment in in-house engineering and support
resources for these auction services.
Our primary sources of revenue are service fees and network fees. Service
fees include a site implementation fee, monthly operating and support fees and
professional services fees. Network fees include our share of listing,
merchandizing and transaction fees. Through November 30, 1999, more than 90% of
our revenue was attributable to service fees.
Today, over 90 businesses, including Outpost.com, CompUSA and
SportsLine.com, Inc., and several top Internet portal sites, including MSN.com,
Excite@Home and Lycos, are members of the FairMarket Network. Media Metrix
estimates that user traffic across the main web sites of our portal customers is
over 40 million unique users per month.
INDUSTRY BACKGROUND
GROWTH OF THE INTERNET AND E-COMMERCE. The Internet has emerged as a global
medium that enables millions of businesses and consumers worldwide to
communicate, share information and conduct business electronically. The Internet
possesses unique characteristics that differentiate it from traditional forms of
media, including real-time access and instantaneous connections between
merchants and consumers, between merchants and other businesses, and between
individuals. Businesses and consumers are taking increasing advantage of these
characteristics by conducting more of their commerce over the Internet.
Forrester Research, Inc. estimates that U.S. transaction values for goods and
services sold online will grow from $52 billion in 1998 to approximately $1.4
trillion in 2003. Of this amount, Forrester Research estimates that
approximately $108 billion will be generated in business-to-consumer
transactions, approximately $1.3 trillion will be generated in
business-to-business transactions and approximately $6.4 billion will be
generated in person-to-person transactions.
30
<PAGE> 33
NEED FOR OUTSOURCED E-COMMERCE SERVICE PROVIDERS. As more enterprises
conduct business online, ensuring the quality, availability and reliability of
Internet sites has become critical. In order to successfully manage and grow
their online operations, businesses need reliable computer systems that can be
scaled to grow with the enterprise, and the expertise and resources to
continuously maintain and upgrade those systems to reflect changing
technologies. As a result, many online businesses are seeking collaborative
outsourcing arrangements with e-commerce service providers to reduce time to
market, initial capital expenditures and online operating expenses, and to
enhance their e-commerce strategies.
EMERGENCE OF INTERNET-BASED DYNAMIC PRICING SOLUTIONS. The dominant format
for traditional commercial transactions today is fixed pricing, in which sellers
dictate prices to buyers. This often results from the fact that sellers
traditionally have been unable to adjust prices in a timely manner to reflect
the demands of buyers because they have lacked access to real-time aggregated
demand information.
The Internet is transforming traditional commerce by allowing market
information to be disseminated more quickly and efficiently, in greater quantity
and to a wider audience than was historically possible. These factors have
reduced the need for sellers to adhere to fixed pricing and given rise to
increased use of dynamic pricing in e-commerce transactions. In a dynamic
pricing format, buyers and sellers determine the prices of goods on a
transaction-by-transaction basis through negotiation or bidding. Dynamic pricing
in the e-commerce environment allows large numbers of buyers to simultaneously
indicate the prices they would be willing to pay for an item. This liquid market
enables sellers to rapidly and efficiently sell their products, reducing
merchandizing, holding and liquidation costs.
Auctions are among the most well known forms of dynamic pricing. Forrester
Research Inc. estimates that the value of goods and services sold through
business-to-consumer and person-to-person auctions was $1.4 billion in 1998 and
is projected to grow at 68% per year to $19.0 billion in 2003.
Business-to-business auctions is an even larger market opportunity with an
estimated transaction value of goods and services of $8.7 billion in 1998 that
is projected to grow to $52.6 billion in 2002.
31
<PAGE> 34
THE CURRENT LANDSCAPE FOR ONLINE DYNAMIC PRICING FORMATS. Aside from our
outsourced, networked solution, there are a number of other ways businesses and
community web sites can participate in the online auction market, but each of
them has significant disadvantages:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
OPTION DISADVANTAGES
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
List goods on a general third-party - Surrender of online branding
auction web site - Surrender of control of users' auction experience
- Limited access to auction-generated pricing and marketing
data
- Limited range of pricing solutions
- ------------------------------------------------------------------------------------------------------
License and install third-party - Significant initial and ongoing investments in
auction software technology, personnel and resources
- Inability to scale reliably
- Minimal initial traffic and bidding activity
- Limited range of pricing solutions
- ------------------------------------------------------------------------------------------------------
Develop auction software in-house - Significant initial and ongoing investments in
technology, personnel and resources
- Minimal initial traffic and bidding activity
- Limited range of pricing solutions
- ------------------------------------------------------------------------------------------------------
</TABLE>
THE FAIRMARKET SOLUTION
FairMarket provides a reliable and scalable outsourced auction solution.
This solution enables customers to rapidly deploy a flexible, custom-branded
Internet auction site that is seamlessly integrated with the expansive
FairMarket Network. Our solution eliminates the need for customers to make
significant investments in technology, personnel or other infrastructure to
conduct online auctions.
NETWORKED DISTRIBUTION. The FairMarket Network is designed to provide our
customers with access to a significantly greater number of potential buyers and
a broader range of products than their individual auction sites alone. By
maintaining our merchant customers' listings of products and services in a
central database, we are able to distribute those listings across the entire
base of community auction sites in the FairMarket Network. For merchants and
other sellers, listed items are seen by more web site visitors, increasing the
likelihood that items will be bid on and sold. For buyers, this means a broader
range of products and services for purchase, making the community sites more
attractive to Internet users and increasing user traffic to their main web
sites. Media Metrix estimates that user traffic across our portal customers' web
sites is over 40 million unique users per month.
OUTSOURCED SOLUTION. We develop, host and maintain our customers' auction
sites on a central operating system. This enables us to rapidly deploy new
auction sites, quickly and seamlessly implement new features and other
enhancements with no additional cost or effort on the part of the customer, and
centrally provide direct customer support, end-user support and maintenance
services. This eliminates the need for our customers to develop or acquire
software or hardware resources and minimizes or eliminates entirely their need
to hire, train or utilize in-house engineering and support resources to develop
and maintain their auction sites. Our customers can therefore remain focused on
their businesses while benefiting from our outsourced e-commerce expertise.
32
<PAGE> 35
COMPREHENSIVE PRICING SOLUTIONS. FairMarket provides a comprehensive set
of dynamic pricing solutions that enables e-commerce market participants to buy
and sell goods efficiently. Our pricing solutions range from traditional auction
formats such as English and Dutch auctions to classified listings, Quick-Win
auctions and falling price auctions. Sellers can select the pricing mechanism
that they believe will optimize the sale price for their goods and services
and/or the time it will take to complete sales. These pricing solutions also
provide buyers with an increased ability to participate in determining the price
of the goods they want to purchase. We believe that the breadth of the pricing
solutions currently available through our service and our ability to develop and
quickly implement new pricing solutions distinguish us from our competitors and
are important factors in our ability to attract and retain customers.
PROMOTION OF CUSTOMER BRAND. Our service allows customers to promote their
brands by enabling them to create private-label auction sites. A private-label
site is a seamlessly integrated auction site with the look and feel of the
customer's home web site. All of the features available to the end-user of a
customer's auction site, including extensive search and automatic bidding
capabilities, automatic email notifications to bidders and sellers and
individual account tracking, are customized so that end-users are not aware that
they are leaving the customer's home web site or using a third party service.
The result is user-friendly auction experience with a breadth of features that
enhances the end-user's visit to the customer's web site. Our customers' ability
to offer this experience to their users can increase new and repeat user visits
to their main web sites, thereby expanding their marketing and revenue
opportunities.
CUSTOMER CONTROL OF AUCTION SITE. As part of our service offering, we
provide a web-based site configuration module that enables our customers to
control the auction experience and activity on their sites. Customers can set
the auction parameters for individual product and service listings, register
auction site users and set transaction, listing and merchandizing fees. Because
the site configuration module is located on our central system, each customer is
also able to monitor and analyze current and historical activity data from its
auction site to improve its sales strategies.
RELIABILITY AND SCALABILITY. We have built a technology infrastructure
with an architecture designed to be both reliable and scalable to handle
additional customers, listings and user traffic. Our system provides a central
point of maintenance, reducing the likelihood of system errors and the time and
personnel needed to maintain and upgrade our systems. Through the addition of
load-balanced servers, our system can accommodate rapid growth in user traffic
and listings across the FairMarket Network without delay and without additional
cost to our customers.
STRATEGY
Our goal is to become the leading provider of outsourced, networked
e-commerce services. Key elements of our strategy include:
EXPAND THE REACH AND SCOPE OF THE FAIRMARKET NETWORK. We are dedicating
sales and marketing resources to expand the reach of the FairMarket Network by
increasing the number of new customers and the rate at which we obtain new
customers. Our focus is on forming relationships with large businesses that have
well-known brand names, quality product offerings and a desire for enhanced
marketing and distribution channels. To achieve this goal, we intend to open
additional U.S. and international sales offices over the next year. We may also
seek to achieve this goal by entering into additional strategic relationships
with Internet portal leaders and other community sites. We seek to increase
awareness of the FairMarket name and recognition of our services in the business
community through advertising and targeted marketing and promotional activities,
and to educate traditional businesses about the many benefits of a networked
e-commerce sales strategy.
33
<PAGE> 36
INCREASE TRAFFIC AND TRANSACTIONS ACROSS THE FAIRMARKET NETWORK. We are
committed to enhancing the productivity of the FairMarket Network by turning
more web site viewers into auction site participants. We intend to increase
traffic through expanded merchandizing and promotional programs with our
community customers. We also provide promotional and marketing advice to enhance
the effectiveness of our merchant customers' auction sites. We may also enter
into strategic joint marketing relationships in order to develop and implement
additional marketing programs. We believe that these efforts will result in
increased transaction volumes across the FairMarket Network, increasing revenue
to us and our customers.
CONTINUE TO PROVIDE NEW SERVICE OFFERINGS. We intend to expand our service
offerings through internal development, new strategic relationships or
acquisitions. We will continue to enhance our existing auction service features
and pricing solutions and we intend to develop new e-commerce features to
provide customers and their users with a comprehensive array of online buying
and selling solutions. We also plan to enter into relationships with third party
providers to expand our service offerings to such areas as order fulfillment,
credit card and escrow services.
EXPAND INTO ADDITIONAL INTERNATIONAL MARKETS. We intend to capitalize on
the considerable market opportunities outside the United States. We currently
have a presence in Australia and in the United Kingdom and we intend to further
expand into these countries and continental Europe over the next year. In some
cases, we may seek to reduce the costs and risks of international expansion by
entering into strategic alliances with partners who can provide local sales,
marketing, development and customer support personnel, contacts and cultural
expertise.
LEVERAGE OUR EXPERTISE INTO THE BUSINESS-TO-BUSINESS MARKET. We intend to
leverage our auction expertise in the business-to-consumer and person-to-person
markets to further penetrate the growing business-to-business market. The
business-to-business market is typically characterized by large transaction
sizes and volumes which could represent substantial transaction revenue for us.
We intend to expand our presence in this space through increased sales and
marketing efforts towards business-to-business merchants and through development
of enhanced business-to-business service offerings.
THE FAIRMARKET SERVICE OFFERING
PRICING SOLUTIONS
Our service offering includes the following pricing formats.
- English auctions -- Buyers bid on-line until the auction ends at a
pre-determined time, usually 1 to 14 days. The item is then sold to the
highest bidder. Under this format, the seller has the option of setting a
reserve price, below which the listing will not be sold.
- Quick-Win auctions -- Like an English auction, buyers bid online until
the auction ends at a pre-determined time. The item is sold to the first
bidder who meets the threshold price set by the seller.
- Dutch auctions -- Used for selling multiple items. Buyers bid online
until the auction ends at a pre-determined time and all winning bidders
pay the same price, which is the lowest winning bid.
- AutoMarkdown (falling price) auctions -- Available for merchant sites
only, this pricing format is typically used for selling multiple
quantities of a certain item. Here, the price for an item decreases over
time in increments that are pre-determined by the seller, and each bid
results in an actual purchase.
34
<PAGE> 37
- Classified listings -- Classified listings are similar to the classified
listings typically published in newspapers and other publications. There
is no bidding on a classified listing, and the buyer and seller
communicate directly to decide on the price for the item.
PRINCIPAL AUCTION SITE FEATURES
In addition to the pricing formats described above, our auction service
offers the following features.
LISTING FEATURES. A merchant begins the auction process by uploading its
product listings to its auction site. This can be done through periodic uploads
or via integration with the merchant's back-end systems. When the merchant
uploads product listings, it selects the sale parameters for each listing,
including product category, pricing format and duration of the auction, special
bidding, payment or shipping instructions, and export or other sale limitations.
A listing placed by the merchant on its auction site is assigned a unique
listing identifier and immediately becomes available for display and sale, with
the merchant's chosen sale parameters, on community sites across the FairMarket
Network. Each merchant listing that appears on a community site is accompanied
by a listing detail page that contains graphics and a description of both the
listed product and the merchant.
Sellers on a community site generally have the same listing options as
merchants. Online communities may charge sellers a fee to list items for sale on
their auction sites. Our customers do not typically charge buyers for making
bids or purchases.
MERCHANDIZING FEATURES. Our service provides a merchandizing area beside
the main auction activity area, which merchants can use to showcase listings of
special interest or special sales events. Merchants can also link individual
listings to other areas of their main web sites or to product reviews.
Similarly, a seller on a community site can choose from among a variety of
merchandizing options designed to highlight the seller or a specific listing.
For example, a seller can, for a fee, have its name included under a list of
Featured Merchants or have a specific listing included under a list of Featured
Listings in a community site's merchandizing area.
REPORTING FEATURES. Our service includes a number of reporting functions.
Through our site configuration module, customers can monitor activity on
specific listings as well as obtain aggregated information on bidding and sales
activity for a given time period. In addition, merchants can conduct end-user
based searches, listing searches and bid searches to refine their listing and
pricing strategies. At the end of each day, our service emails to each of our
merchant customers an encrypted report that contains order information from the
day's sales to enable the merchant to fulfill those sales. We also provide our
customers with periodic reports that include detail on site traffic and page
views.
EMAIL FEATURES. Our service transmits a number of automatic email messages
to end-users, including registration and welcome emails, bid confirmation,
losing bid notification, winning bid notification, out-bid notification,
winning-again bid notification, and daily bid status updates. Customers can
customize these email messages through our site configuration module. Our
service also provides end-users with a shopping agent that allows buyers to
choose to be notified automatically by email when products specified by the
buyer become available within a price range specified by the buyer.
FAIRMARKET PROFESSIONAL SERVICES
The following services are provided as part of our comprehensive outsourced
solution.
IMPLEMENTATION SERVICES. We work closely with each customer to build an
auction site that presents the customer's desired branding and maintains the
look and feel of its main web
35
<PAGE> 38
site. As part of the implementation process, we train the customer to manage all
aspects of the auction experience, to access auction site activity data and to
upload product and service listings to its auction site. We usually develop and
launch an auction site within two to four weeks, but we can launch a site in as
little as two days if a customer so requests and if the customer devotes
sufficient attention to implementation.
PROMOTIONAL AND MERCHANDIZING SERVICES. We work with the customer to
develop a promotional plan to ensure the successful launch of its auction site.
Following the launch of a customer's auction site, our partner services team
helps the customer develop promotional and merchandizing programs designed to
drive user traffic to its auction site. We also assist our customers in creating
additional marketing opportunities through promotional activities such as
holiday or special event auctions.
SUPPORT SERVICES. We provide ongoing support services both to our direct
customers and to their auction site end-users. Basic technical support is
provided for our direct customers at no additional cost and consists of
telephone or email responses to questions relating to the operation of the
auction site and site access. We also provide transparent support services to
our customers' end-users via email on a 24 hour per day, seven day per week
basis, at no extra cost. Premium direct customer support services are available
for an additional fee and include extended support service hours and an assigned
account manager who assists the customer on an ongoing basis with day-to-day
auction site operation and maintenance issues.
FRAUD PROTECTION SERVICES. We provide a number of fraud protection
measures for the benefit of buyers and sellers. In order to participate in an
auction, all users must have a valid email address, which we verify during the
registration process. Our customers can require both buyers and sellers to enter
credit card numbers to post and bid on listings. We also provide a buyer and
seller rating system for community sites, which allows the community to set the
minimum rating that must be met for a seller to post listings to the site.
Communities also have the option to offer third-party escrow services to buyers
and sellers.
SALES AND MARKETING
We sell our services through our direct sales force. Our sales personnel
identify potential customers through direct contact, by responding to requests
we receive by telephone or, through our web site, and through attendance at
trade shows. Currently, our sales organization is located at our corporate
headquarters in Woburn, Massachusetts. Over the next year, we plan to
significantly increase the size of our sales force and to open additional U.S.
and international sales offices as we expand the size and scope of our business.
We have focused our marketing efforts on increasing the awareness of the
FairMarket brand in the business community and generating qualified leads for
our sales team. We promote the FairMarket name and services through a variety of
advertising media, including print, local radio, targeted direct mail campaigns
and attendance at trade shows. Our contracts generally provide for the inclusion
of a FairMarket Network logo on each web page of a customer's auction site. Our
partner services team is also responsible for helping our customers market and
promote their auction sites.
36
<PAGE> 39
NETWORK MEMBERS
PARTICIPATING SITES. Two important and distinct customer groups form the
FairMarket Network: merchants and online community sites. Merchants bring a high
volume of quality, branded products to the FairMarket Network. Communities bring
a high volume of individual buyers and sellers to the FairMarket Network. As of
November 30, 1999, the FairMarket Network had grown to over 90 auction sites. As
indicated by the following partial list, our merchant customers span a wide
range of businesses, and our community customers include some of the best-known
portal sites:
<TABLE>
<CAPTION>
MERCHANT CUSTOMERS PORTAL CUSTOMERS (COMMUNITY SITES)
<S> <C>
Alloy Online, Inc. The Boston Globe's boston.com
CompUSA, Inc. Excite@Home
Outpost.com Lycos.com
Multiple Zones International, Inc. MSN.com
SportsLine.com, Inc. TicketMaster's cityauction.com
W.W. Grainger, Inc. Tripod.com
ZoneTrader.com, Inc. Xoom.com
</TABLE>
INTERNET PORTAL RELATIONSHIPS. Our relationships with our Internet portal
and other community customers are important elements in our ability to maintain
and increase user traffic across the FairMarket Network and to increase the
reach of our merchant customers' auction sites. The principal terms of our
strategic agreements with Microsoft, Excite, Lycos and TicketMaster
Online-CitySearch are described below under "Certain Transactions with Related
Parties."
TECHNOLOGY
We have built a technological infrastructure with an architecture designed
to provide reliability and scalability. We maintain a tiered architecture built
on Intel-based servers and Microsoft Windows NT-based software, with multiple
mid-sized web servers running Microsoft's Internet Information Server and
application servers utilizing a Microsoft SQL Server database and proprietary
FairMarket applications. Each customer auction site is maintained on scalable,
load-balanced web servers. A shared, secure administrative server is used for
auction site internal administrative traffic and reporting activities and for
diagnostic and performance monitoring of the auction sites. The FairMarket
Network is available on a 24 hour a day, seven day a week basis, subject to
scheduled maintenance. Our system is hosted by NaviSite, Inc. in Andover,
Massachusetts, which provides a secure environment, redundant communications
lines and emergency power backup. We expect to continue to spend a significant
amount of time and money on systems development to ensure the continued
reliability and scalability of our technology as our business grows.
COMPETITION
The market for Internet-based e-commerce solutions is highly competitive
and is evolving rapidly. While we believe that no company provides as
comprehensive an array of dynamic pricing solutions as we do, many companies
offer some form of Internet auction or other single e-commerce pricing solution,
including non-networked auction hosting, such as OpenSite, auction and other
dynamic pricing software applications, such as Moai, and general third-party
auction sites, such as Yahoo! Auctions. In addition, network-based competitors
could emerge in the future. We compete for customers with those providers, as
well as with developers of in-house dynamic pricing solutions. We also consider
many competitive providers to be among our potential network customers.
37
<PAGE> 40
We believe that our knowledge of the e-commerce marketplace, our ability to
develop new service offerings and enhancements, and the technical and creative
talents of our employees are important to our ability to establish and maintain
a strong market position in a rapidly changing and evolving competitive and
technological landscape. We also believe that the existence and nature of the
FairMarket Network will position us to implement new service offerings more
quickly and cost-effectively than many of our competitors. For more information
on competition, please see "Risk Factors."
INTELLECTUAL PROPERTY
Protection of our technology and other proprietary assets and respect for
the intellectual property rights of others are among our highest priorities. We
rely heavily on various types of intellectual property for our success and
competitive positioning. We use trademarks, copyrights, trade secrets and the
laws pertaining to them as well as contractual provisions to protect our
intellectual property. Currently, our most important proprietary rights are
those embodied in our auction service offerings and in the FairMarket Network.
We also license software from Microsoft for use in our development and
production systems. Because our technology is located on our operating systems
and we do not license our software to any customer or other third party, we
believe that the risk of unauthorized use of our technology is small. However,
no combination of intellectual property protections can guarantee the continued
security and availability of our intellectual property.
Creation and/or implementation of our technology, business model, marketing
research and plans, lead generation activities, customer lists, strategic plans
and similar proprietary assets are all protected at their inception and
throughout their economic lifetimes by confidentiality and proprietary rights
agreements which each of our employees is required to execute upon entering into
employment with us. We also rely on confidentiality agreements entered into with
contractors and vendors. In addition, we have filed trademark applications on
the service marks "FairMarket," "FairMarket Network," "AuctionPlace," and other
marks. We also claim rights in other unregistered marks. We rely on our marks to
protect our domain and brand names. We have applications pending with the U.S.
Patent and Trademark Office but, while we continue to evaluate the importance of
patents to our business, we do not believe that our ability to obtain patents is
material to the success of our business and results of operations.
We take such action as we may deem necessary or advisable to protect our
intellectual property. While such actions have not entailed litigation to date,
we might have to litigate in the future to protect our intellectual property
rights. For more information on the effect of intellectual property rights on
our business, please see "Risk Factors."
PRIVACY
We believe that issues relating to privacy and use of personal information
of Internet users are becoming increasingly important as the Internet and its
commercial use grow. Users of a FairMarket customer's auction site must agree to
that site's use and privacy policy when registering to use the auction site.
Customers' use and privacy policies may vary and we depend on our customers to
maintain adequate privacy policies on their sites. While FairMarket does not
sell or rent any personally identifiable information about users to any third
party without the consent of the user, we cannot guarantee that the privacy
policies of our customers contain similar protections. Sellers and winning
bidders do receive information about each other to enable them to complete a
sale. In addition, our customers may utilize information about their users for
internal purposes in order to improve marketing and promotional efforts, to
analyze site usage, and to improve content, product offerings and site layout.
We may utilize
38
<PAGE> 41
aggregated user data, other than identifiable user data such as names, residence
or email addresses or telephone numbers, from FairMarket Network member sites
for similar purposes.
LAW AND GOVERNMENTAL REGULATION
We are subject to various laws and regulations affecting our business.
Congress has recently passed legislation concerning the availability and
protection of copyrighted works on the Internet under the Digital Millennium
Copyright Act and continues to consider laws relating to Internet taxation. In
addition, there are recommended uniform state laws relating to technology that
are currently under consideration in a number of state legislatures. The
European Union has recently enacted regulations relating to online privacy
protections. These laws and regulations are very recent and their impact on us
and our industry has yet to be determined. This impact could include litigation
which, whether successful or not, would likely be time-consuming and costly and
require substantial management attention and resources. Also, while there are
relatively few laws today that specifically regulate Internet-related companies
and e-commerce in general, the sizeable growth in Internet usage and e-commerce
transactions has prompted many governmental bodies to consider legislation in
such areas as pricing, content, data protection, privacy protection,
intellectual property protection, taxation and consumer protection. Enactment of
laws or regulations in these areas could place burdens on us, either directly or
as a burden to e-commerce in general. In addition, numerous jurisdictions have
laws and regulations regarding the conduct of auctions and the liability of
auctioneers. We do not believe that these laws and regulations, which were
enacted for consumer protection before the development of the Internet, apply to
our online auction services. However, one or more jurisdictions may attempt to
impose these laws and regulations on our operations or our customers in the
future. For more information on law and governmental regulation, please see
"Risk Factors."
EMPLOYEES
As of November 30, 1999, we had 133 full-time employees. None of our
employees are covered by a collective bargaining agreement. We consider our
relations with our employees to be good.
FACILITIES
All of our operations are located in approximately 12,000 square feet of
space in an office park located in Woburn, Massachusetts. We have also leased an
additional 67,000 square feet of space in the same office park effective January
1, 2000 to accommodate our expected growth. During the year 2000, we intend to
open additional U.S. and international sales offices.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
39
<PAGE> 42
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors, their positions and their ages as of
November 30, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Scott Randall..................... 37 President, Chief Executive Officer, Director and
Chairman
John Belchers..................... 55 Chief Financial Officer and Treasurer
Matthew Ackley.................... 31 Vice President, Product Management
Bryan Semple...................... 35 Vice President, Sales and Partner Services
Robert Supnik..................... 52 Vice President, Engineering
Bruce Worrall..................... 40 Vice President, Business Development
Todd Becker....................... 35 Director
Jeffrey Drazan.................... 41 Director
Nanda Krish....................... 38 Director
</TABLE>
SCOTT RANDALL founded FairMarket in February 1997. Prior to founding
FairMarket, he was President of Yahoo! Marketplace, a joint venture between
Yahoo! and VISA International, from June through December 1996 and President of
the Internet Shopping Network, the interactive division of the Home Shopping
Network, from February through May 1996. From June 1994 through January 1996, he
was the general manager of NECX Direct, where he launched one of the first
stores on the Internet. Prior to that, Mr. Randall held positions in brand
management at Procter & Gamble. Mr. Randall is a graduate of Harvard College and
Harvard Business School.
JOHN BELCHERS has served as Chief Financial Officer of FairMarket since
August 1999. From March 1998 to January 1999, he served as Senior Vice President
and Chief Financial Officer of Microprose, then a publicly-held publisher and
distributor of entertainment software, now a subsidiary of Hasbro, Inc. From
1996 to 1997, he served as Executive Vice President and Chief Operating and
Financial Officer of Discovery Toys, which specializes in children's educational
products. From 1989 to 1996, Mr. Belchers held senior management positions at
American President Lines, a publicly-held, global transportation company. Mr.
Belchers holds a degree in Business Science from the University of Cape Town,
South Africa.
MATTHEW ACKLEY joined FairMarket in December 1998 and has served as Vice
President of Product Management of FairMarket since May 1999. Before joining
FairMarket, Mr. Ackley held management positions at Andersen Consulting from
September 1990 to August 1996 and attended Harvard Business School from August
1996 to June 1998. In February 1998, Mr. Ackley founded SocialGoods.com, now
part of 4charity.com, and served as Chief Operating Officer of that company
through November 1998. He graduated from Duke University with a degree in
Biomedical and Electrical Engineering and received his MBA from Harvard Business
School.
BRYAN SEMPLE has served as Vice President of Sales of FairMarket since
March 1999 and also as Vice President of Partner Services since November 1999.
Prior to joining FairMarket, Mr. Semple co-founded PetStart.com, an Internet pet
portal, where he served from November 1998 to February 1999. From August 1997 to
November 1998, he served as Director of E-Commerce and Inside Sales for Trellix
Corporation, a developer of PC-based web site development applications for
individuals. Prior to that, Mr. Semple was regional sales and marketing manager
for PepsiCo from January 1996 to April 1997. Prior to his time at PepsiCo, Mr.
Semple served as a field sales representative at Sybase from January 1994 to
January
40
<PAGE> 43
1996. He is a graduate of the U.S. Naval Academy and Stanford University, where
he received his MBA.
ROBERT SUPNIK has served as Vice President of Engineering of FairMarket
since August 1999. Prior to joining FairMarket, Mr. Supnik spent more than 20
years at Digital Equipment Corporation (now Compaq), where he developed the
Alpha architecture and systems. From 1996 to 1999, Mr. Supnik held the position
of Vice President of Corporation Research at Digital Equipment Corporation, and
was responsible for the development of AltaVista, the Palo Alto Internet
Exchange, the Millicent Microcommerce System and the Personal Jukebox. From 1994
to 1996, Mr. Supnik held the position of Vice President and Technical Director
of Engineering Strategy at Digital. Mr. Supnik holds a BS in Mathematics and a
BS in History from the Massachusetts Institute of Technology and a Masters in
Arts and History from Brandeis University.
BRUCE WORRALL has served as Vice President of Business Development of
FairMarket since November 1999. From November 1997 until November 1999, Mr.
Worrall served as Manager of Business Development at Microsoft. From July 1995
to October 1997, he founded and directed Health Oasis, Inc., an online health
and pharmaceuticals shopping network. From January 1992 until January 1996, Mr.
Worrall was Director of Information and Transaction Services and Interactive
Travel and Shopping Services at AT&T. Mr. Worrall holds a BA Degree in Social
Research from the City University of New York, and an MBA from Baruch College.
TODD BECKER has served as a director of FairMarket since January 1998. He
has served as the Chief Executive Officer of MaxSol, Inc., a software company,
since May 1999. In February 1997, Mr. Becker founded Multimedia Design Group
d/b/a/ Pomegranate Ventures, a high technology venture capital and consulting
company, where he served as Managing Director until May 1999. From August 1991
to February 1997, Mr. Becker held various consulting positions with Pittiglio
Rabin Todd & McGrath, a high technology management consulting firm. Mr. Becker
graduated from the Worcester Polytechnic Institute with a BS in Electrical
Engineering, and from the Massachusetts Institute of Technology with advanced
degrees in management and engineering.
JEFFREY DRAZAN has served as a director of FairMarket since February 1999.
He is a general partner of Sierra Ventures, a venture capital organization.
Prior to joining Sierra Ventures in 1984, Mr. Drazan held senior management
positions at AT&T and Bell Laboratories. Mr. Drazan graduated from Princeton
University with a BS in Engineering and from New York University where he
received his MBA.
NANDA KRISH has served as a director of FairMarket since April 1997. Mr.
Krish is part of the founding team of iBelong.com, a creator of networks for
affinity-based portals, where he has served as General Manager since November
1998. From 1995 to November 1998, Mr. Krish served as Vice President of
Corporate Development of Open Market, Inc., a provider of Internet commerce
software. Before that, Mr. Krish held various positions with EDS, most recently
as Vice President and General Manager of the EDS unit responsible for the
company's interactive shopping strategy. Mr. Krish holds a BS in Mechanical
Engineering from BU/India, and a Masters in Computer and Information Science and
a Masters in Management Engineering from the New Jersey Institute of
Technology/Rutgers University.
BOARD COMPOSITION
The number of directors is fixed at five and we currently have four
directors serving. Following the closing of this offering, our Board of
Directors will be divided into three classes, with the members of each class
serving for a staggered three-year term. Our Board of Directors will consist of
one Class I director, whose term of office will continue until the 2000 annual
41
<PAGE> 44
meeting of stockholders, two Class II directors, whose term of office will
continue until the 2001 annual meeting of stockholders, and one Class III
director, whose term of office will continue until the 2002 annual meeting of
stockholders. At each annual meeting of stockholders, a class of directors will
be elected for a three-year term to succeed the directors of the same class
whose terms are then expiring.
There are no family relationships among any of our directors or executive
officers.
BOARD COMMITTEES
Effective upon the closing of this offering, our Board of Directors will
reconstitute its Audit Committee and Compensation Committee.
Audit Committee. The members of the Audit Committee, all of whom will be
independent directors, will be responsible for recommending to the Board of
Directors the engagement of our outside auditors and reviewing our accounting
controls and the results and scope of audits and other services provided by our
auditors.
Compensation Committee. The members of the Compensation Committee, a
majority of whom will be independent directors, will be responsible for
reviewing and recommending to the Board of Directors the amount and type of
consideration to be paid to senior management, administering our stock option
plan and establishing and reviewing general policies relating to compensation
and benefits of employees.
DIRECTOR COMPENSATION
Directors who are employees receive no additional compensation for their
services as directors. Non-employee directors do not currently receive a fee for
their service as directors, although the Board of Directors may in the future
determine to pay such a fee. Non-employee directors are eligible to participate
in the 1999 Stock Option Plan at the discretion of the full Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued in
the year ended December 31, 1998 to our Chief Executive Officer. No other
executive officer had aggregate compensation exceeding $100,000 during 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------------------
ANNUAL COMPENSATION NUMBER
-------------------------------------- OF SECURITIES
OTHER UNDERLYING RESTRICTED
ANNUAL OPTIONS STOCK ALL OTHER
NAME SALARY($) BONUS($) COMPENSATION($) GRANTED(#) AWARDS($) COMPENSATION($)
- ---- --------- -------- --------------- ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Scott Randall........... $133,654 0 0 0 0 0
President and Chief
Executive Officer
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
No stock options were granted during 1998 or through November 30, 1999 to
our Chief Executive Officer.
42
<PAGE> 45
FISCAL YEAR-END OPTION VALUES
Our Chief Executive Officer held no options to purchase common stock as of
December 31, 1998 or September 30, 1999.
AMENDED AND RESTATED 1997 STOCK OPTION PLAN
Our Amended and Restated 1997 Stock Option Plan provides for the issuance
of up to 750,000 shares of common stock under incentive stock options (ISOs) and
nonqualified stock options (NSOs). The 1997 Plan provides for the granting of
ISOs to employees and NSOs to nonemployee directors and consultants. Options
granted under the 1997 Plan have a maximum term of 10 years from the date of
grant, vest over four years and have an exercise price not less than fair value
of the stock at the date of grant. Options to purchase total of 750,000 shares
of Common Stock have been granted under the 1997 Plan and no further grants will
be made under the 1997 Plan.
1999 STOCK OPTION PLAN
Our Board of Directors and stockholders have approved a 1999 Stock Option
Plan (the "1999 Plan"), which provides for the issuance of up to 3,421,237
shares of common stock under ISOs or NSOs or through the direct issuance or sale
of common stock to officers, employees, directors, and consultants of the
Company.
The Board of Directors determines the term of each option, the option
price, the number of shares for which each option is granted and the rate at
which each option is exercisable. For holders of 10% or more of our outstanding
common stock, ISOs may not be granted at less than 110% of the fair market value
of the common stock at the date of grant. Options to purchase a total of
2,563,250 shares of common stock have been granted under the 1999 Plan as of
September 30, 1999.
401(k) PLAN
We have established a savings plan for our employees which is designed to
be qualified under Section 401(k) of the Internal Revenue Code. Eligible
employees are permitted to contribute to the 401(k) plan through payroll
deduction within statutory and plan limits.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to this offering, our Board of Directors and senior management were
directly involved in setting compensation for our executives.
43
<PAGE> 46
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock on a pro forma basis to reflect the issuance of
shares upon the conversion of our preferred stock and the exercise of a warrant
immediately prior to the closing of this offering and on a pro forma as adjusted
basis to reflect the sale of the common stock offered hereby, by:
- all persons known by us to own beneficially 5% or more of our common
stock;
- each of our directors;
- our Chief Executive Officer; and
- all directors and executive officers as a group.
Unless otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares of common stock beneficially owned
by the stockholder.
The number of shares beneficially owned by each stockholder is determined
under rules issued by the Securities and Exchange Commission and includes voting
or investment power with respect to securities. Under these rules, beneficial
ownership includes any shares as to which the individual or entity has sole or
shared voting power or investment power and includes any shares as to which the
individual or entity has the right to acquire beneficial ownership within 60
days after November 30, 1999 through the exercise of any warrant, stock option
or other right. As of November 30, 1999, a total of 26,859,949 shares of common
stock were either outstanding or subject to options or warrants that are
exercisable or that will become exercisable within 60 days of the estimated
effective date of this offering. The inclusion in this prospectus of such shares
does not, however, constitute an admission by the named stockholder that he or
it is a direct or indirect beneficial owner of such shares. The applicable
percentage of "beneficial ownership" after the offering is based upon 26,859,949
shares of common stock outstanding.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO THE OFFERING(1) AFTER THE OFFERING(1)
------------------------- ---------------------
NAME OF BENEFICIAL OWNERS NUMBER PERCENT NUMBER PERCENT
- ------------------------- ----------- --------- --------- -------
<S> <C> <C> <C> <C>
Scott Randall.............................. 3,996,000 15% 3,996,000
Todd Becker................................ 375,682 1% 375,682
Jeffrey Drazan............................. 5,319,149(2) 20% 5,319,149(2)
Nanda Krish................................ 50,000 * 50,000
All executive officers and directors, as a
group (9 persons)........................ 9,775,831 36% 9,775,831
Excite, Inc................................ 4,000,000 15% 4,000,000
555 Broadway
Redwood City, CA 94063
Microsoft Corporation...................... 5,750,000(3) 21% 5,750,000(3)
One Microsoft Way
Redmond, WA 98502
Sierra Ventures VII, L.P................... 4,925,334 18% 4,925,334
3000 Sand Hill Road
Menlo Park, CA 94025
TicketMaster Online-City Search, Inc....... 2,250,000 8% 2,250,000
790 E. Colorado Blvd.
Pasadena, CA 91101
</TABLE>
44
<PAGE> 47
- -------------------------
* Represents less than 1% of the outstanding shares of common stock.
(1) Assumes the underwriters do not elect to exercise the over-allotment option
to purchase an additional shares of common stock.
(2) Includes 4,925,334 shares held by Sierra Ventures VII, L.P. of which Mr.
Drazan is a general partner and 393,815 shares held by SierraVentures
Associates VII, L.L.C., of which Mr. Drazan is a managing member. Mr. Drazan
disclaims beneficial ownership of such shares.
(3) Includes 4,500,000 shares issuable upon exercise of a warrant held by
Microsoft.
CERTAIN TRANSACTIONS WITH RELATED PARTIES
Since our founding in February 1997, we have sold preferred stock in four
private placements, which are described below. All outstanding shares of
preferred stock will automatically convert into common stock at the closing of
this offering. Also, in 1999 we entered into strategic relationships with four
different parties which are described below and in "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Founder. On February 20, 1997, we issued 4,000,000 shares of common stock
to Scott Randall, the founder of FairMarket, for a total consideration of
$4,000.
Series A Convertible Preferred Stock. On November 17, 1997, we issued
754,603 shares of Series A Convertible Preferred Stock to an investor for an
aggregate consideration of $500,000.
Series B Convertible Preferred Stock. On December 31, 1997 and August 22,
1998, we issued a total of 1,890,000 shares of Series B Convertible Preferred
Stock to 20 investors for an aggregate consideration of approximately $2.1
million. Todd Becker, who purchased a total of 180,000 shares of Series B
Convertible Preferred Stock for an aggregate consideration of $200,000, became a
director in January 1998.
Series C Convertible Preferred Stock. On February 25, 1999, we issued a
total of 6,168,282 shares of Series C Convertible Preferred Stock to 18
investors for an aggregate consideration of approximately $10.5 million. Of
these shares, Sierra Ventures VII, L.P. purchased 4,925,334 shares for an
aggregate consideration of approximately $8.4 million, and Sierra Ventures
Associates VII, L.L.C. purchased 393,815 shares for an aggregate consideration
of $674,999. Sierra Ventures VII holds at least 5% of our outstanding capital
stock, and Jeffrey Drazan, a general partner of Sierra Ventures and Sierra
Ventures Associates, became a director on February 25, 1999.
In connection with Sierra Ventures' investment in the Series C Convertible
Preferred Stock, we entered into an Investors' Rights Agreement and a Right of
First Offer and Co-Sale Agreement. All rights under these agreements will
terminate upon the closing of this offering, except for certain registration
rights described in "Description of Capital Stock -- Registration Rights." In
addition, we have agreed to indemnify Sierra Ventures and Sierra Ventures
Associates against liabilities arising out of their status as stockholders of
FairMarket.
45
<PAGE> 48
Strategic Relationship with Lycos. On May 12, 1999, we entered into an
Auction Services Agreement with Lycos which has a three-year term, subject to
renewal by mutual agreement. Under the agreement, we have agreed to provide
auction solutions to several Lycos web sites, including Tripod, AngelFire and
Lycos Auctions, in return for a share of listing fees charged on the Lycos
sites. Lycos or FairMarket may terminate the agreement upon the occurrence of
certain events of default.
In connection with this agreement, Lycos received two warrants to purchase
shares of our common stock. The first is exercisable for 725,000 shares of our
common stock at an exercise price of $0.01 per share, and must be exercised
before the closing of this offering. The second is exercisable for up to 595,000
shares of our common stock at an exercise price of $1.71 per share, and will
continue to exist after this offering. The degree to which Lycos meets certain
performance criteria determines the number of shares purchasable through
exercise of this warrant. The second warrant is currently not exercisable. The
second warrant will terminate on May 12, 2006 or earlier if FairMarket sells
substantially all of its assets to a third party.
Strategic Relationship with Microsoft. On August 23, 1999, we entered into
an Auction Services Agreement with Microsoft which has a five-year initial term
with an automatic renewal term of five years. Under the agreement, we have
agreed to provide auction solutions to MSN.com and certain other web sites owned
or operated by Microsoft, in return for monthly hosting fees and a share of
listing fees charged on the Microsoft sites.
The agreement with Microsoft provides that if Microsoft drives specified
levels of Internet traffic to the FairMarket Network through its Internet portal
site, we will guarantee them a minimum level of transaction revenue regardless
of actual revenue earned by Microsoft. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Microsoft and Excite
Contracts." Microsoft or FairMarket may terminate the agreement upon the
occurrence of certain events of default.
In connection with this agreement, Microsoft purchased 1,250,000 shares of
our Series D Convertible Preferred Stock for cash consideration of approximately
$8.8 million and received a warrant to purchase 4,500,000 shares of our common
stock at an exercise price of $1.71 per share. After the closing of this
offering, Microsoft must exercise the warrant if the closing price of our common
stock on the Nasdaq National Market equals or exceeds $25.00 for a period of 20
consecutive trading days. See "Description of Capital Stock -- Warrants."
Strategic Relationship with Excite. On August 23, 1999 we entered into an
Auction Services Agreement with Excite which has a five-year initial term,
subject to annual renewal unless terminated by either party. Under this
agreement, we have agreed to provide auction solutions to Excite.com and certain
other web sites owned or operated by Excite, Inc. in return for a share of
listing fees charged by the Excite sites.
Under the agreement, Excite will supply online banner and other advertising
services to us in return for $2.5 million per quarter during 2000 and 2001, or a
total of $20.0 million.
The agreement with Excite provides that if Excite drives specified levels
of Internet traffic to the FairMarket Network through its Internet portal site,
we will guarantee them a minimum level of transaction revenue regardless of
actual revenue earned by Excite. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Microsoft and Excite
Contracts." Excite or FairMarket may terminate the agreement upon the occurrence
of certain events of default.
46
<PAGE> 49
In connection with this agreement, Excite purchased 2,500,000 shares of our
Series D Convertible Preferred Stock for cash consideration of $17.5 million.
Under the purchase agreement, Excite withheld the $17.5 million against our
obligation to pay for advertising as described above. An additional 1,500,000 of
these shares were issued to Excite as consideration for signing the Auctions
Services Agreement. Upon completion of this offering, Excite will be obligated
to pay us $5.0 million of such amount, but may retain the remainder against our
ongoing obligations. Also, on or before August 23, 2000, if the Auction Services
Agreement with Excite is terminated because we are sold to an Excite competitor
or because Excite breaches the agreement, we will have the right, but not the
obligation, to repurchase up to 1,500,000 shares of our stock from Excite, at a
price based on the market price of the stock at the time of repurchase.
Strategic Relationship with TicketMaster Online-CitySearch, Inc. On
September 15, 1999, we entered into an Auction Services Agreement with
TicketMaster Online-CitySearch, Inc., (TMCS), which has a three-year initial
term, subject to annual renewal unless terminated by either party. Under the
agreement, we provide auction solutions to certain web sites owned and
controlled by TMCS.
In connection with this agreement, TMCS purchased 750,000 shares of our
Series D Convertible Preferred Stock for cash consideration of approximately
$5.3 million. An additional 1,500,000 of these shares were issued to TMCS as
consideration for signing the Auction Services Agreement and the CityAuction
license. Under the Auction Services Agreement, TMCS is obligated to provide us
with $2.0 million in Internet advertising and $3.0 million in television and
radio advertising. Under the CityAuction License, TMCS has granted us an
exclusive license to the technology underlying its former CityAuction web site.
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
As of November 30, 1999 there are 21,432,385 shares of common stock issued
and outstanding after giving effect to the issuance of 16,312,885 shares of
common stock upon the conversion of all outstanding preferred stock immediately
prior to the closing of this offering. Following the offering, our authorized
capital stock will consist of shares of common stock, of which
will be issued and outstanding, and shares of
undesignated preferred stock issuable in one or more series designated by our
Board of Directors, of which no shares will be issued and outstanding.
COMMON STOCK
Voting Rights. The holders of our common stock have one vote per share.
Holders of our common stock are not entitled to vote cumulatively for the
election of directors. Generally, all matters to be voted on by stockholders
must be approved by a majority, or, in the case of election of directors, by a
plurality, of the votes entitled to be cast at a meeting at which a quorum is
present by all shares of common stock present in person or represented by proxy,
voting together as a single class, subject to any voting rights granted to
holders of any then outstanding preferred stock. Except as otherwise provided by
law, amendments to our certificate of incorporation, which will be effective
upon consummation of this offering, must be approved by a majority of the voting
power of the common stock.
Dividends. Holders of common stock will share ratably in any dividends
declared by our Board of Directors, subject to the preferential rights of any
preferred stock then outstanding.
47
<PAGE> 50
Dividends consisting of shares of common stock may be paid to holders of shares
of common stock.
Other Rights. In the event of any merger or consolidation of FairMarket
with or into another company as a result of which shares of common stock are
converted into or exchangeable for shares of stock, other securities or
property, including cash, all holders of common stock will be entitled to
receive the same kind and amount, on a per share of common stock basis, of such
shares of stock and other securities and property, including cash. On
liquidation, dissolution or winding up of FairMarket, all holders of common
stock are entitled to share ratably in any assets available for distribution to
holders of shares of common stock. No shares of common stock are subject to
redemption or have preemptive rights to purchase additional shares of common
stock.
PREFERRED STOCK
Our amended and restated certificate of incorporation will provide that
shares of preferred stock may be issued from time to time in one or more series.
Our Board of Directors is authorized to fix the voting rights, if any,
designations, powers, preferences, qualifications, limitations and restrictions
thereof, applicable to the shares of each series. Our Board of Directors may,
without stockholder approval, issue preferred stock with voting and other rights
that could adversely affect the voting power and other rights of the holders of
the common stock and could have anti-takeover effects. We have no current plans
to issue any shares of preferred stock. The ability of our Board of Directors to
issue preferred stock without stockholder approval could have the effect of
delaying, deferring or preventing a change of control of FairMarket or the
removal of existing management.
REGISTRATION RIGHTS
Set forth below is a summary of the registration rights of the holders of
our Series A Convertible Preferred Stock, Series B Convertible Preferred Stock,
Series C Convertible Preferred Stock and Series D Convertible Preferred Stock,
each of which will convert into common stock immediately prior to the
consummation of this offering.
DEMAND REGISTRATIONS. At any time after January 1, 2001, the holders of 50%
or more of the shares having registration rights (registrable securities) may
request that we register shares of common stock subject to our right, upon
advice of our underwriters, to reduce the number of shares proposed to be
registered ratably among the demanding holders. We will be obligated to effect
only two registrations pursuant to such a request by holders of registration
rights. We are not obligated to effect a registration during the period starting
with the date 60 days prior to the filing of and ending on a date 180 days
following effectiveness of the most recent company-initiated registration or if
the requested registration may be made on Form S-3.
PIGGYBACK REGISTRATION RIGHTS. The holders who have registration rights
have unlimited rights to request that shares be included in any
company-initiated registration of common stock other than registrations of
employee benefit plans, business combinations subject to Rule 145 under the
Securities Act, convertible debt or certain other registrations. In our initial
registration and subsequent registrations, the underwriters may, for marketing
reasons, exclude all or part of the shares requested to be registered on behalf
of all stockholders having the right to request inclusion in such registration.
In addition, we have the right to terminate any registration we initiated prior
to its effectiveness regardless of any request for inclusion by any
stockholders.
FORM S-3 REGISTRATIONS. After we have qualified for registration on Form
S-3, which will not be until at least 12 months after the closing of the
offering, holders of 2% or more of the shares having registration rights may
request in writing that we effect a registration of these
48
<PAGE> 51
shares on Form S-3, provided that the gross offering price of the shares to be
so registered in each such registration exceeds $1 million. The holders may
request an unlimited number of registrations on Form S-3.
FUTURE GRANTS OF REGISTRATION RIGHTS. Without the consent of current
stockholders owning at least a majority of the then outstanding registrable
securities, we may not grant further registration rights which would be on equal
or more favorable terms than the existing registration rights.
TRANSFERABILITY. The registration rights are transferable upon transfer of
registrable securities and notice by the holder to us of the transfer, provided
that the transferee or assignee assumes the rights and obligations of the
transferor for such shares.
TERMINATION. The registration rights will terminate as to any particular
stockholder on the earlier of 5 years after the date of this offering or the
date on which the stockholder may sell all of its shares in any 3 month period
pursuant to Rule 144.
WARRANTS
As of November 30, 1999, we had outstanding warrants to purchase an
aggregate of 5,820,000 shares of our common stock. The weighted average exercise
price of the warrants is $1.50 per share. Any warrant may be exercised by
applying the value of a portion of the warrant, which is equal to the number of
shares issuable under the warrant being exercised multiplied by the fair market
value of the security receivable upon exercise of the warrant, less the per
share exercise price, in lieu of payment of the per share exercise price.
We have issued to Lycos warrants to purchase up to 595,000 shares of common
stock at an exercise price of $1.71 per share and up to 725,000 shares at an
exercise price of $0.01 per share. The first warrant expires in May 2006 or upon
a sale of substantially all of the assets of FairMarket to a third party,
whichever occurs first. The second warrant will expire upon the closing of this
offering.
We have issued to Microsoft a warrant to purchase up to 4,500,000 shares of
common stock at an exercise price of $1.71 per share. The warrant expires in
August 2004, or upon a sale of FairMarket, whichever occurs first. In addition,
after the closing of this offering, Microsoft must exercise the warrant if the
closing price of our common stock on the Nasdaq Stock Market equals or exceeds
$25 for a period of twenty consecutive trading days.
INDEMNIFICATION MATTERS
Our amended and restated certificate of incorporation will contain a
provision permitted by Delaware law that generally eliminates the personal
liability of directors for monetary damages for breaches of their fiduciary
duty, including breaches involving negligence or gross negligence in business
combinations, unless the director has breached his or her duty of loyalty,
failed to act in good faith, engaged in intentional misconduct or a knowing
violation of law, paid a dividend or approved a stock repurchase in violation of
the Delaware General Corporation Law or obtained an improper personal benefit.
This provision does not alter a director's liability under the federal
securities laws and does not affect the availability of equitable remedies, such
as an injunction or rescission, for breach of fiduciary duty. Our amended and
restated by-laws will provide that directors and officers shall be, and in the
discretion of our Board of Directors, non-officer employees may be, indemnified
by FairMarket to the fullest extent authorized by Delaware law, as it now exists
or may in the future be amended, against all expenses and liabilities reasonably
incurred in connection with service for or on behalf of FairMarket. Our amended
and restated by-laws will also provide that the right of directors and officers
to
49
<PAGE> 52
indemnification shall be a contract right and shall not be exclusive of any
other right now possessed or hereafter acquired under any by-law, agreement,
vote of stockholders or otherwise. We will also have directors' and officers'
insurance against certain liabilities.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling FairMarket as
described above, we have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable. At present, there is no
pending material litigation or proceeding involving any director, officer,
employee or agent of FairMarket in which indemnification will be required or
permitted.
AMENDMENT OF THE CERTIFICATE OF INCORPORATION
Any amendment to our certificate of incorporation must first be approved by
a majority of our Board of Directors and thereafter approved by a majority, and
in some instances 66 2/3%, of the outstanding shares entitled to vote with
respect to such amendment.
BY-LAW PROVISIONS
Our amended and restated by-laws will provide that a special meeting of
stockholders may be called only by the President or our Board of Directors
unless otherwise required by law. Our amended and restated by-laws will provide
that only those matters included in the notice of the special meeting may be
considered or acted upon at that special meeting unless otherwise provided by
law. In addition, our amended and restated by-laws will include advance notice
and informational requirements and time limitations on any director nomination
or any new proposal which a stockholder wishes to make at an annual meeting of
stockholders.
ABILITY TO ADOPT STOCKHOLDER RIGHTS PLAN
Our Board of Directors may in the future resolve to issue shares of
preferred stock or rights to acquire such shares to implement a stockholder
rights plan. A stockholder rights plan typically creates voting or other
impediments to discourage persons seeking to gain control of FairMarket by means
of a merger, tender offer, proxy contest or otherwise if our board of directors
determines that such change in control is not in the best interests of
FairMarket and our stockholders. Our Board of Directors has no present intention
of adopting a stockholder rights plan and is not aware of any attempt to effect
a change of control of FairMarket.
STATUTORY BUSINESS COMBINATION PROVISION
Following the offering, we will be subject to Section 203 of the Delaware
General Corporation Law, which prohibits a publicly held Delaware corporation
from consummating a "business combination," except under certain circumstances,
with an "interested stockholder" for a period of three years after the date such
person became an "interested stockholder" unless:
- before such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the
business combination;
- upon the closing of the transaction that resulted in the interested
stockholder's becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding shares held
by directors who are also officers of the corporation and shares held by
employee stock plans; or
50
<PAGE> 53
- following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders
by the affirmative vote of the holders of 66 2/3% of the outstanding
voting stock of the corporation not owned by the interested stockholder.
The term "interested stockholder" generally is defined as a person who, together
with affiliates and associates, owns, or, within the prior three years, owned,
15% or more of a corporation's outstanding voting stock. The term "business
combination" includes mergers, asset sales and other similar transactions
resulting in a financial benefit to an interested stockholder. Section 203 makes
it more difficult for an "interested stockholder" to effect various business
combinations with a corporation for a three-year period. A Delaware corporation
may "opt out" of Section 203 with an express provision in its original
certificate of incorporation or an express provision in its certificate of
incorporation or by-laws resulting from an amendment approved by holders of at
least a majority of the outstanding voting stock. Neither our certificate of
incorporation nor our by-laws contains any such exclusion.
TRADING ON THE NASDAQ NATIONAL MARKET SYSTEM
We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "FAIM."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock will be EquiServe,
LLC.
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our common stock,
and we cannot predict the effect, if any, that sales of common stock or the
availability of common stock for sale will have on the market price of our
common stock prevailing from time to time. Nonetheless, substantial sales of
common stock in the public market following this offering, or the perception
that such sales could occur, could lower the market price of our common stock or
make it difficult for us to raise additional equity capital in the future.
Following this offering, there will be approximately shares of
our common stock outstanding on a fully diluted basis. Of these shares, the
shares which are being sold in this offering generally will be freely
transferable without restriction or further registration under the Securities
Act, except that any shares held by our "affiliates" as is defined in Rule 144
under the Securities Act may be sold only in compliance with the limitations
described below. The remaining shares of common stock which will be
outstanding after the offering will be "restricted securities" as defined in
Rule 144, and may be sold in the future without registration under the
Securities Act subject to compliance with the provisions of Rule 144 or any
other applicable exemption under the Securities Act.
In connection with this offering, our existing officers, directors and
certain holders of our outstanding common stock, who hold % of the
currently outstanding shares of common stock (or securities exercisable for or
convertible into common stock) and will own an aggregate of shares of
common stock after this offering, have agreed with the underwriters that,
subject to exceptions, they will not sell or dispose of any of their shares for
180 days after the date of this prospectus. The underwriters' representatives
may, in their sole discretion and at any time without notice, release all or any
portion of the shares subject to such restrictions. Subject to these lock-up
agreements, the shares of common stock
51
<PAGE> 54
outstanding upon the closing of this offering will be available for sale in the
public market as follows:
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF SHARES DESCRIPTION
- ---------------- -----------
<S> <C>
After the date of this prospectus, freely tradeable shares
sold in the offering. After 180 days from the date of this
prospectus, the lock-up period will expire and these shares
will be saleable under Rule 144 (subject, in some cases, to
volume limitations), Rule 144(k), or under a registration
statement to register for resale, shares of common stock
issued upon the exercise of stock options or warrants or the
conversion of preferred stock.
</TABLE>
In general, under Rule 144, as currently in effect, a person or persons
whose shares are required to be aggregated, including an affiliate of ours, and
who has beneficially owned shares for at least one year is entitled to sell,
within any three-month period commencing 90 days after the date of this
prospectus, a number of shares that does not exceed the greater of 1% of the
then outstanding shares of common stock, which is expected to be approximately
shares upon the completion of this offering, or the average weekly
trading volume of the common stock during the four calendar weeks preceding the
date on which notice of such sale is filed, subject to certain restrictions. In
addition, a person who is not deemed to have been an affiliate of ours at any
time during the 90 days preceding a sale and who has beneficially owned the
shares proposed to be sold for at least two years would be entitled to sell such
shares under Rule 144(k) without regard to the requirements described above. To
the extent that shares were acquired from an affiliate of ours, such person's
holding period for the purpose of effecting a sale under Rule 144 commences on
the date of transfer from the affiliate.
We have agreed not to sell or otherwise dispose of any shares of common
stock during the 180-day period following the date of this prospectus, except we
may issue, and grant options to purchase, shares of common stock under the 1999
Stock Option and Incentive Plan. See "Risk Factors -- Future sales of our common
stock could adversely affect our stock price."
In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchase shares from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of this offering is entitled to sell such shares 90 days after
the effective date of this offering in reliance on Rule 144, without having to
comply with the holding period and notice filing requirements of Rule 144 and,
in the case of non-affiliates, without having to comply with the public
information, volume limitation or notice filing provisions of Rule 144.
The SEC has indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, along with the shares acquired upon
exercise of such options (including exercises after the date of this
prospectus). Securities issued in reliance on Rule 701 are restricted securities
and, subject to the contractual restrictions described above, beginning 90 days
after the date of this prospectus, may be sold by persons other than
"affiliates" (as defined in Rule 144) subject only to the manner of sale
provisions of Rule 144 and by "affiliates" under Rule 144 without compliance
with its one year minimum holding period requirements.
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, the underwriters named below, for whom
Deutsche Bank Securities Inc., BancBoston Robertson Stephens Inc., and
Prudential Securities Incorporated are acting as
52
<PAGE> 55
representatives, have severally but not jointly agreed to purchase from
FairMarket the following respective number of shares of common stock:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
Deutsche Bank Securities Inc. ..............................
BancBoston Robertson Stephens Inc...........................
Prudential Securities Incorporated..........................
--------
Total.............................................
========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to approval of certain conditions precedent and that
the underwriters will be obligated to purchase all of the shares of the common
stock offered hereby, other than those shares covered by the over-allotment
option described below, if any are purchased. The underwriting agreement
provides that, in the event of a default by an underwriter, in certain
circumstances the purchase commitments of non-defaulting underwriters may be
increased or the underwriting agreement may be terminated.
The following table summarizes the compensation to be paid to the
underwriters by FairMarket and the expenses payable by FairMarket assuming no
exercise of the underwriters' over-allotment option:
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -------
<S> <C> <C>
Underwriting discounts and commissions payable by
FairMarket................................................ $ $
Expenses payable by FairMarket.............................. $ $
</TABLE>
FairMarket has granted to the underwriters an option expiring on the 30th
day after the date of this prospectus to purchase up to additional
shares of common stock at the initial public offering price, less the
underwriting discounts and commissions. Such option may be exercised only to
cover over-allotments in the sale of shares of common stock. To the extent such
option is exercised, each underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares of common stock as it was obligated to purchase pursuant to the
underwriting agreement.
FairMarket has been advised by the representatives that the underwriters
propose to offer the shares of common stock to the public initially at the
public offering price set forth on the cover page of this prospectus and,
through the representatives, to selling group members at such price less a
concession of $ per share, and the underwriters and such selling group
members may allow a discount of $ per share on sales to certain other
broker-dealers. After the offering, the public offering price and concession and
discount to dealers may be changed by the representatives.
The representatives have informed FairMarket that they do not expect
discretionary sales by the underwriters to exceed 5% of the shares being offered
hereby.
FairMarket, its officers and directors, and certain other existing
stockholders and optionholders of FairMarket have agreed that they will not
offer, sell, contract to sell, pledge or otherwise dispose of or transfer,
directly or indirectly, or, in the case of FairMarket, file with the Securities
and Exchange Commission a registration statement relating to, any shares of
common stock or securities exchangeable or exercisable for or convertible into
shares of common stock, or publicly disclose the intention to do any of the
foregoing, without the prior written consent of Deutsche Bank Securities Inc.
for a period of 180 days after the date of this prospectus, except under certain
circumstances.
53
<PAGE> 56
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for employees, directors and
certain other persons associated with FairMarket who have expressed an interest
in purchasing such shares of common stock in the offering. The number of shares
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased will
be offered by the underwriters to the general public on the same basis as other
shares offered hereby.
FairMarket has agreed to indemnify the underwriters against liabilities,
including civil liabilities under the Securities Act, or to contribute to
payments which the underwriters may be required to make in respect thereof.
We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "FAIM."
Prior to this offering, there has been no public market for the common
stock. The initial public offering price has been determined by negotiation
between FairMarket and the representatives. The principal factors considered in
determining the initial public offering price include:
- the information set forth in this prospectus and otherwise available to
the representatives;
- the history of, and the prospects for, FairMarket and the industry in
which it competes;
- an assessment of FairMarket's management;
- the prospects for, and the timing of, future earnings of FairMarket;
- the present state of FairMarket's development and its current financial
condition;
- the general condition of the securities markets at the time of the
offering;
- the recent market prices of, and the demand for, publicly-traded common
stock of companies in businesses similar to those of FairMarket;
- market conditions for initial public offerings; and
- other relevant factors.
There can be no assurance that an active trading market will develop for
the common stock or that the common stock will trade in the market after this
offering at or above the initial public offering price.
The representatives, on behalf of the underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position. Stabilizing transactions permit bids
to purchase the underlying security so long as the stabilizing bids do not
exceed a specified maximum. Syndicate covering transactions involve purchases of
shares of the common stock in the open market after the distribution has been
completed in order to cover syndicate short positions. Penalty bids permit the
representatives to reclaim a selling concession from a syndicate member when
shares of the common stock originally sold by such syndicate member are
purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
54
<PAGE> 57
VALIDITY OF COMMON STOCK
The validity of the shares of common stock offered hereby will be passed
upon for FairMarket by Goodwin, Procter & Hoar LLP, Boston, Massachusetts.
Various legal matters related to the sale of the common stock offered hereby
will be passed upon for the underwriters by Ropes & Gray, Boston, Massachusetts.
EXPERTS
The audited financial statements of FairMarket as of December 31, 1997 and
1998, the period from February 20, 1997 (date of inception) to December 31,
1997, and for the year ended December 31, 1998, included in this prospectus have
been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, or SEC, a
registration statement on Form S-1 (including the exhibits and schedules
thereto) under the Securities Act and the rules and regulations thereunder, for
the registration of the common stock offered hereby. This prospectus is part of
the registration statement. This prospectus does not contain all the information
included in the registration statement because we have omitted certain parts of
the registration statement as permitted by the SEC rules and regulations. For
further information about us and our common stock, you should refer to the
registration statement. Statements contained in this prospectus as to any
contract, agreement or other document referred to are not necessarily complete.
Where the contract or other document is an exhibit to the registration
statement, each statement is qualified by the provisions of that exhibit.
You can inspect and copy the registration statement and the exhibits and
schedules thereto at the public reference facility maintained by the SEC at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional
offices at Seven World Trade Center, 13th Floor, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You may call the
SEC at 1-800-732-0330 for further information about the operation of the public
reference rooms. Copies of all or any portion of the registration statement can
be obtained from the Public Reference Section of the SEC, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition, the registration
statement is publicly available through the SEC's site on the Internet's World
Wide Web, located at http://www.sec.gov.
We will also file annual, quarterly and current reports, proxy statements
and other information with the SEC. You can also request copies of these
documents, for a copying fee, by writing to the SEC. We intend to furnish to our
stockholders annual reports containing audited financial statements for each
fiscal year.
55
<PAGE> 58
FAIRMARKET, INC.
FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets
As of December 31, 1997 and 1998 and as of September 30,
1999 (unaudited) and pro forma as of September 30, 1999
(unaudited)............................................... F-3
Statements of Operations
For the period February 20, 1997 (date of inception) to
December 31, 1997, for the year ended December 31, 1998,
and for the nine months ended September 30, 1998
(unaudited) and 1999 (unaudited).......................... F-4
Statements of Stockholders' Equity
For the period February 20, 1997 (date of inception) to
December 31, 1997, for the year ended December 31, 1998
and for the nine months ended September 30, 1999
(unaudited)............................................... F-5
Statements of Cash Flows
For the period February 20, 1997 (date of inception) to
December 31, 1997, for the year ended December 31, 1998
and for the nine months ended September 30, 1998
(unaudited) and 1999 (unaudited).......................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 59
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
FairMarket, Inc.:
In our opinion, the accompanying balance sheets and the related statements
of operations, stockholders' equity and cash flows present fairly, in all
material respects, the financial position of FairMarket, Inc. at December 31,
1997 and 1998, and the results of its operations and its cash flows for the
period from February 20, 1997 (date of inception) to December 31, 1997 and for
the year ended December 31, 1998 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
January 13, 1999, except as to the information in Note 6
related to the issuance of Series C Convertible Preferred Stock, for
which the date is February 25, 1999
F-2
<PAGE> 60
FAIRMARKET, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, (NOTE 2)
------------------------ SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1999 1999
---------- ----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $1,128,617 $ 539,603 $ 18,854,556 $ 23,854,556
Accounts receivable, net of allowance of $51,890 at
September 30, 1999...................................... 31,037 -- 579,799 579,799
Prepaid expenses.......................................... 46,933 12,729 235,665 235,665
Other assets.............................................. 4,500 20,029 35,577 35,577
---------- ----------- ------------ ------------
Total current assets................................ 1,211,087 572,361 19,705,597 24,705,597
Property and equipment, net (Note 4)........................ 48,599 199,082 2,340,178 2,340,178
---------- ----------- ------------ ------------
Total assets........................................ $1,259,686 $ 771,443 $ 22,045,775 $ 27,045,775
========== =========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... 24,445 67,743 356,066 356,066
Deferred revenue.......................................... -- -- 252,531 252,531
Accrued expenses.......................................... 63,569 46,140 944,927 944,927
---------- ----------- ------------ ------------
Total liabilities................................... 88,014 113,883 1,553,524 1,553,524
Commitments and contingencies (Notes 5 and 6)
Series D Convertible Preferred Stock (Note 6), $0.001 par
value, 10,000,000 shares authorized; 2,500,000 shares
issued and outstanding (entitled in liquidation to
$17,500,000), at September 30, 1999 subject to a put
option at $7 per share.................................... -- -- 17,500,000 --
Stockholders' equity (Notes 6 and 7):
Series A Convertible Preferred Stock, $0.001 par value,
2,000,000 shares authorized at December 31, 1997 and
1998 and 754,603 shares authorized at September 30,
1999; 754,603 shares issued and outstanding (entitled in
liquidation to $500,000), net of issuance costs, at
December 31, 1997 and 1998 and September 30, 1999,
respectively, and none issued and outstanding on a pro
forma basis............................................. 498,330 498,330 498,330 --
Series B Convertible Preferred Stock, $0.001 par value,
5,000,000 shares authorized at December 31, 1997 and
1998 and 1,890,000 shares authorized at September 30,
1999; 1,170,000, 1,890,000 and 1,890,000 shares issued
and outstanding (entitled in liquidation to $1,300,000,
$2,100,000 and $2,100,000, respectively), net of
issuance costs, at December 31, 1997 and 1998 and
September 30, 1999, respectively, and none issued and
outstanding on a pro forma basis........................ 1,287,849 2,082,915 2,082,915 --
Series C Convertible Preferred Stock, $0.001 par value,
6,168,282 shares authorized, issued and outstanding
(entitled in liquidation to $10,572,435), net of
issuance costs, at September 30, 1999 and none issued
and outstanding on a pro forma basis.................... -- -- 10,526,937 --
Series D Convertible Preferred Stock, $0.001 par value,
10,000,000 shares authorized; 5,000,000 shares issued
and outstanding (entitled in liquidation to
$35,000,000), net of issuance costs, at September 30,
1999 and none issued and outstanding on a pro forma
basis................................................... -- -- 34,970,000 --
Common Stock, $0.001 par value, 15,000,000 shares
authorized at December 31, 1997 and 1998 and 36,000,000
shares authorized at September 30, 1999; 4,430,682,
4,764,682, 5,049,992 and 21,362,877 shares issued and
outstanding at December 31, 1997 and 1998, September 30,
1999 and September 30, 1999 pro forma, respectively..... 4,431 4,765 5,050 21,363
Additional paid-in capital................................ 32,687 61,422 33,745,069 99,306,938
Deferred compensation and equity related charges.......... -- -- (53,590,332) (53,590,332)
Stock subscription receivable............................. (50,050) -- (17,500,000) (12,500,000)
Accumulated deficit....................................... (601,575) (1,989,872) (7,745,718) (7,745,718)
---------- ----------- ------------ ------------
Total stockholders' equity.......................... 1,171,672 657,560 2,992,251 25,492,251
---------- ----------- ------------ ------------
Total liabilities and stockholders' equity.......... $1,259,686 $ 771,443 $ 22,045,775 $ 27,045,775
========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 61
FAIRMARKET, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FEBRUARY 20, 1997 NINE MONTHS ENDED
(DATE OF INCEPTION) YEAR ENDED SEPTEMBER 30,
TO DECEMBER 31, -------------------------
DECEMBER 31, 1997 1998 1998 1999
------------------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue.................................... $ 2,523 $ 3,784 $ 2,448 $ 891,422
Operating expenses:
Cost of revenue.......................... -- -- -- 422,442
Sales and marketing...................... 278,633 683,144 545,826 3,144,487
Development and engineering.............. 94,406 313,654 196,249 1,264,613
General and administrative............... 234,043 426,458 272,945 1,057,532
Equity related charges................... -- -- -- 1,037,253
--------- ----------- ----------- -----------
Total operating expenses........... 607,082 1,423,256 1,015,020 6,926,327
--------- ----------- ----------- -----------
Loss from operations....................... (604,559) (1,419,472) (1,012,572) (6,034,905)
Interest income............................ 4,415 31,256 26,981 284,286
Interest expense........................... (1,431) (81) (81) (5,227)
--------- ----------- ----------- -----------
Net loss........................... $(601,575) $(1,388,297) $ (985,672) $(5,755,846)
========= =========== =========== ===========
Basic and diluted net loss per share....... $ (0.15) $ (0.30) $ (0.22) $ (1.16)
========= =========== =========== ===========
Shares used in computing basic and diluted
net loss per share....................... 4,072,998 4,571,428 4,526,774 4,969,939
Unaudited pro forma basic and diluted net
loss per share........................... $ (0.21) $ (0.43)
=========== ===========
Shares used in computing pro forma basic
and diluted net loss per share........... 6,764,304 13,479,689
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 62
FAIRMARKET, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM FEBRUARY 20, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 1997,
FOR THE YEAR ENDED
DECEMBER 31, 1998 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF SHARES
-----------------------------------------------------------------
SERIES A SERIES B SERIES C SERIES D SERIES A SERIES B
CONVERTIBLE CONVERTIBLE CONVERTIBLE CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED PREFERRED PREFERRED PREFERRED COMMON PREFERRED PREFERRED
STOCK STOCK STOCK STOCK STOCK STOCK STOCK
----------- ----------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock........... 4,430,682
Issuance of Series A Convertible
Preferred Stock, net............... 754,603 $498,330
Issuance of Series B Convertible
Preferred Stock, net.............. 1,170,000 $1,287,849
Net loss...........................
------- --------- --------- -------- ----------
Balance at December 31, 1997....... 754,603 1,170,000 4,430,682 498,330 1,287,849
Issuance of common stock for
services.......................... 334,000
Issuance of Series B Convertible
Preferred Stock, net.............. 720,000 795,066
Net loss...........................
------- --------- --------- -------- ----------
Balance at December 31, 1998....... 754,603 1,890,000 4,764,682 498,330 2,082,915
Issuance of common stock........... 246,872
Issuance of Series C Convertible
Preferred Stock, net.............. 6,168,282
Issuance of Series D Convertible
Preferred Stock, net.............. 7,500,000
Exercise of employee stock
options........................... 38,438
Deferred compensation related to
employee stock options............
Issuance of warrants...............
Equity related charges.............
Net loss...........................
------- --------- --------- --------- --------- -------- ----------
Balance at September 30, 1999
(unaudited)....................... 754,603 1,890,000 6,168,282 7,500,000 5,049,992 $498,330 $2,082,915
======= ========= ========= ========= ========= ======== ==========
<CAPTION>
DEFERRED
SERIES C SERIES D COMPENSATION
CONVERTIBLE CONVERTIBLE COMMON ADDITIONAL AND EQUITY STOCK
PREFERRED PREFERRED STOCK PAID-IN RELATED SUBSCRIPTION ACCUMULATED
STOCK STOCK AT PAR CAPITAL CHARGES RECEIVABLE DEFICIT
----------- ----------- ------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock........... $4,431 $ 32,687
Issuance of Series A Convertible
Preferred Stock, net...............
Issuance of Series B Convertible
Preferred Stock, net.............. $ (50,050)
Net loss........................... $ (601,575)
------ ----------- ------------ -----------
Balance at December 31, 1997....... 4,431 32,687 (50,050) (601,575)
Issuance of common stock for
services.......................... 334 28,735
Issuance of Series B Convertible
Preferred Stock, net.............. 50,050
Net loss........................... (1,388,297)
------ ----------- ------------ -----------
Balance at December 31, 1998....... 4,765 61,422 -- (1,989,872)
Issuance of common stock........... 247 52,256
Issuance of Series C Convertible
Preferred Stock, net.............. $10,526,937
Issuance of Series D Convertible
Preferred Stock, net.............. $34,970,000 $(21,000,000) (17,500,000)
Exercise of employee stock
options........................... 38 3,806
Deferred compensation related to
employee stock options............ 3,916,185 (3,916,185)
Issuance of warrants............... 29,711,400 (29,711,400)
Equity related charges............. 1,037,253
Net loss........................... (5,755,846)
----------- ----------- ------ ----------- ------------ ------------ -----------
Balance at September 30, 1999
(unaudited)....................... $10,526,937 $34,970,000 $5,050 $33,745,069 $(53,590,332) $(17,500,000) $(7,745,718)
=========== =========== ====== =========== ============ ============ ===========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Issuance of common stock........... $ 37,118
Issuance of Series A Convertible
Preferred Stock, net............... 498,330
Issuance of Series B Convertible
Preferred Stock, net.............. 1,237,799
Net loss........................... (601,575)
-----------
Balance at December 31, 1997....... 1,171,672
Issuance of common stock for
services.......................... 29,069
Issuance of Series B Convertible
Preferred Stock, net.............. 845,116
Net loss........................... (1,388,297)
-----------
Balance at December 31, 1998....... 657,560
Issuance of common stock........... 52,503
Issuance of Series C Convertible
Preferred Stock, net.............. 10,526,937
Issuance of Series D Convertible
Preferred Stock, net.............. (3,530,000)
Exercise of employee stock
options........................... 3,844
Deferred compensation related to
employee stock options............ --
Issuance of warrants............... --
Equity related charges............. 1,037,253
Net loss........................... (5,755,846)
-----------
Balance at September 30, 1999
(unaudited)....................... $ 2,992,251
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 63
FAIRMARKET, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FEBRUARY 20, 1997 YEAR NINE MONTHS ENDED
(DATE OF INCEPTION) ENDED SEPTEMBER 30,
TO DECEMBER 31, DECEMBER 31, ------------------------
1997 1998 1998 1999
------------------- ------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................... $ (601,575) $(1,388,297) $ (985,672) $(5,755,846)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation......................................... 8,709 49,865 17,741 197,178
Reserve for uncollectible accounts................... -- -- -- 51,890
Value of stock issued for services................... 23,068 28,525 9,450 5,650
Amortization of deferred compensation and equity
related charges.................................... -- -- -- 1,037,253
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable....... (31,037) 31,037 31,037 (631,689)
(Increase) decrease in prepaid expenses.......... (46,933) 34,204 44,649 (222,936)
Increase in other assets......................... (4,500) (15,529) (17,768) (15,548)
Increase in accounts payable..................... 24,445 43,298 10,288 288,323
Increase in deferred revenue..................... -- -- -- 252,531
Increase (decrease) in accrued expenses.......... 63,569 (17,429) (63,569) 898,787
---------- ----------- ---------- -----------
Net cash used in operating activities.............. (564,254) (1,234,326) (953,844) (3,894,407)
---------- ----------- ---------- -----------
Cash flows from investing activities:
Additions to property and equipment...................... (57,308) (200,348) (89,730) (2,338,274)
---------- ----------- ---------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock................... 14,050 544 49 50,697
Proceeds from issuance of notes payable.................. 500,000 -- -- --
Payment of fees related to issuance of Series A
Convertible Preferred Stock, net of issuance costs..... (1,670) -- --
Proceeds from issuance of Series B Convertible Preferred
Stock, net of issuance costs........................... 1,237,799 795,066 797,395 --
Proceeds from issuance of Series C Convertible Preferred
Stock, net of issuance costs........................... -- -- -- 10,526,937
Proceeds from issuance of Series D Convertible Preferred
Stock, net of issuance costs........................... -- -- -- 13,970,000
Collection of subscription receivable.................... -- 50,050 50,050 --
---------- ----------- ---------- -----------
Net cash provided by financing activities.......... 1,750,179 845,660 847,494 24,547,634
Net increase (decrease) in cash............................ 1,128,617 (589,014) (196,080) 18,314,953
Cash at beginning of period................................ -- 1,128,617 1,128,617 539,603
---------- ----------- ---------- -----------
Cash at end of period...................................... $1,128,617 $ 539,603 $ 932,537 $18,854,556
========== =========== ========== ===========
Supplemental data:
Non-cash activity:
Issuance of Series A Convertible Preferred Stock in
exchange for notes payable............................. $ 500,000 -- -- --
Issuance of warrants to non-employees recorded as a
deferred charge........................................ -- -- -- $29,711,400
Issuance of Series D Convertible Preferred Stock below
fair value recorded as a deferred charge............... -- -- -- $38,500,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 64
FAIRMARKET, INC.
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY:
FairMarket, Inc. (the "Company" or "FairMarket") was formed as a Delaware
corporation in February 1997 and is headquartered in Woburn, Massachusetts. From
its inception through May 1998, the Company devoted substantially all of its
efforts to its initial business model of matching buyers and sellers of computer
products and peripherals utilizing the Company's own Internet auction web site.
Product sales were transacted directly between the buyer and the seller, with
the Company earning a transaction fee based on the dollar amount of completed
sales and, beginning in May 1998, a fee for listing products on its auction
site. In December 1998, the Company began to implement its current business
model involving the offering of outsourced, private-label auction solutions.
The Company has a single operating segment, providing outsourced,
private-label auction solutions. The Company has no organizational structure
dictated by product lines, geography or customer type. To date, revenue has
primarily been derived from services provided to domestic companies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. Actual results could materially differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investment instruments purchased
with an original maturity of three months or less to be cash equivalents. Cash
equivalents consists of cash placed in an overnight investment account,
commercial paper and a money market account.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents.
The Company places its cash and temporary cash investments with financial
institutions that management believes are of high credit quality.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation.
Costs of major additions and betterments are capitalized; maintenance and
repairs which do not improve or extend the life of the respective assets are
charged to operations. On disposal, the related accumulated depreciation or
amortization is removed from the accounts and any resulting gain
F-7
<PAGE> 65
FAIRMARKET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
or loss is included in the results of operations. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets as
follows:
<TABLE>
<CAPTION>
ESTIMATED USEFUL LIFE
------------------------
<S> <C>
Computer equipment......................................... 3 years
Furniture and fixtures..................................... 5 years
Leasehold improvements..................................... shorter of lease term or
asset useful life
</TABLE>
REVENUE RECOGNITION
From inception through May 1998, the Company earned revenue by charging
buyers and sellers a transaction fee on transactions effected on the Company's
former auction site. The Company recognized revenue when the seller shipped the
auctioned merchandise to the buyer. From May 1998 through November 1998, the
Company also charged sellers a listing fee and recognized this fee as revenue at
the conclusion of the auction. In December 1998, the Company began offering an
outsourced, private-label auction solution for business merchants and online web
communities. The Company derives revenue in the form of service fees and network
fees.
Service fees consist of site implementation fees, operating and support
fees. A site implementation fee is charged for the initial design, development
and implementation of a customer's auction site in accordance with the terms of
the contract. The site implementation fee is payable upon execution of the
contract, recorded as deferred revenue and recognized as revenue, ratably, over
the contract period. A monthly service fee covers hosting services, basic direct
customer support services, services for online billing and collection of fees,
and fraud protection services. Monthly service fees are recognized as revenue in
the month that the service is provided.
Network fees consist of the Company's share of transaction, listing and
merchandizing fees charged to our customers or their end-users. Merchant
customers pay transaction fees at varying percentages of the gross proceeds from
the sale of their listed products and services, whether sold on their sites or
on other Network sites. Community customers pay transaction fees from the sale
of the items that are listed through the community auction site and are sold
either on their sites or on other FairMarket Network sites. The fee percentages
vary by customer depending on the anticipated level of auction site activity on
the customer's site. Communities receive a percentage of the gross proceeds from
the sale of items that are listed directly through other auction sites in the
FairMarket Network and sold through the community auction site. The Company
records revenue net of amounts shared with its customers. Transaction fees are
invoiced and recognized at the completion of the auction period.
The Company's agreements with two of its customers provide that if the
companies drive a minimum level of Internet traffic to the FairMarket Network
through their portal sites, the Company guarantees the customers a minimum level
of transaction fee revenue regardless of the level of actual revenue realized by
the customer (also see Note 6). The Company defers its share of related
transaction revenue until either i) the customer has earned the minimum level of
transaction fee revenue or ii) it is determined that the customer has not met
the minimum traffic requirements.
F-8
<PAGE> 66
FAIRMARKET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DEVELOPMENT AND ENGINEERING
Development and engineering costs consist primarily of labor and related
costs for the design, deployment, testing and enhancement of the Company's
auction systems and are expensed as incurred.
On January 1, 1999, the Company adopted American Institute of Certified
Public Accountants Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1").
Accordingly, the Company's policy is to capitalize costs associated with the
design and implementation of its operating systems, including internally and
externally developed software. Year to date, costs incurred have related
primarily to maintenance and enhancements of existing software and systems and
internal costs eligible for capitalization under SOP 98-1 have been immaterial.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expenses of
approximately $47,100, $8,200, $8,200 and $1,230,000 were charged to sales and
marketing expenses for the period from February 20, 1997 (date of inception) to
December 31, 1997, for the year ended December 31, 1998 and for the nine-month
periods ended September 30, 1998 and 1999, respectively.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the expected future
tax consequences, using current tax rates, of temporary differences between the
financial statement carrying amounts and the income tax bases of assets and
liabilities. A valuation allowance is applied against any net deferred tax asset
if, based on the weighted available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized.
ACCOUNTING FOR STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," encourages but does not require companies to
record compensation costs for stock-based employee compensation at fair value.
The Company has chosen to account for stock-based compensation granted to
employees using the intrinsic value method prescribed in Accounting Principles
Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. Accordingly, compensation costs for stock options
granted to employees is measured as the excess, if any, of the fair value of the
Company's stock at the date of the grant over the amount that must be paid to
acquire the stock. Stock-based compensation issued to non-employees is measured
and recorded using the fair value method prescribed in SFAS No. 123.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The Company, to date, has not engaged in
F-9
<PAGE> 67
FAIRMARKET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
derivative and hedging activities, and accordingly does not believe that the
adoption of SFAS No. 133 will have a material impact on the financial reporting
and related disclosures of the Company. The Company will adopt SFAS No. 133 as
required by SFAS No. 137, "Deferral of the Effective Date of FASB Statement No.
133," in fiscal year 2000.
INTERIM FINANCIAL INFORMATION
The consolidated financial statements of the Company as of September 30,
1999 and for the nine months ended September 30, 1998 and 1999 are unaudited.
All adjustments (consisting only of normal recurring adjustments) have been made
which, in the opinion of management, are necessary for a fair presentation of
the financial statements. Results of operations for the nine months ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999 or for any future period.
PRO FORMA BALANCE SHEET (UNAUDITED)
Upon the closing of the Company's initial public offering, all of the
outstanding shares of the Company's Series A, B, C and D Convertible Preferred
Stock will automatically convert on a 1-for-1 basis into shares (16,312,885
shares in the aggregate) of the Company's common stock, assuming an offering
price of greater than $7 per share and $15,000,000 in the aggregate. Upon the
closing of the Company's initial public offering, a put right for 2,500,000
shares of Series D Convertible Preferred Stock will expire. Upon the closing,
Excite, Inc. is obligated to pay the Company $5,000,000 related to a
subscription receivable (see Note 6). The unaudited pro forma presentation of
the balance sheet has been prepared assuming the conversion of the convertible
preferred stock into common stock, the expiration of the put right, and that the
payment has been made by Excite at September 30, 1999.
3. NET LOSS PER SHARE AND PRO FORMA LOSS PER SHARE:
Basic loss per share is computed using the weighted average number of
common shares outstanding during the period. Diluted loss per share is computed
using the weighted average number of common shares outstanding during the period
plus the effect of any dilutive potential common shares. Dilutive potential
common shares consist of stock options, preferred stock and warrants. Potential
common shares were excluded from the calculation of net loss per share for the
periods presented since their inclusion would be antidilutive. At December 31,
1997, there were options to purchase 303,000 common shares and 1,924,603 shares
of preferred stock convertible into 1,924,603 shares of common stock; at
December 31, 1998, there were options to purchase 510,000 shares of common stock
and 2,644,603 shares of preferred stock convertible into 2,644,603 shares of
common stock; at September 30, 1999, there were options to purchase 3,226,062
shares of common stock, 16,312,885 shares of preferred stock convertible into
16,312,885 shares of common stock and warrants to purchase 5,820,000 shares of
common stock, all of which have been excluded from the calculation of diluted
earnings per share.
Pro forma basic and diluted loss per share have been calculated assuming
the conversion of all outstanding shares of preferred stock into common stock,
as if the shares had converted immediately upon their issuance.
F-10
<PAGE> 68
FAIRMARKET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following is a calculation of pro forma net loss per share (unaudited):
<TABLE>
<CAPTION>
NINE
YEAR ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
Pro forma net loss.......................................... $(1,388,297) $(5,755,846)
=========== ===========
Shares used in computing pro forma basic and diluted net
loss per share:
Weighted average number of common shares outstanding... 4,571,428 4,969,939
Weighted average impact of assumed conversion of
preferred stock on issuance.......................... 2,192,876 8,509,750
----------- -----------
Shares used in computing pro forma basic and diluted net
loss per share............................................ 6,764,304 13,479,689
=========== ===========
Basic and diluted pro forma net loss per common share....... $ (0.21) $ (0.43)
=========== ===========
</TABLE>
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1997 1998 1999
------- -------- -------------
<S> <C> <C> <C>
Computer equipment.................................. $44,663 $230,866 $2,387,352
Furniture and fixtures.............................. 12,645 26,790 145,986
Leasehold improvements.............................. -- -- 62,592
------- -------- ----------
57,308 257,656 2,595,930
Less accumulated depreciation....................... (8,709) (58,574) (255,752)
------- -------- ----------
Property and equipment, net......................... $48,599 $199,082 $2,340,178
======= ======== ==========
</TABLE>
Depreciation expense was $8,709, $49,865, $17,741 and $197,178 for the
period from February 20, 1997 (date of inception) to December 31, 1997, for the
year ended December 31, 1998, for the nine months ended September 30, 1998 and
for the nine months ended September 30, 1999, respectively.
F-11
<PAGE> 69
FAIRMARKET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES:
In February 1998 and April 1999, the Company entered into long-term leases
for office space expiring in 2001 and 2004, respectively. Future minimum lease
payments under noncancelable operating leases at September 30, 1999 are as
follows:
<TABLE>
<S> <C>
1999........................................................ $ 62,029
2000........................................................ 248,115
2001........................................................ 214,734
2002........................................................ 164,185
2003........................................................ 164,185
Thereafter.................................................. 15,583
--------
Total....................................................... $868,831
========
</TABLE>
Rental expense under operating leases amounted to $9,182 and $80,114 for
the period from February 20, 1997 (date of inception) to December 31, 1997, and
for the year ended December 31, 1998, respectively, and $60,086 and $138,376 for
the nine months ended September 30, 1998 and 1999, respectively.
The Company is also a party to certain auction service agreements under
which it has contingent commitments (see Note 6).
6. STOCKHOLDERS' EQUITY:
At December 31, 1997 and 1998, the Company had authorized the issuance of
15,000,000 shares of common stock with a par value of $0.001 ("Common Stock")
and 10,000,000 shares of preferred stock with a par value of $0.001 of which
2,000,000 have been designated as Series A Convertible Preferred Stock ("Series
A Preferred"), 5,000,000 have been designated as Series B Convertible Preferred
Stock ("Series B Preferred"), and 3,000,000 remain undesignated. At September
30, 1999, the authorized capital stock of the Company consisted of (i)
36,000,000 shares of voting Common Stock authorized for issuance with a par
value of $0.001 and (ii) 20,000,000 shares of preferred stock with a par value
of $0.001, of which 754,603 shares have been designated as Series A Preferred,
1,890,000 shares have been designated as Series B Preferred, 6,168,282 shares
have been designated as Series C Convertible Preferred Stock ("Series C
Preferred") and 10,000,000 shares have been designated as Series D Convertible
Preferred Stock ("Series D Preferred") (collectively, the "Convertible Preferred
Stock").
The number of shares designated for each series may be increased or
decreased by the Company's Board of Directors without a vote of the
stockholders. The Board of Directors has the authority to determine the voting
powers, designation, preferences, privileges and restrictions of the
undesignated preferred shares.
Each share of Convertible Preferred Stock is convertible, at the option of
the holder, at any time after the date of issuance, into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing the
original Series A issue price, the original Series B issue price, the original
Series C issue price or the original Series D issue price, as the case may be,
by the conversion price applicable to such share, as in effect on the date the
share certificate is surrendered for conversion.
F-12
<PAGE> 70
FAIRMARKET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Each share of Convertible Preferred Stock will automatically convert into
shares of Common Stock at the then-current conversion price, immediately upon
the earlier of (i) the Company's sale of its Common Stock in a firm commitment
underwritten public offering pursuant to a registration statement on Form S-1 or
Form SB-2 under the Securities Act of 1933, as amended, the public offering
price of which is not less than $7.00 per share (as adjusted for any stock
splits, stock dividends, recapitalization or the like) and $15,000,000 in the
aggregate or (ii) the date specified by written consent or agreement of the
holders of a majority of the then outstanding shares of Convertible Preferred
Stock (voting together as a single class and not as a separate series, and on an
as-converted basis).
No dividends or other distributions may be authorized, declared, paid or
set apart on any shares of Common Stock or Preferred Stock unless at the same
time (A) a dividend is declared or paid to the Series C Preferred stockholders
equal to the greater of (1) $0.137 per share per annum, and to the Series D
Preferred stockholders in the amount of $0.56 per share per annum, or (2) an
amount equal to that paid on any other outstanding shares of the Company
(assuming conversion of the Series C Preferred and Series D Preferred as of the
record date for the dividend) and (B) a dividend is declared or paid upon the
shares of Series A Preferred and Series B Preferred in an amount equal to that
paid on any other outstanding shares of the Company (assuming conversion of the
Series A Preferred and Series B Preferred as of the record date for the
dividend). Dividends shall not be cumulative. The preferred shares are not
redeemable, except for certain shares of Series D Preferred that are subject to
a put option (see below), and are restricted as to transferability. The holders
of the preferred shares vote with the holders of the common shares on an
as-converted basis. The holders of the Series B Preferred and Series C Preferred
are, each as a class, entitled to elect one director to the Company's Board of
Directors.
The Series A Preferred, Series B Preferred, Series C Preferred and Series D
Preferred shares have a preference in liquidation of $0.6626, $1.1111, $1.714,
and $7.00, respectively, subject to the full payment of shares of stock of the
Company ranking senior as to the liquidation rights of those preferred shares.
If funds legally available for distribution upon liquidation are insufficient to
pay the holders of the Series C Preferred and Series D Preferred their full
preferential amounts, then amounts paid must be distributed ratably among the
holders of the Series C Preferred and Series D Preferred in proportion to the
preferential amount to which each holder would be otherwise entitled.
If upon completion of the distribution to the Series C Preferred
Stockholders and Series D Preferred stockholders, there are assets remaining in
the Company, then the Series B Preferred shares will rank on parity with the
Series A Preferred shares with respect to a preference in liquidation. If funds
legally available for distribution upon liquidation are insufficient to pay the
holders of the Series A Preferred and Series B Preferred their full preferential
amount, then amounts paid shall be distributed ratably among the holders of the
Series A Preferred and Series B Preferred in proportion to the preferential
amounts to which each holder would otherwise be entitled.
If upon completion of the distribution to the Series A Preferred
Stockholders and Series B Preferred Stockholders, there are remaining assets of
the Company, then these remaining assets will be distributed among the holders
of the Common Stock pro rata based on the number of shares of Common Stock held.
F-13
<PAGE> 71
FAIRMARKET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company has reserved 1,924,603, 2,644,603 and 16,312,885 shares of
Common Stock for issuance upon the conversion of the preferred shares
outstanding at December 31, 1997 and 1998 and September 30, 1999, respectively.
On December 31, 1997, the Company issued 754,603 shares of Series A
Preferred in exchange for notes in the amount of $500,000.
The Company issued 1,170,000 and 720,000 shares of Series B Preferred
during the period from February 20, 1997 (date of inception) to December 31,
1997 and during the year ended December 31, 1998, respectively. Cash proceeds of
$1,287,849 and $795,066 from the sale were recorded net of issuance costs of
$12,151 and $4,934, respectively.
On February 8, 1999 the Company borrowed $2,000,000 pursuant to a
convertible promissory note. Amounts borrowed under this note bear interest at
the monthly "applicable federal rate" established by the Internal Revenue
Service. The principal balance of the note plus interest in the amount of $5,227
was paid in full on March 12, 1999 with the proceeds from the sale of the Series
C Preferred. On February 25, 1999, the Company sold 6,168,282 shares of Series C
Preferred. Proceeds from the sale of $10,526,937 were recorded net of issuance
costs of $45,498.
STRATEGIC RELATIONSHIPS
On May 12, 1999, the Company entered into an Auction Services Agreement
with Lycos, Inc. which has a three-year term (subject to renewal by mutual
agreement). Under the agreement, the Company has agreed to provide auction
solutions to several Lycos web sites in return for a share of the network fees
charged on the Lycos sites.
In connection with this agreement, Lycos received two warrants to purchase
shares of the Company's Common Stock. The first is exercisable for 725,000
shares of the Company's Common Stock at an exercise price of $0.01 per share,
and must be exercised before the closing of an initial public offering. The
second is exercisable for up to 595,000 shares of the Company's Common Stock at
an exercise price of $1.71 per share. The number of shares for which the second
warrant may be exercised depends on Lycos meeting certain performance criteria.
The second warrant is currently not exercisable. The second warrant will
terminate on May 12, 2006 or earlier if FairMarket is sold to a third party. The
Company estimated the value of the first warrant to be $1,235,400 using the
Black-Scholes valuation model at the date of grant. The value of the warrant is
being amortized over the term of the agreement. Related expense for the nine
months ended September 30, 1999 was $171,583. Should the performance criteria on
the second warrant be met, the fair value of the warrant will be estimated at
the time the performance criteria are met.
On August 23, 1999, the Company entered into an Auction Services Agreement
with Microsoft Corporation which has a five-year initial term with an automatic
renewal term of five years. Under the agreement, the Company has agreed to
provide auction solutions to MSN.com and certain other web sites owned or
operated by Microsoft, in return for monthly hosting fees and a share of the
network fees charged on the Microsoft sites.
The agreement with Microsoft contains certain performance guarantees.
Microsoft has guaranteed to drive at least a specified level of Internet traffic
to the FairMarket Network through its Internet portal site for each year of the
contract's initial term. If Microsoft meets its performance guarantee, the
Company has guaranteed to Microsoft a minimum level of
F-14
<PAGE> 72
FAIRMARKET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
transaction fee revenue regardless of the level of actual transaction fee
revenue earned by Microsoft. Minimum transaction fees guaranteed to Microsoft
are $5.0 million, $10.0 million, $10.0 million, $15.0 million and $20.0 million
for the years ending December 31, 2000, 2001, 2002, 2003 and 2004, respectively.
If Microsoft's actual transaction fee revenue is less than the guaranteed
minimum, the Company will pay Microsoft the difference. To date the traffic
minimum has not been reached and accordingly, no amounts have been accrued
related to these contingent liabilities.
In connection with this agreement, Microsoft purchased 1,250,000 shares of
the Series D Preferred for cash consideration of $8,750,000.
The Company also issued warrants to Microsoft for the purchase of 4,500,000
shares of Common Stock at an exercise price of $1.71 per share. The warrants
terminate upon closing of the sale of the Company. Following an initial public
offering (IPO), the warrants terminate on the earlier of two years after the
consummation of the IPO, 30 days after the Company has sent written notice to
the warrant holder that the IPO price of Common Stock equaled or exceeded $25
per share, or 30 days after the Company has sent written notice to the holder
that the reported closing price of the Common Stock on the exchange or market on
which the Common Stock is listed or traded equaled or exceeded $25.00 for 20
consecutive trading days. Unless earlier terminated as described above, the
warrants terminate on August 20, 2004. The Company has estimated the fair value
of the warrants to be $28,476,000 using the Black-Scholes valuation model. The
value of the warrants is being amortized over five years, the initial term of
the agreement. Related expense for the nine months ended September 30, 1999 was
$474,600. During the nine months ended September 30, 1999, the Company
recognized revenue of $120,000 from Microsoft for monthly service fees. At
September 30, 1999, the Company had receivables totaling $60,000 from Microsoft.
On August 23, 1999, the Company entered into an Auction Services Agreement
with Excite, Inc. which has a five-year initial term. Under this agreement, the
Company has agreed to provide auction solutions to Excite.com and certain other
web sites owned or operated by Excite, Inc. in return for a share of the network
fees charged by the Excite sites.
The agreement with Excite contains certain performance guarantees. Excite
has guaranteed to drive at least a specified level of Internet traffic to the
FairMarket Network through its Internet portal site for each year of the
contract's initial term. If Excite meets its performance guarantee, the Company
has guaranteed to Excite a minimum level of transaction fee revenue regardless
of the level of actual transaction fee revenue earned by Excite. Minimum
transaction fees guaranteed to Excite are $0.8 million, $2.1 million, $4.6
million, $7.0 million and $8.4 million for the years ending December 31, 2000,
2001, 2002, 2003 and 2004, respectively. If Excite's actual transaction fee
revenue is less than the guaranteed minimum, the Company will pay Excite the
difference. To date the traffic minimum has not been reached and accordingly, no
amounts have been accrued related to these contingent liabilities.
In addition, the Company has committed to purchase from Excite online
banner and other advertising services for $2.5 million per quarter during 2000
and 2001, for a total of $20.0 million.
In addition, Excite has purchased 2,500,000 shares of Series D Preferred
for cash consideration of $17,500,000. Under the stock purchase agreement,
Excite withheld the $17,500,000 as a prepayment against the Company's obligation
to purchase advertising as described above. This amount has been recorded as a
subscription receivable in the
F-15
<PAGE> 73
FAIRMARKET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
stockholders equity section of the balance sheet. Upon completion of this
offering, Excite is obligated to pay the Company $5,000,000 of such amount, but
may retain the remainder against the Company's ongoing advertising obligations.
For the period beginning December 15, 1999 through the date of the
Company's initial public offering, Excite has the right to require the Company
to buy back the shares of Series D Preferred (put option) for the original
purchase price. Accordingly, these shares are presented above the equity section
of the balance sheet as of September 30, 1999.
The Company also issued to Excite 1,500,000 shares of Series D Preferred
for no cash consideration. The Company may repurchase the shares for up to one
year if Excite terminates the Auction Services Agreement. The Company has
recorded the shares at fair value for a total of $10,500,000, as a deferred
charge to be amortized over the term of the agreement. The related expense for
the nine months ended September 30, 1999 was $175,000. The value of the shares
will be remeasured and adjusted at each balance sheet date over the period
during which the shares may be repurchased.
On September 15 1999, the Company entered into an Auction Services
Agreement with TicketMaster Online-CitySearch, Inc. ("TMCS") which has a
three-year initial term (subject to annual renewal unless terminated by either
party). Under the agreement, the Company provides auction solutions to certain
web sites owned and controlled by TMCS in return for a share of the network fees
charged by TMCS.
In connection with this agreement, TMCS purchased 750,000 shares of Series
D Preferred for proceeds of $5,250,000. The Company also issued 1,500,000 shares
of Series D Preferred in exchange for one year of advertising and a license to
certain technology. The Company has recorded the shares at fair value, for a
total of $10,500,000, as a deferred charge to be amortized over three years, the
term of the agreement. There was no related expense recorded for the nine months
ended September 30, 1999.
7. STOCK OPTION PLANS:
1997 STOCK OPTION PLAN
In March 1997, the Board of Directors and stockholders approved the Amended
and Restated 1997 Stock Option Plan (the "1997 Plan") which provides for the
issuance of up to 750,000 shares of Common Stock under incentive stock options
("ISOs") and nonstatutory stock options ("NSOs"). The 1997 Plan provides for the
granting of ISOs to employees of the Company and NSOs to nonemployee directors
of the Company and consultants. ISOs and NSOs granted under the 1997 Plan have a
maximum term of 10 years from the date of grant, vest over four years and in the
case of ISOs, have an exercise price not less than fair value of the Common
Stock at the date of grant.
1999 STOCK OPTION PLAN
In February 1999, the Board of Directors and stockholders approved the 1999
Stock Option Plan (the "1999 Plan"), which provides for the issuance of up to
3,421,237 shares of Common Stock under ISOs or NSOs or through the direct
issuance or sale of common stock to officers, employees, directors, and
consultants of the Company.
The Board of Directors determines the term of each option, the option
price, the number of shares for which each option is granted and the rate at
which each option is exercisable. For
F-16
<PAGE> 74
FAIRMARKET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
holders of 10% or more of the Company's outstanding Common Stock, ISOs may not
be granted at less than 110% of the fair market value of the Common Stock at the
date of grant.
The following tables summarize information about stock options outstanding
at September 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------- ----------------------------
REMAINING WEIGHTED WEIGHTED
RANGE OF EXERCISE NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
PRICE PER SHARE OUTSTANDING LIFE (IN YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ----------------- ----------- --------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.10 691,562 9.02 $0.100 44,627 $0.100
0.20 1,390,000 9.62 0.200 -- --
0.50 702,000 9.79 0.500 -- --
1.50 312,500 9.89 1.500 -- --
3.00 130,000 9.96 3.000 -- --
--------- ------
$0.10-$3.00 3,226,062 9.57 $0.483 44,627 $0.100
========= ======
</TABLE>
Stock option activity for the period from February 20, 1997 (date of
inception) to December 31, 1997, for the year ended December 31, 1998 and for
the nine months ended September 30, 1999 is as follows:
<TABLE>
<CAPTION>
1997 1998 SEPTEMBER 30, 1999
--------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
NUMBER PRICE PER NUMBER PRICE PER NUMBER PRICE PER
OF SHARES SHARE OF SHARES SHARE OF SHARES SHARE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year...................... 303,000 $ 0.04 510,000 $ 0.10
Granted..................... 303,000 $ 0.04 600,000 0.10 2,869,500 0.54
Exercised................... -- (48,750) 0.011 (38,438) 0.10
Canceled.................... -- (344,250) 0.061 (115,000) 0.36
------- -------- ---------
Outstanding at end of
period.................... 303,000 $ 0.04 510,000 $ 0.10 3,226,062 $ 0.48
======= ======== =========
Options exercisable at
period-end................ -- 18,875 $ 0.10 44,627 $ 0.10
Weighted average fair value
of options granted during
the period................ $0.009 $0.017 $1.872
</TABLE>
There were 857,987 shares available for future option grants as of
September 30, 1999.
During the nine-month period ended September 30, 1999, the Company recorded
unearned compensation of $3.9 million for stock options granted to employees,
which were subsequently determined to be below fair value. The Company is
recognizing the compensation expense over the vesting period. In the nine months
ended September 30, 1999, related expense recognized was $216,070.
F-17
<PAGE> 75
FAIRMARKET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company follows the disclosure provisions of SFAS No. 123 and has
applied APB Opinion 25 and related interpretations in accounting for its stock
option plans. Had compensation cost for the Company's stock-based compensation
plans been determined based on the fair value at the grant dates as calculated
in accordance with SFAS No. 123, the Company's net loss for the year ended
December 31, 1998 and the period ended December 31, 1997 would have increased to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1998
--------- -----------
<S> <C> <C>
Net loss attributable to common stockholders
As reported...................................... $(601,575) $(1,388,297)
Pro forma........................................ (601,764) (1,389,195)
Net loss per common share
As reported...................................... $ (0.15) $ (0.30)
Pro forma........................................ $ (0.15) $ (0.30)
</TABLE>
The fair value of each stock option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions: an
expected life of four years, expected volatility of 0%, no dividends, and a
weighted average risk-free interest rate of 6.25% and 5.06% for the period from
February 20, 1997 (date of inception) to December 31, 1997 and for the year
ended December 31, 1998, respectively.
8. INCOME TAXES:
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
At December 31, 1997 and 1998, the deferred tax asset is as follows:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Net operating loss carryforwards............................ $ 2,365
Start-up costs.............................................. 248,744 $ 790,576
Depreciation................................................ 3,159 9,570
Other....................................................... -- 7,448
--------- ---------
Total deferred tax asset.................................... 254,268 807,594
Valuation allowance......................................... (254,268) (807,594)
--------- ---------
Net deferred tax asset...................................... -- --
========= =========
</TABLE>
A valuation allowance is established if it is more likely than not that all
or a portion of the deferred tax asset will not be realized. Accordingly, a
valuation allowance has been recorded for the full amount of the deferred tax
asset due to the uncertainty of realization.
9. EMPLOYEE BENEFIT PLAN:
In January 1999, the Company established a savings plan for its employees
which is designed to be qualified under Section 401(k) of the Internal Revenue
Code. Eligible employees are permitted to contribute to the 401(k) plan through
payroll deduction within statutory and plan limits.
F-18
<PAGE> 76
FAIRMARKET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. SUBSEQUENT EVENTS:
In November 1999, the Company entered into a five-year lease agreement for
approximately 67,000 square feet of office space in Woburn, Massachusetts. The
term of the lease begins on January 1, 2000. The Company will pay base rental
obligations of $792,988 in the first year of the lease and $1,515,173 in each
subsequent year for the remainder of the lease term. In connection with the
lease, the Company paid the lessor a security deposit in the amount of
$1,800,000 in the form of an irrevocable, freely transferable letter of credit
with a six-month term.
F-19
<PAGE> 77
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON ANY
UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS AN OFFER TO SELL
THE SHARES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES AND IN JURISDICTIONS
WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS
CURRENT ONLY AS OF ITS DATE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 4
Forward-Looking Statements............ 15
Use of Proceeds....................... 16
Dividend Policy....................... 16
Capitalization........................ 17
Dilution.............................. 18
Selected Financial Data............... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
Business.............................. 30
Management............................ 40
Principal Stockholders................ 44
Certain Transactions with Related
Parties............................. 45
Description of Capital Stock.......... 47
Shares Eligible For Future Sale....... 51
Underwriting.......................... 52
Validity of Common Stock.............. 55
Experts............................... 55
Where You Can Find More
Information......................... 55
Index to Financial Statements......... F-1
</TABLE>
THROUGH AND INCLUDING , 2000 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THESE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS AN UNDERWRITER AND WITH RESPECT TO AN UNSOLD ALLOTMENT OR
SUBSCRIPTION.
SHARES
FAIRMARKET, INC.
COMMON STOCK
[FAIRMARKET LOGO]
DEUTSCHE BANC ALEX. BROWN
ROBERTSON STEPHENS
PRUDENTIAL VOLPE TECHNOLOGY
A UNIT OF PRUDENTIAL SECURITIES
<PAGE> 78
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses payable by us in
connection with the offering (excluding underwriting discounts and commissions):
NATURE OF EXPENSE
<TABLE>
<CAPTION>
AMOUNT
-------
<S> <C>
SEC registration fee........................................ $10,560
NASD filing fee............................................. 4,500
Nasdaq National Market listing fee.......................... 1,000
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Printing expenses........................................... *
Blue sky qualification fees and expenses.................... *
-------
Transfer Agent's fee........................................ *
Miscellaneous............................................... *
-------
Total....................................................... $
=======
</TABLE>
The amounts set forth above, except for the Securities and Exchange
Commission, National Association of Securities Dealers, Inc. and Nasdaq National
Market fees, are in each case estimated.
- ------------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In accordance with Section 145 of the Delaware General Corporation Law,
Article VII of our amended and restated certificate of incorporation provides
that no director of the Company shall be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (1) for any breach of the director's duty of loyalty to the
Company or its stockholders, (2) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (3) in
respect of unlawful dividend payments or stock redemptions or repurchases, or
(4) for any transaction from which the director derived an improper personal
benefit. In addition, our amended and restated certificate of incorporation
provides that if the Delaware General Corporation Law is amended to authorize
the further elimination or limitation of the liability of directors, then the
liability of a director of the Company shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so amended.
Article V of our amended and restated by-laws provides for indemnification
by the Company of its officers and certain non-officer employees under certain
circumstances against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement, reasonably incurred by those persons in connection
with the defense or settlement of any threatened, pending or completed legal
proceeding in which any such person is involved by reason of the fact that such
person is or was an officer or employee of the Company if such person acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of the Company, and, with respect to criminal actions or
proceedings, if such person had no reasonable cause to believe his or her
conduct was unlawful.
II-1
<PAGE> 79
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since our incorporation in February 1997, we have sold and issued the
following securities: (1) on February 20, 1997, we issued 4,000,000 shares of
common stock to our founder for an aggregate consideration of $4,000; (2) on
December 31, 1997, we issued 754,603 shares of Series A Convertible Preferred
Stock to one investor for an aggregate consideration of $500,000; (3) from
December 13, 1997 to August 22, 1998, we issued a total of 1,890,000 shares of
Series B Convertible Preferred Stock to 20 investors for an aggregate
consideration of $2,100,000; (4) on February 25, 1999, we issued 6,168,282
shares of Series C Convertible Preferred Stock to 18 investors for an aggregate
consideration of $10,572,435; (5) on May 12, 1999, we issued two warrants to a
strategic partner to purchase 1,320,000 shares of common stock (the first
warrant is exercisable for 725,000 shares of common stock at an exercise price
of $0.01 per share, and the second warrant is exercisable for up to 595,000
shares of common stock, at an exercise price of $1.71 per share); (6) from
August 23, 1999 to September 15, 1999, we issued a total of 7,500,000 shares of
Series D Convertible Preferred Stock to three strategic partners for aggregate
cash consideration of $31,500,000 (of which $17,500,000 is being credited
against future obligations to one of the strategic partners); (7) on August
23,1999, we issued a warrant to purchase 4,500,000 shares of common stock to a
strategic partner at an exercise price of $1.71 and (8) since our incorporation
and as of November 30, 1999, we have issued 971,624 shares of common stock and
options to purchase an aggregate of 4,457,000 shares of common stock with
exercise prices ranging from $0.01 to $4.50 per share. Since our incorporation
and as of November 30, 1999, options to purchase 147,876 shares have been
exercised for an aggregate consideration of $10,456 and options to purchase
614,250 shares have been cancelled without exercise. There were no underwriters
employed in connection with any of the transactions set forth in this item 15.
The issuances of securities described in items (1) through (7) above were deemed
to be exempt from registration under the Securities Act in reliance on Section
4(2) of the Securities Act as transactions by an issuer not involving a public
offering. The issuances of securities described in item (8) above were deemed to
be exempt from registration under the Securities Act in reliance on Section 4(2)
or Rule 701 promulgated thereunder as transactions pursuant to compensatory
benefits plans and contracts relating to compensation. The recipients of
securities in each such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. All recipients
either received adequate information about FairMarket or had access, through
employment or other relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of
FairMarket, Inc. (the "Company")
3.2 Form of Second Amended and Restated Certificate of
Incorporation of the Company (to be filed with the Delaware
Secretary of State immediately prior to the effectiveness of
this registration statement)
3.3 Form of Third Amended and Restated Certificate of
Incorporation of the Company (to be filed immediately
following the closing of this offering)
3.4 Bylaws of the Company
3.5 Form of Amended and Restated Bylaws of the Company (to be
effective upon the closing of this offering)
*4.1 Form of Specimen Certificate for the Company's Common Stock
</TABLE>
II-2
<PAGE> 80
<TABLE>
<C> <S>
4.2 Investors' Rights Agreement, dated February 25, 1999,
between the Company and the stockholders named therein
4.3 Amendment to Investors' Rights Agreement, dated August 23,
1999, between the Company and the stockholders named therein
4.4 Amendment to Investors' Rights Agreement, dated September
15, 1999, between the Company and Ticketmaster Online-City
Search, Inc.
* 5.1 Opinion of Goodwin, Procter & Hoar LLP regarding the
legality of the securities being registered
*10.1 Form of Indemnity Agreement entered into by the Company with
each of its directors and executive officers
10.2 Amended and Restated 1997 Stock Option Plan
10.3 1999 Stock Option Plan
10.4 Lease Agreement dated November 9, 1999, between DIV Unicorn,
LLC and the Company
10.5 Sublease Agreement dated January 22, 1998, between Insignia
Solutions, Inc. and the Company
10.6 Sublease Agreement dated April 5, 1999, between Indigo
America, Inc. and the Company
*23.1 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit
5.1 hereto)
23.2 Consent of PricewaterhouseCoopers LLP
24.1 Powers of Attorney (included on the signature pages hereto)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment to this registration statement.
(b) Financial Statement Schedules
All schedules have been omitted because they are not required or because
the required information is given in the financial statements or the notes to
those statements.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 81
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE> 82
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, on December 14,
1999.
FairMarket, Inc.
By: /s/ SCOTT T. RANDALL
-----------------------------------------------
Scott T. Randall
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints each of Scott T. Randall and John Belchers such
person's true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for such person and in such person's name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement (or to any
other registration statement for the same offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act), and to file the same,
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto each said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that any said attorney-in-fact and agent, or any
substitute or substitutes of any of them, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ SCOTT T. RANDALL President, Chief Executive December 14, 1999
- ------------------------------------------------ Officer and Director
Scott T. Randall (Principal Executive
Officer)
/s/ JOHN BELCHERS Chief Financial Officer December 14, 1999
- ------------------------------------------------ (Principal Financial Officer
John Belchers and Principal Accounting
Officer)
/s/ TODD BECKER Director December 14, 1999
- ------------------------------------------------
Todd Becker
/s/ JEFFREY DRAZAN Director December 14, 1999
- ------------------------------------------------
Jeffrey Drazan
/s/ NANDA KRISH Director December 14, 1999
- ------------------------------------------------
Nanda Krish
</TABLE>
II-5
<PAGE> 83
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of
FairMarket, Inc. (the "Company")
3.2 Form of Second Amended and Restated Certificate of
Incorporation of the Company (to be filed with the Delaware
Secretary of State immediately prior to the effectiveness of
this registration statement)
3.3 Form of Third Amended and Restated Certificate of
Incorporation of the Company (to be filed immediately
following the closing of this offering)
3.4 Bylaws of the Company
3.5 Form of Amended and Restated Bylaws of the Company (to be
effective upon the closing of this offering)
*4.1 Form of Specimen Certificate for the Company's Common Stock
4.2 Investors' Rights Agreement, dated February 25, 1999,
between the Company and the stockholders named therein
4.3 Amendment to Investors' Rights Agreement, dated August 23,
1999, between the Company and the stockholders named therein
4.4 Amendment to Investors' Rights Agreement, dated September
15, 1999, between the Company and Ticketmaster Online-City
Search, Inc.
*5.1 Opinion of Goodwin, Procter & Hoar LLP regarding the
legality of the securities being registered
*10.1 Form of Indemnity Agreement entered into by the Company with
each of its directors and executive officers
10.2 Amended and Restated 1997 Stock Option Plan
10.3 1999 Stock Option Plan
10.4 Lease Agreement dated November 9, 1999, between DIV Unicorn,
LLC and the Company
10.5 Sublease Agreement dated January 22, 1998, between Insignia
Solutions, Inc. and the Company
10.6 Sublease Agreement dated April 5, 1999, between Indigo
America, Inc. and the Company
*23.1 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit
5.1 hereto)
23.2 Consent of PricewaterhouseCoopers LLP
24.1 Powers of Attorney (included on the signature pages hereto)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment to this registration statement.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
FAIRMARKET, INC.
(PURSUANT TO SECTIONS 242 AND 245 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE)
FairMarket, Inc., a corporation organized and existing under and by virtue
of the provisions of the General Corporation Law of the State of Delaware (the
"General Corporation Law"),
DOES HEREBY CERTIFY:
FIRST: That the name of this corporation is FairMarket, Inc. and that
this corporation was originally incorporated pursuant to the General Corporation
Law on February 20, 1997 under the name FairMarket, Inc.
SECOND: That the Board of Directors duly adopted resolutions proposing to
amend and restate the Certificate of Incorporation of this corporation,
declaring said amendment and restatement to be advisable and in the best
interests of this corporation and its stockholders, and authorizing the
appropriate officers of this corporation to solicit the consent of the
stockholders therefor, which resolution setting forth the proposed amendment and
restatement is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended and restated in its entirety as follows:
ARTICLE I
The name of this corporation is FairMarket, Inc.
ARTICLE II
The address of the registered office of this corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of Newcastle. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
<PAGE> 2
ARTICLE IV
A. CLASSES OF STOCK. This corporation is authorized to issue two classes
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
The total number of shares that this corporation is authorized to issue is fifty
six million (56,000,000) shares. Thirty six million (36,000,000) shares shall be
Common Stock and twenty million (20,000,000) shares shall be Preferred Stock,
each with a par value of $0.001 per share.
B. RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK. The Preferred
Stock authorized by this Restated Certificate of Incorporation may be issued
from time to time in one or more series. The rights, preferences, privileges,
and restrictions granted to and imposed on the Series A Preferred Stock, which
series shall consist of 754,603 shares (the "Series A Preferred Stock") the
Series B Preferred Stock, which series shall consist of 1,890,000 shares (the
"Series B Preferred Stock"), the Series C Preferred Stock, which series shall
consist of 6,168,282 shares (the "Series C Preferred Stock"), and the Series D
Preferred Stock, which series shall consist of 10,000,000 shares (the "Series D
Preferred Stock").
1. Dividend Provisions.
(a) No dividends or other distributions shall be authorized,
declared, paid or set apart for payment on any shares of Common Stock or
Preferred Stock unless at the same time (i) a dividend is declared or paid upon,
or distribution made on, the shares of Series C Preferred Stock and Series D
Preferred Stock equal to the greater of (A) with respect to the Series C
Preferred Stock, $.137 per share per annum (as adjusted for any stock splits,
stock dividends, recapitalizations or the like) and with respect to the Series D
Preferred Stock, $.56 per annum (as adjusted for any stock splits, stock
dividends, recapitalizations or the like), and (B) an amount equal to that paid
on any other outstanding shares of this corporation (assuming conversion of the
Series C Preferred Stock and Series D Preferred Stock as of the record date for
such dividend or distribution), and (ii) a dividend is declared or paid upon, or
distribution made on, the shares of Series A Preferred Stock and Series B
Preferred Stock in an amount equal to that paid on any other outstanding shares
of this corporation (assuming conversion of the Series A Preferred Stock and
Series B Preferred Stock as of the record date for such dividend or
distribution). Dividends shall not be cumulative.
2. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up
of this corporation, either voluntary or involuntary, the holders of Series C
Preferred Stock and Series D Preferred Stock shall be entitled to receive, prior
and in preference to any distribution of any of the assets of this corporation
to the holders of Series A Preferred Stock, the holders of Series B Preferred
Stock or the holders of Common Stock by reason of their ownership thereof, an
amount per share equal to the sum of (i) $1.714 for each outstanding share of
Series C Preferred Stock (the "Original Series C Issue Price"), (ii) $7.00 for
each outstanding share of Series D Preferred Stock (the "Original Series D Issue
Price") and (iii) declared but unpaid dividends on such shares
2
<PAGE> 3
(subject to adjustment of such fixed dollar amounts for any stock splits, stock
dividends, combinations, recapitalizations or the like). If upon the occurrence
of such event, the assets and funds thus distributed among the holders of the
Series C Preferred Stock and Series D Preferred Stock shall be insufficient to
permit the payment to such holders of the full aforesaid preferential amounts,
then the entire assets and funds of this corporation legally available for
distribution shall be distributed ratably among the holders of the Series C
Preferred Stock and Series D Preferred Stock in proportion to the full
preferential amount to which each such holder would otherwise be entitled
pursuant to this subsection (a).
Upon completion of the distribution required by subsection (a) of this
Section 2, if assets remain in this corporation, the holders of Series A
Preferred Stock and Series B Preferred Stock shall be entitled to receive, prior
and in preference to any distribution of any of the assets of this corporation
to the holders of the Common Stock by reason of their ownership thereof, (A) in
the case of the Series A Preferred Stock, an amount per share equal to the sum
of (i) $.6626 for each outstanding share of Series A Preferred Stock (the
"Original Series A Issue Price") and (ii) an amount equal to declared but unpaid
dividends on such share (subject to adjustment of such fixed dollar amounts for
any stock splits, stock dividends, combinations, recapitalizations or the like),
and (B) in the case of the Series B Preferred Stock, an amount per share equal
to the sum of (i) $1.1111 for each outstanding share of Series B Preferred Stock
(the "Original Series B Issue Price") and (ii) an amount equal to declared but
unpaid dividends on such share (subject to adjustment of such fixed dollar
amounts for any stock splits, stock dividends, combinations, recapitalizations
or the like). If upon the occurrence of such event, the remaining assets and
funds thus distributed among the holders of the Series A Preferred Stock and
Series B Preferred Stock shall be insufficient to permit the payment to such
holders of the full aforesaid preferential amounts, then the entire assets and
funds of the corporation legally available for distribution shall be distributed
ratably among the holders of the Series A Preferred Stock and Series B Preferred
Stock in proportion to the full preferential amount each such holder is
otherwise entitled to receive under this subsection (a).
(b) Upon completion of the distribution required by subsection
(a) of this Section 2, all of the remaining assets of this corporation available
for distribution to stockholders shall be distributed among the holders of
Common Stock pro rata based on the number of shares of Common Stock held by
each.
(c) (i) For purposes of this Section 2, a liquidation,
dissolution or winding up of this corporation shall be deemed to be occasioned
by, or to include, (A) the acquisition of this corporation by another entity by
means of any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation) that results in the
transfer of fifty percent (50%) or more of the outstanding voting power of this
corporation; or (B) a sale of all or substantially all of the assets of this
corporation.
(ii) In any of such events, if the consideration received by
this corporation is other than cash, its value will be deemed its fair market
value. Any securities shall be valued as follows:
3
<PAGE> 4
(A) Securities not subject to investment letter or
other similar restrictions on free marketability covered by (B) below:
(1) If traded on a securities exchange or through
the Nasdaq National Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange or system over the thirty (30)
day period ending three (3) days prior to the closing;
(2) If actively traded over-the-counter, the
value shall be deemed to be the average of the closing bid or sale prices
(whichever is applicable) over the thirty (30) day period ending three (3) days
prior to the closing; and
(3) If there is no active public market, the
value shall be the fair market value thereof, as mutually determined by this
corporation and the holders of at least a majority of the voting power of all
then outstanding shares of Preferred Stock.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (A) (1), (2) or (3) to reflect the approximate fair
market value thereof, as mutually determined by this corporation and the holders
of at least a majority of the voting power of all then outstanding shares of
such Preferred Stock.
(iii) In the event the requirements of this Section 2(a) are
not complied with, this corporation shall forthwith either:
(A) cause such closing to be postponed until such time
as the requirements of this Section 2 have been complied with; or
(B) cancel such transaction, in which event the
rights, preferences and privileges of the holders of the Preferred Stock shall
revert to and be the same as such rights, preferences and privileges existing
immediately prior to the date of the first notice referred to in subsection
2(c)(iv) hereof.
(iv) This corporation shall give each holder of record of
Preferred Stock written notice of such impending transaction not later than
twenty (20) days prior to the stockholders' meeting, if any, called to approve
such transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 2, and this corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than twenty (20) days after this corporation has given the first notice
provided for herein or sooner than ten (10) days after this corporation
4
<PAGE> 5
has given notice of any material changes provided for herein; provided, however,
that such periods may be shortened upon the written consent of the holders of
Preferred Stock that are entitled to such notice rights or similar notice rights
and that represent at least a majority of the voting power of all then
outstanding shares of such Preferred Stock.
3. REDEMPTION.
The Preferred Stock is not redeemable.
4. CONVERSION. The holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
shall be convertible, at the option of the holder thereof, at any time after the
date of issuance of such share, at the office of this corporation or any
transfer agent for such stock, into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing the Original Series A Issue
Price, the Original Series B Issue Price, the Original Series C Issue Price or
the Original Series D Issue Price, as the case may be, by the Conversion Price
applicable to such share, determined as hereafter provided, in effect on the
date the certificate is surrendered for conversion. The initial Conversion Price
per share for shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock shall be the Original
Series A Issue Price, the Original Series B Issue Price, the Original Series C
Issue Price and the Original Series D Issue Price, respectively; provided,
however, that the Conversion Price for the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be
subject to adjustment as set forth in subsection 4(d).
(b) AUTOMATIC CONVERSION. Each share of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock shall automatically be converted into shares of Common Stock at the
Conversion Price at the time in effect for such Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
immediately upon the earlier of (i) this corporation's sale of its Common Stock
in a firm commitment underwritten public offering pursuant to a registration
statement on Form S-1 or Form SB-2 under the Securities Act of 1933, as amended,
the public offering price of which was not less than $7.00 per share (as
adjusted for any stock splits, stock dividends, recapitalizations or the like)
and $15,000,000 in the aggregate or (ii) the date specified by written consent
or agreement of the holders of a majority of the then outstanding shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock (voting together as a single class and not as a
separate series, and on an as-converted basis).
(c) MECHANICS OF CONVERSION. Before any holder of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock shall be
5
<PAGE> 6
entitled to convert the same into shares of Common Stock, he or she shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of this corporation or of any transfer agent for the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock
and shall give written notice to this corporation at its principal corporate
office, of the election to convert the same and shall state therein the name or
names in which the certificate or certificates for shares of Common Stock are to
be issued. This corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock or to the
nominee or nominees of such holder, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be entitled as aforesaid.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred
Stock to be converted, and the person or persons entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such shares of Common Stock as of such date.
If the conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act of 1933, the conversion may, at the
option of any holder tendering Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock or Series D Preferred Stock for conversion, be
conditioned upon the closing with the underwriters of the sale of securities
pursuant to such offering, in which event the persons entitled to receive the
Common Stock upon conversion of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock or Series D Preferred Stock shall not be deemed
to have converted such Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock or Series D Preferred Stock until immediately prior to
the closing of such sale of securities.
(d) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK FOR CERTAIN
DILUTIVE ISSUANCES, SPLITS AND COMBINATIONS. The Conversion Price of the Series
A Preferred, Series B Preferred, Series C Preferred Stock and Series D Preferred
Stock shall be subject to adjustment from time to time as follows:
(i) (A) If this corporation shall issue, after the date
upon which any shares of Series D Preferred Stock were first issued (the
"Purchase Date"), any Additional Stock (as defined below) without consideration
or for a consideration per share less than the Conversion Price for the Series C
Preferred Stock or Series D Preferred Stock in effect immediately prior to the
issuance of such Additional Stock, the Conversion Price for such Series C
Preferred Stock or Series D Preferred Stock, as applicable, in effect
immediately prior to each such issuance shall forthwith (except as otherwise
provided in this clause (i)) be adjusted to a price determined by multiplying
such Conversion Price by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding immediately prior to such issuance
(including shares of Common Stock deemed to be issued pursuant to subsection
4(d)(i)(E)(1) or (2)) (but not including shares excluded from the definition of
Additional Stock by Section 4(d)(ii)(B)) plus the number of shares of Common
Stock that the aggregate consideration received by this corporation for such
issuance would purchase at such Conversion Price; and the denominator of which
shall be the number of shares of Common Stock outstanding immediately
6
<PAGE> 7
prior to such issuance (including shares of Common Stock deemed to be issued
pursuant to subsection 4(d)(i)(E)(1) or (2)) (but not including shares excluded
from the definition of Additional Stock by subsection 4(d)(ii)(B)) plus the
number of shares of such Additional Stock.
(B) No adjustment of the Conversion Price for the
Series C Preferred Stock or Series D Preferred Stock shall be made in an amount
less than one cent per share, provided that any adjustments that are not
required to be made by reason of this sentence shall be carried forward and
shall be either taken into account in any subsequent adjustment made prior to
three (3) years from the date of the event giving rise to the adjustment being
carried forward, or shall be made at the end of three (3) years from the date of
the event giving rise to the adjustment being carried forward. Except to the
limited extent provided for in subsections (E)(3) and (E)(4), no adjustment of
such Conversion Price pursuant to this subsection 4(d)(i) shall have the effect
of increasing the Conversion Price above the Conversion Price in effect
immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor.
(D) In the case of the issuance of the Common Stock
for a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined by the
Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance after the Purchase
Date of options to purchase or rights to subscribe for Common Stock, securities
by their terms convertible into or exchangeable for Common Stock or options to
purchase or rights to subscribe for such convertible or exchangeable securities,
the following provisions shall apply for all purposes of this subsection 4(d)(i)
and subsection 4(d)(ii):
(1) The aggregate maximum number of shares of
Common Stock deliverable upon exercise of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at the time such
options or rights were issued and for a consideration equal to the consideration
(determined in the manner provided in subsections 4(d)(i)(C) and (d)(i)(D)), if
any, received by this corporation upon the issuance of such options or rights
plus the minimum exercise price provided in such options or rights for the
Common Stock covered thereby.
(2) The aggregate maximum number of shares of
Common Stock deliverable upon conversion of, or in exchange for, any such
convertible or exchangeable securities or upon the exercise of options to
purchase or rights to subscribe for such convertible or exchangeable securities
and subsequent conversion or exchange thereof shall be deemed to have been
issued at the time such securities were issued or such options or rights were
issued and for a consideration equal to the consideration, if any, received by
this corporation for any such securities and related options or rights
(excluding any cash received on account of
7
<PAGE> 8
accrued interest or accrued dividends), plus the minimum additional
consideration, if any, to be received by this corporation upon the conversion or
exchange of such securities or the exercise of any related options or rights
(the consideration in each case to be determined in the manner provided in
subsections 4(d)(i)(C) and (d)(i)(D)).
(3) In the event of any change in the number of
shares of Common Stock deliverable or in the consideration payable to this
corporation upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof (unless
such options or rights or convertible or exchangeable securities were merely
deemed to be included in the numerator and denominator for purposes of
determining the number of shares of Common Stock outstanding for purposes of
subsection 4(d)(i)(A)), the Conversion Price of the Series C Preferred Stock or
the Series D Preferred Stock, to the extent in any way affected by or computed
using such options, rights or securities, shall be recomputed to reflect such
change, but no further adjustment shall be made for the actual issuance of
Common Stock or any payment of such consideration upon the exercise of any such
options or rights or the conversion or exchange of such securities.
(4) Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of the Series C Preferred Stock and the Series
D Preferred Stock, to the extent in any way affected by or computed using such
options, rights or securities or options or rights related to such securities
(unless such options or rights were merely deemed to be included in the
numerator and denominator for purposes of determining the number of shares of
Common Stock outstanding for purposes of subsection 4(d)(i)(A)), shall be
recomputed to reflect the issuance of only the number of shares of Common Stock
(and convertible or exchangeable securities that remain in effect) actually
issued upon the exercise of such options or rights, upon the conversion or
exchange of such securities or upon the exercise of the options or rights
related to such securities.
(5) The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to subsections
4(d)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either subsection
4(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common
Stock issued (or deemed to have been issued pursuant to subsection 4(d)(i)(E))
by this corporation after the Purchase Date other than:
(A) Common Stock issued pursuant to a transaction
described in subsection 4(d)(iii) hereof;
(B) up to 4,171,237 shares of Common Stock (excluding
shares repurchased at cost by this corporation in connection with the
termination of
8
<PAGE> 9
service) issuable or issued to employees, consultants, directors or vendors (if
in transactions with primarily non-financing purposes) of this corporation
directly or pursuant to a stock option plan or restricted stock plan or similar
plan approved by the Board of Directors of this corporation; or
(C) Common Stock issued in connection with a Board
approved acquisition by this corporation of stock or assets of another entity by
means of purchase, merger, consolidation or otherwise.
(iii) In the event this corporation should at any time or
from time to time after the Purchase Date fix a record date for the effectuation
of a split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Conversion
Price of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock shall be appropriately decreased so
that the number of shares of Common Stock issuable on conversion of each share
of such series shall be increased in proportion to such increase of the
aggregate of shares of Common Stock outstanding and those issuable with respect
to such Common Stock Equivalents.
(iv) If the number of shares of Common Stock outstanding at
any time after the Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be decreased in proportion to such
decrease in outstanding shares.
(e) OTHER DISTRIBUTIONS. In the event this corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 4(d)(iii), then,
in each such case for the purpose of this subsection 4(e), the holders of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock shall be entitled to a proportionate share of any
such distribution as though they were the holders of the number of shares of
Common Stock of this corporation into which their shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of this corporation entitled to
receive such distribution.
9
<PAGE> 10
(f) RECAPITALIZATIONS. If at any time or from time to time there
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4 or Section 2) provision shall be made so that the holders of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock shall thereafter be entitled to receive upon
conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock the number of shares of stock or
other securities or property of the Corporation or otherwise, to which a holder
of Common Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4 with respect to the rights of
the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock after the recapitalization to the
end that the provisions of this Section 4 (including adjustment of the
Conversion Price then in effect and the number of shares purchasable upon
conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock) shall be applicable after that
event as nearly equivalent as may be practicable.
(g) NO IMPAIRMENT. This corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock against
impairment.
(h) NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS.
(i) No fractional shares shall be issued upon the
conversion of any share or shares of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, and the
number of shares of Common Stock to be issued shall be rounded to the nearest
whole share. Whether or not fractional shares are issuable upon such conversion
shall be determined on the basis of the total number of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series
D Preferred Stock the holder is at the time converting into Common Stock and the
number of shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment
of the Conversion Price of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock pursuant to this
Section 4, this corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock a certificate setting
forth such
10
<PAGE> 11
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. This corporation shall, upon the written
request at any time of any holder of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, furnish
or cause to be furnished to such holder a like certificate setting forth (A)
such adjustment and readjustment, (B) the Conversion Price for such series of
Preferred Stock at the time in effect, and (C) the number of shares of Common
Stock and the amount, if any, of other property that at the time would be
received upon the conversion of a share of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock.
(i) NOTICES OF RECORD DATE. In the event of any taking by this
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, at
least ten (10) days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
(j) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. This
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock, such number of
its shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of the Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock; and
if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding shares
of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock, in addition to such other remedies as shall
be available to the holder of such Preferred Stock, this corporation will take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes, including, without limitation,
engaging in best efforts to obtain the requisite shareholder approval of any
necessary amendment to this Restated Certificate of Incorporation.
(k) NOTICES. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock, shall be deemed given five days after being deposited in the United
States mail, postage prepaid, and addressed to each holder of record at his
address appearing on the books of this corporation.
11
<PAGE> 12
5. VOTING RIGHTS.
(a) GENERAL VOTING RIGHTS. The holder of each share of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series
D Preferred Stock, shall have the right to one vote for each share of Common
Stock into which such Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock and Series D Preferred Stock could then be converted, and with
respect to such vote, such holder shall have full voting rights and powers equal
to the voting rights and powers of the holders of Common Stock, and shall be
entitled, notwithstanding any provision hereof, to notice of any stockholders'
meeting in accordance with the bylaws of this corporation, and shall be entitled
to vote, together with holders of Common Stock, with respect to any question
upon which holders of Common Stock have the right to vote. Fractional votes
shall not, however, be permitted and any fractional voting rights available on
an as-converted basis (after aggregating all shares into which shares of Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock held by each holder could be converted) shall be
rounded to the nearest whole number (with one-half being rounded upward).
(b) VOTING FOR THE ELECTION OF DIRECTORS. As long as at least a
majority of the shares of Series C Preferred Stock originally issued remain
outstanding, the holders of such shares of Series C Preferred Stock shall be
entitled to elect one (1) director of this corporation at each annual election
of directors. As long as at least a majority of the shares of Series B Preferred
Stock originally issued remain outstanding, the holders of such shares of Series
B Preferred Stock shall be entitled to elect one (1) director of the this
corporation at each annual election of directors. The holders of a majority of
the outstanding capital stock of the Company shall be entitled to elect the
remaining directors of this corporation at each annual election of directors.
In the case of any vacancy (other than a vacancy caused by removal) in the
office of a director occurring among the directors elected by the holders of a
class or series of stock pursuant to this Section 5(b), the remaining directors
so elected by that class or series may by affirmative vote of a majority thereof
(or the remaining director so elected if there be but one, or if there are no
such directors remaining, by the affirmative vote of the holders of a majority
of the shares of that class or series), elect a successor or successors to hold
office for the unexpired term of the director or directors whose place or places
shall be vacant. Any director who shall have been elected by the holders of a
class or series of stock or by any directors so elected as provided in the
immediately preceding sentence hereof may be removed during the aforesaid term
of office, either with or without cause, by, and only by, the affirmative vote
of the holders of the shares of the class or series of stock entitled to elect
such director or directors, given either at a special meeting of such
stockholders duly called for that purpose or pursuant to a written consent of
stockholders, and any vacancy thereby created may be filled by the holders of
that class or series of stock represented at the meeting or pursuant to
unanimous written consent.
12
<PAGE> 13
6. PROTECTIVE PROVISIONS.
(a) So long as any shares of Series C Preferred Stock or Series
D Preferred Stock are outstanding, this corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the then outstanding shares of Series C
Preferred Stock and Series D Preferred Stock, voting together as a class:
(i) sell, convey, or otherwise dispose of all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly-owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of this corporation is disposed of;
(ii) authorize or issue, or obligate itself to issue, any
other equity security (including any other security convertible into or
exercisable for any equity security) having a preference over the Series C
Preferred Stock or Series D Preferred Stock with respect to dividends,
liquidation, redemption or voting;
(iii) redeem, purchase or otherwise acquire (or pay into or
set aside for a sinking fund for such purpose) any share or shares of Preferred
Stock or Common Stock; provided, however, that this restriction shall not apply
to (i) the repurchase of shares of Common Stock from employees, officers,
directors, consultants or other persons performing services for this corporation
or any subsidiary pursuant to agreements under which this corporation has the
option to repurchase such shares at cost or at cost upon the occurrence of
certain events, such as the termination of employment or (ii) the redemption of
any share or shares of Preferred Stock in accordance with Section 3; or
(iv) change the authorized number of directors of this
corporation.
(b) So long as any shares of Series C Preferred Stock are
outstanding, this corporation shall not without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of at least a
majority of the then outstanding shares of Series C Preferred Stock, voting as a
class:
(i) alter or change the rights, preferences or privileges
of the shares of Series C Preferred Stock so as to adversely affect the shares
of Series C Preferred Stock; or
(ii) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Series C Preferred Stock.
(c) So long as any shares of Series D Preferred Stock are
outstanding, this corporation shall not without first obtaining the approval (by
vote or written consent, as
13
<PAGE> 14
provided by law) of the holders of at least a majority of the then outstanding
shares of Series D Preferred Stock, voting as a class:
(i) alter or change the rights, preferences or privileges
of the shares of Series D Preferred Stock so as to adversely affect the shares
of Series D Preferred Stock; or
(ii) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Series D Preferred Stock.
7. Status of Redeemed or Converted Stock. In the event any shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or
Series D Preferred Stock shall be redeemed or converted pursuant to Section 3 or
Section 4 hereof, the shares so redeemed or converted shall be cancelled and
shall not be issuable by this corporation.
C. UNDESIGNATED PREFERRED STOCK. Subject to any limitations prescribed by
law or this Certificate, the Board of Directors of the corporation is expressly
authorized to provide for the issuance of the shares of Undesignated Preferred
Stock in one or more classes or one or more series of stock within any class,
and by filing a certificate pursuant to applicable law of the State of Delaware,
to establish or change from time to time the number of shares to be included in
each such class or series, and to fix the designation, voting powers,
preferences, qualifications, privileges and rights of the shares of each such
class or series and any qualifications, limitations and restrictions thereof.
The Board of Directors shall have the right to determine or fix one or more of
the following with respect to each class or series of such Undesignated
Preferred Stock:
(a) The distinctive class or series designation and the number of
shares constituting such class or series;
(b) The dividend rates or the amount of dividends to be paid on the
shares of such class or series, whether dividends shall be cumulative and, if
so, from which date or dates, the payment date or dates for dividends, and the
participating and other rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of the shares of such
class or series;
(d) Whether the shares of such class or series shall be redeemable
and, if so, the price or prices at which, and the terms and conditions on which,
such shares may be redeemed;
(e) The amount or amounts payable upon the shares of such class or
series and any preferences applicable thereto in the event of voluntary
liquidation, dissolution or winding up of the corporation;
14
<PAGE> 15
(f) Whether the shares of such class or series shall be entitled to
the benefit of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund and the
manner of its application, including the price or prices at which such shares
may be redeemed or purchased through the application of such fund;
(g) Whether the shares of such class or series shall be convertible
into, or exchangeable for, shares of any other class or classes or of any other
series of the same or any other class or classes of stock of the corporation
and, if so convertible or exchangeable, the conversion price or prices, or the
rate of rates or exchange, and the adjustments thereof, if any, at which such
conversion or exchange may be made, and any other terms and conditions of such
conversion or exchange;
(h) The price or other consideration for which the shares of such
class or series shall be issued;
(i) Whether the shares of such class or series which are redeemed or
converted shall have the status of authorized but unissued shares of preferred
stock and whether such shares may be reissued as shares of the same or any other
class or series of stock; and
(j) Such other powers, preferences, rights, qualifications,
limitations and restrictions thereof as the Board of Directors of the
corporation may deem advisable.
Subject to the authority of the Board of Directors as set forth in clause (i)
above, any shares of Undesignated Preferred Stock shall, upon reacquisition
thereof by the corporation, be restored to the status of authorized but unissued
Undesignated Preferred Stock under this Section C.
D. COMMON STOCK. The rights, preferences, privileges and restrictions
granted to and imposed on the Common Stock are as set forth below in this
Article IV(D).
1. DIVIDEND RIGHTS. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of this corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.
2. LIQUIDATION RIGHTS. Upon the liquidation, dissolution or winding
up of this corporation, the assets of this corporation shall be distributed as
provided in Section 2 of Division (B) of Article IV hereof.
3. REDEMPTION. The Common Stock is not redeemable.
4. VOTING RIGHTS. The holder of each share of Common Stock shall
have the right to one vote for each such share, and shall be entitled to notice
of any stockholders' meeting
15
<PAGE> 16
in accordance with the bylaws of this corporation, and shall be entitled to vote
upon such matters and in such manner as may be provided by law.
ARTICLE V
Except as otherwise provided in this Certificate of Incorporation, in
furtherance and not in limitation of the powers conferred by statute, the Board
of Directors is expressly authorized to make, repeal, alter, amend and rescind
any or all of the Bylaws of this corporation.
ARTICLE VI
The number of directors of this corporation shall be fixed from time to
time by a bylaw or amendment thereof duly adopted by the Board of Directors or
by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws of
this corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of this corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of this corporation.
ARTICLE IX
A director of this corporation shall, to the fullest extent permitted by
the General Corporation Law as it now exists or as it may hereafter be amended,
not be personally liable to this corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to this corporation or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the General Corporation Law, or (iv) for any transaction from which the director
derived any improper personal benefit. If the General Corporation Law is
amended, after approval by the stockholders of this Article, to authorize
corporation action further eliminating or limiting the personal liability of
directors, then the liability of a director of this corporation shall be
eliminated or limited to the fullest extent permitted by the General Corporation
Law, as so amended.
Any amendment, repeal or modification of this Article IX, or the adoption
of any provision of this Amended and Restated Certificate of Incorporation
inconsistent with this Article IX, by the stockholders of this corporation shall
not apply to or adversely affect any right
16
<PAGE> 17
or protection of a director of this corporation existing at the time of such
amendment, repeal, modification or adoption.
ARTICLE X
This corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
ARTICLE XI
To the fullest extent permitted by applicable law, this corporation is
authorized to provide indemnification of (and advancement of expenses to) agents
of this corporation (and any other persons to which General Corporation Law
permits this corporation to provide indemnification) through bylaw provisions,
agreements with such agents or other persons, vote of stockholders or
disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the General Corporation Law,
subject only to limits created by applicable General Corporation Law (statutory
or non-statutory), with respect to actions for breach of duty to this
corporation, its stockholders, and others.
Any amendment, repeal or modification of the foregoing provisions of this
Article XI shall not adversely affect any right or protection of a director,
officer, agent, or other person existing at the time of, or increase the
liability of any director of this corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to, such amendment,
repeal or modification.
* * *
THIRD: The foregoing amendment and restatement was approved by the
holders of the requisite number of shares of said corporation in accordance with
Section 228 of the General Corporation Law.
FOURTH: That said amendment and restatement was duly adopted in
accordance with the provisions of Section 242 and 245 of the General Corporation
Law.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been
executed by the President of this corporation on this ____ day of July, 1999.
/S/ Scott T. Randall
---------------------------------
Scott T. Randall, President
17
<PAGE> 1
EXHIBIT 3.2
FORM OF
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
FAIRMARKET, INC.
FairMarket, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is FairMarket, Inc. The date of
the filing of its original Certificate of Incorporation with the Secretary of
State of the State of Delaware was February 20, 1997 (the "Original
Certificate").
2. This Amended and Restated Certificate of Incorporation (the
"Certificate") amends, restates and integrates the provisions of the Original
Certificate, and (i) was duly adopted by the Board of Directors of the
Corporation (the "Board of Directors") in accordance with the provisions of
Sections 242 and 245 of the Delaware General Corporation Law (the "DGCL"), (ii)
was declared by the Board of Directors to be advisable and in the best interests
of the Corporation and was directed by the Board of Directors to be submitted to
and considered by the stockholders of the Corporation entitled to vote thereon
in accordance with the DGCL and (iii) was duly adopted by the stockholders in
accordance with the provisions of the DGCL and the terms of the Original
Certificate.
3. The text of the Original Certificate is hereby amended and
restated in its entirety to provide as herein set forth in full.
<PAGE> 2
ARTICLE I
The name of the Corporation is FairMarket, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is c/o The Corporation Trust Company, 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the DGCL.
ARTICLE IV
CAPITAL STOCK
The total number of shares of capital stock which the Corporation shall
have authority to issue is ___________ (________) shares, of which (i) shares
shall be Common Stock, par value $0.001 per share, (ii) _____________
(_________) shares shall be Series A Preferred Stock, par value $ ___ per share
(the "Series A Preferred Stock"), (iii) _______ (______) shares shall be Series
B Preferred Stock, par value $_____ per share (the "Series B Preferred Stock"),
(iv) ________ (_______) shares shall be Series C Preferred Stock, par value
$_____ per share (the "Series C Preferred Stock"), (v) _________ (_______)
shares shall be Series D Preferred Stock, par value $_____ per share (the
"Series D Preferred Stock") (together, the "Convertible Preferred Stock") and
(vi) _____________ (_________) shares shall be undesignated preferred stock, par
value $ ___ per share (the "Undesignated Preferred Stock" and, together with the
Convertible Preferred Stock, the "Preferred Stock").
Except as otherwise restricted by this Certificate, the Board of
Directors may, at any time and from time to time, if all of the shares of
capital stock which the Corporation is authorized by this Certificate to issue
have not been issued, subscribed for, or otherwise committed to be issued, issue
or take subscriptions for additional shares of its capital stock up to the
amount authorized in this Certificate to such person or persons and for such
lawful consideration as it may deem appropriate, and generally in its absolute
discretion to determine the terms and the manner of disposition of such
authorized but unissued capital stock.
Any and all such shares issued for which the full consideration has
been paid or delivered shall be deemed fully paid shares of capital stock, and
the holder of such shares shall not be liable for any further call or assessment
or any other payment thereon.
The number of authorized shares of the class of Undesignated Preferred
Stock may from time to time be increased or decreased (but not below the number
of shares outstanding) by the affirmative vote of the holders of a majority of
the outstanding shares of Common Stock entitled to vote, without a vote of the
holders of the Preferred Stock (subject to the terms of the
2
<PAGE> 3
Convertible Preferred Stock and except as otherwise provided in any certificate
of designation of any series of Undesignated Preferred Stock).
The designations, powers, preferences and rights of, and the
qualifications, limitations and restrictions upon, each class or series of stock
shall be determined in accordance with, or as set forth below in, this Article
IV.
A. COMMON STOCK
Subject to all the rights, powers and preferences of the Preferred
Stock and except as provided by law or in this Article IV (or in any certificate
of designation of any series of Undesignated Preferred Stock):
(a) the holders of the Common Stock shall have the
exclusive right to vote for the election of Directors and on all other matters
requiring stockholder action, each share being entitled to one vote;
(b) dividends may be declared and paid or set apart for
payment upon the Common Stock out of any assets or funds of the Corporation
legally available for the payment of dividends, but only when and as declared by
the Board of Directors or any authorized committee thereof; and
(c) upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the net assets of the Corporation
shall be distributed pro rata to the holders of the Common Stock.
3
<PAGE> 4
B. CONVERTIBLE PREFERRED STOCK
1. Dividend Provisions.
(a) No dividends or other distributions shall be authorized,
declared, paid or set apart for payment on any shares of Common Stock or
Preferred Stock unless at the same time (i) a dividend is declared or paid upon,
or distribution made on, the shares of Series C Preferred Stock and Series D
Preferred Stock equal to the greater of (A) with respect to the Series C
Preferred Stock, $.137 per share per annum (as adjusted for any stock splits,
stock dividends, recapitalizations or the like) and with respect to the Series D
Preferred Stock, $.56 per annum (as adjusted for any stock splits, stock
dividends, recapitalizations or the like), and (B) an amount equal to that paid
on any other outstanding shares of this corporation (assuming conversion of the
Series C Preferred Stock and Series D Preferred Stock as of the record date for
such dividend or distribution), and (ii) a dividend is declared or paid upon, or
distribution made on, the shares of Series A Preferred Stock and Series B
Preferred Stock in an amount equal to that paid on any other outstanding shares
of this corporation (assuming conversion of the Series A Preferred Stock and
Series B Preferred Stock as of the record date for such dividend or
distribution). Dividends shall not be cumulative.
2. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up
of this corporation, either voluntary or involuntary, the holders of Series C
Preferred Stock and Series D Preferred Stock shall be entitled to receive, prior
and in preference to any distribution of any of the assets of this corporation
to the holders of Series A Preferred Stock, the holders of Series B Preferred
Stock or the holders of Common Stock by reason of their ownership thereof, an
amount per share equal to the sum of (i) $1.714 for each outstanding share of
Series C Preferred Stock (the "Original Series C Issue Price"), (ii) $7.00 for
each outstanding share of Series D Preferred Stock (the "Original Series D Issue
Price") and (iii) declared but unpaid dividends on such shares
4
<PAGE> 5
(subject to adjustment of such fixed dollar amounts for any stock splits, stock
dividends, combinations, recapitalizations or the like). If upon the occurrence
of such event, the assets and funds thus distributed among the holders of the
Series C Preferred Stock and Series D Preferred Stock shall be insufficient to
permit the payment to such holders of the full aforesaid preferential amounts,
then the entire assets and funds of this corporation legally available for
distribution shall be distributed ratably among the holders of the Series C
Preferred Stock and Series D Preferred Stock in proportion to the full
preferential amount to which each such holder would otherwise be entitled
pursuant to this subsection (a).
Upon completion of the distribution required by subsection (a) of this
Section 2, if assets remain in this corporation, the holders of Series A
Preferred Stock and Series B Preferred Stock shall be entitled to receive, prior
and in preference to any distribution of any of the assets of this corporation
to the holders of the Common Stock by reason of their ownership thereof, (A) in
the case of the Series A Preferred Stock, an amount per share equal to the sum
of (i) $.6626 for each outstanding share of Series A Preferred Stock (the
"Original Series A Issue Price") and (ii) an amount equal to declared but unpaid
dividends on such share (subject to adjustment of such fixed dollar amounts for
any stock splits, stock dividends, combinations, recapitalizations or the like),
and (B) in the case of the Series B Preferred Stock, an amount per share equal
to the sum of (i) $1.1111 for each outstanding share of Series B Preferred Stock
(the "Original Series B Issue Price") and (ii) an amount equal to declared but
unpaid dividends on such share (subject to adjustment of such fixed dollar
amounts for any stock splits, stock dividends, combinations, recapitalizations
or the like). If upon the occurrence of such event, the remaining assets and
funds thus distributed among the holders of the Series A Preferred Stock and
Series B Preferred Stock shall be insufficient to permit the payment to such
holders of the full aforesaid preferential amounts, then the entire assets and
funds of the corporation legally available for distribution shall be distributed
ratably among the holders of the Series A Preferred Stock and Series B Preferred
Stock in proportion to the full preferential amount each such holder is
otherwise entitled to receive under this subsection (a).
(b) Upon completion of the distribution required by subsection
(a) of this Section 2, all of the remaining assets of this corporation available
for distribution to stockholders shall be distributed among the holders of
Common Stock pro rata based on the number of shares of Common Stock held by
each.
(c) (i) For purposes of this Section 2, a liquidation,
dissolution or winding up of this corporation shall be deemed to be occasioned
by, or to include, (A) the acquisition of this corporation by another entity by
means of any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation) that results in the
transfer of fifty percent (50%) or more of the outstanding voting power of this
corporation; or (B) a sale of all or substantially all of the assets of this
corporation.
(ii) In any of such events, if the consideration received by
this corporation is other than cash, its value will be deemed its fair market
value. Any securities shall be valued as follows:
5
<PAGE> 6
(A) Securities not subject to investment letter or
other similar restrictions on free marketability covered by (B) below:
(1) If traded on a securities exchange or through
the Nasdaq National Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange or system over the thirty (30)
day period ending three (3) days prior to the closing;
(2) If actively traded over-the-counter, the
value shall be deemed to be the average of the closing bid or sale prices
(whichever is applicable) over the thirty (30) day period ending three (3) days
prior to the closing; and
(3) If there is no active public market, the
value shall be the fair market value thereof, as mutually determined by this
corporation and the holders of at least a majority of the voting power of all
then outstanding shares of Preferred Stock.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (A) (1), (2) or (3) to reflect the approximate fair
market value thereof, as mutually determined by this corporation and the holders
of at least a majority of the voting power of all then outstanding shares of
such Preferred Stock.
(iii) In the event the requirements of this Section 2(a) are
not complied with, this corporation shall forthwith either:
(A) cause such closing to be postponed until such time
as the requirements of this Section 2 have been complied with; or
(B) cancel such transaction, in which event the
rights, preferences and privileges of the holders of the Preferred Stock shall
revert to and be the same as such rights, preferences and privileges existing
immediately prior to the date of the first notice referred to in subsection
2(c)(iv) hereof.
(iv) This corporation shall give each holder of record of
Preferred Stock written notice of such impending transaction not later than
twenty (20) days prior to the stockholders' meeting, if any, called to approve
such transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 2, and this corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than twenty (20) days after this corporation has given the first notice
provided for herein or sooner than ten (10) days after this corporation
6
<PAGE> 7
has given notice of any material changes provided for herein; provided, however,
that such periods may be shortened upon the written consent of the holders of
Preferred Stock that are entitled to such notice rights or similar notice rights
and that represent at least a majority of the voting power of all then
outstanding shares of such Preferred Stock.
3. REDEMPTION.
The Preferred Stock is not redeemable.
4. CONVERSION. The holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
shall be convertible, at the option of the holder thereof, at any time after the
date of issuance of such share, at the office of this corporation or any
transfer agent for such stock, into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing the Original Series A Issue
Price, the Original Series B Issue Price, the Original Series C Issue Price or
the Original Series D Issue Price, as the case may be, by the Conversion Price
applicable to such share, determined as hereafter provided, in effect on the
date the certificate is surrendered for conversion. The initial Conversion Price
per share for shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock shall be the Original
Series A Issue Price, the Original Series B Issue Price, the Original Series C
Issue Price and the Original Series D Issue Price, respectively; provided,
however, that the Conversion Price for the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be
subject to adjustment as set forth in subsection 4(d).
(b) AUTOMATIC CONVERSION. Each share of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock shall automatically be converted into shares of Common Stock at the
Conversion Price at the time in effect for such Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
immediately upon the earlier of (i) this corporation's sale of its Common Stock
in a firm commitment underwritten public offering pursuant to a registration
statement on Form S-1 or Form SB-2 under the Securities Act of 1933, as amended,
the public offering price of which was not less than $7.00 per share (as
adjusted for any stock splits, stock dividends, recapitalizations or the like)
and $15,000,000 in the aggregate or (ii) the date specified by written consent
or agreement of the holders of a majority of the then outstanding shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock (voting together as a single class and not as a
separate series, and on an as-converted basis).
(c) MECHANICS OF CONVERSION. Before any holder of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock shall be
7
<PAGE> 8
entitled to convert the same into shares of Common Stock, he or she shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of this corporation or of any transfer agent for the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock
and shall give written notice to this corporation at its principal corporate
office, of the election to convert the same and shall state therein the name or
names in which the certificate or certificates for shares of Common Stock are to
be issued. This corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock or to the
nominee or nominees of such holder, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be entitled as aforesaid.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred
Stock to be converted, and the person or persons entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such shares of Common Stock as of such date.
If the conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act of 1933, the conversion may, at the
option of any holder tendering Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock or Series D Preferred Stock for conversion, be
conditioned upon the closing with the underwriters of the sale of securities
pursuant to such offering, in which event the persons entitled to receive the
Common Stock upon conversion of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock or Series D Preferred Stock shall not be deemed
to have converted such Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock or Series D Preferred Stock until immediately prior to
the closing of such sale of securities.
(d) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK FOR CERTAIN
DILUTIVE ISSUANCES, SPLITS AND COMBINATIONS. The Conversion Price of the Series
A Preferred, Series B Preferred, Series C Preferred Stock and Series D Preferred
Stock shall be subject to adjustment from time to time as follows:
(i) (A) If this corporation shall issue, after the date
upon which any shares of Series D Preferred Stock were first issued (the
"Purchase Date"), any Additional Stock (as defined below) without consideration
or for a consideration per share less than the Conversion Price for the Series C
Preferred Stock or Series D Preferred Stock in effect immediately prior to the
issuance of such Additional Stock, the Conversion Price for such Series C
Preferred Stock or Series D Preferred Stock, as applicable, in effect
immediately prior to each such issuance shall forthwith (except as otherwise
provided in this clause (i)) be adjusted to a price determined by multiplying
such Conversion Price by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding immediately prior to such issuance
(including shares of Common Stock deemed to be issued pursuant to subsection
4(d)(i)(E)(1) or (2)) (but not including shares excluded from the definition of
Additional Stock by Section 4(d)(ii)(B)) plus the number of shares of Common
Stock that the aggregate consideration received by this corporation for such
issuance would purchase at such Conversion Price; and the denominator of which
shall be the number of shares of Common Stock outstanding immediately
8
<PAGE> 9
prior to such issuance (including shares of Common Stock deemed to be issued
pursuant to subsection 4(d)(i)(E)(1) or (2)) (but not including shares excluded
from the definition of Additional Stock by subsection 4(d)(ii)(B)) plus the
number of shares of such Additional Stock.
(B) No adjustment of the Conversion Price for the
Series C Preferred Stock or Series D Preferred Stock shall be made in an amount
less than one cent per share, provided that any adjustments that are not
required to be made by reason of this sentence shall be carried forward and
shall be either taken into account in any subsequent adjustment made prior to
three (3) years from the date of the event giving rise to the adjustment being
carried forward, or shall be made at the end of three (3) years from the date of
the event giving rise to the adjustment being carried forward. Except to the
limited extent provided for in subsections (E)(3) and (E)(4), no adjustment of
such Conversion Price pursuant to this subsection 4(d)(i) shall have the effect
of increasing the Conversion Price above the Conversion Price in effect
immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor.
(D) In the case of the issuance of the Common Stock
for a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined by the
Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance after the Purchase
Date of options to purchase or rights to subscribe for Common Stock, securities
by their terms convertible into or exchangeable for Common Stock or options to
purchase or rights to subscribe for such convertible or exchangeable securities,
the following provisions shall apply for all purposes of this subsection 4(d)(i)
and subsection 4(d)(ii):
(1) The aggregate maximum number of shares of
Common Stock deliverable upon exercise of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at the time such
options or rights were issued and for a consideration equal to the consideration
(determined in the manner provided in subsections 4(d)(i)(C) and (d)(i)(D)), if
any, received by this corporation upon the issuance of such options or rights
plus the minimum exercise price provided in such options or rights for the
Common Stock covered thereby.
(2) The aggregate maximum number of shares of
Common Stock deliverable upon conversion of, or in exchange for, any such
convertible or exchangeable securities or upon the exercise of options to
purchase or rights to subscribe for such convertible or exchangeable securities
and subsequent conversion or exchange thereof shall be deemed to have been
issued at the time such securities were issued or such options or rights were
issued and for a consideration equal to the consideration, if any, received by
this corporation for any such securities and related options or rights
(excluding any cash received on account of
9
<PAGE> 10
accrued interest or accrued dividends), plus the minimum additional
consideration, if any, to be received by this corporation upon the conversion or
exchange of such securities or the exercise of any related options or rights
(the consideration in each case to be determined in the manner provided in
subsections 4(d)(i)(C) and (d)(i)(D)).
(3) In the event of any change in the number of
shares of Common Stock deliverable or in the consideration payable to this
corporation upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof (unless
such options or rights or convertible or exchangeable securities were merely
deemed to be included in the numerator and denominator for purposes of
determining the number of shares of Common Stock outstanding for purposes of
subsection 4(d)(i)(A)), the Conversion Price of the Series C Preferred Stock or
the Series D Preferred Stock, to the extent in any way affected by or computed
using such options, rights or securities, shall be recomputed to reflect such
change, but no further adjustment shall be made for the actual issuance of
Common Stock or any payment of such consideration upon the exercise of any such
options or rights or the conversion or exchange of such securities.
(4) Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of the Series C Preferred Stock and the Series
D Preferred Stock, to the extent in any way affected by or computed using such
options, rights or securities or options or rights related to such securities
(unless such options or rights were merely deemed to be included in the
numerator and denominator for purposes of determining the number of shares of
Common Stock outstanding for purposes of subsection 4(d)(i)(A)), shall be
recomputed to reflect the issuance of only the number of shares of Common Stock
(and convertible or exchangeable securities that remain in effect) actually
issued upon the exercise of such options or rights, upon the conversion or
exchange of such securities or upon the exercise of the options or rights
related to such securities.
(5) The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to subsections
4(d)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either subsection
4(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common
Stock issued (or deemed to have been issued pursuant to subsection 4(d)(i)(E))
by this corporation after the Purchase Date other than:
(A) Common Stock issued pursuant to a transaction
described in subsection 4(d)(iii) hereof;
(B) up to 4,171,237 shares of Common Stock (excluding
shares repurchased at cost by this corporation in connection with the
termination of
10
<PAGE> 11
service) issuable or issued to employees, consultants, directors or vendors (if
in transactions with primarily non-financing purposes) of this corporation
directly or pursuant to a stock option plan or restricted stock plan or similar
plan approved by the Board of Directors of this corporation; or
(C) Common Stock issued in connection with a Board
approved acquisition by this corporation of stock or assets of another entity by
means of purchase, merger, consolidation or otherwise.
(iii) In the event this corporation should at any time or
from time to time after the Purchase Date fix a record date for the effectuation
of a split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Conversion
Price of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock shall be appropriately decreased so
that the number of shares of Common Stock issuable on conversion of each share
of such series shall be increased in proportion to such increase of the
aggregate of shares of Common Stock outstanding and those issuable with respect
to such Common Stock Equivalents.
(iv) If the number of shares of Common Stock outstanding at
any time after the Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be decreased in proportion to such
decrease in outstanding shares.
(e) OTHER DISTRIBUTIONS. In the event this corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 4(d)(iii), then,
in each such case for the purpose of this subsection 4(e), the holders of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock shall be entitled to a proportionate share of any
such distribution as though they were the holders of the number of shares of
Common Stock of this corporation into which their shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of this corporation entitled to
receive such distribution.
11
<PAGE> 12
(f) RECAPITALIZATIONS. If at any time or from time to time there
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4 or Section 2) provision shall be made so that the holders of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock shall thereafter be entitled to receive upon
conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock the number of shares of stock or
other securities or property of the Corporation or otherwise, to which a holder
of Common Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4 with respect to the rights of
the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock after the recapitalization to the
end that the provisions of this Section 4 (including adjustment of the
Conversion Price then in effect and the number of shares purchasable upon
conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock) shall be applicable after that
event as nearly equivalent as may be practicable.
(g) NO IMPAIRMENT. This corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock against
impairment.
(h) NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS.
(i) No fractional shares shall be issued upon the
conversion of any share or shares of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, and the
number of shares of Common Stock to be issued shall be rounded to the nearest
whole share. Whether or not fractional shares are issuable upon such conversion
shall be determined on the basis of the total number of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series
D Preferred Stock the holder is at the time converting into Common Stock and the
number of shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment
of the Conversion Price of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock pursuant to this
Section 4, this corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock a certificate setting
forth such
12
<PAGE> 13
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. This corporation shall, upon the written
request at any time of any holder of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, furnish
or cause to be furnished to such holder a like certificate setting forth (A)
such adjustment and readjustment, (B) the Conversion Price for such series of
Preferred Stock at the time in effect, and (C) the number of shares of Common
Stock and the amount, if any, of other property that at the time would be
received upon the conversion of a share of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock.
(i) NOTICES OF RECORD DATE. In the event of any taking by this
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, at
least ten (10) days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
(j) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. This
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock, such number of
its shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of the Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock; and
if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding shares
of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock, in addition to such other remedies as shall
be available to the holder of such Preferred Stock, this corporation will take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes, including, without limitation,
engaging in best efforts to obtain the requisite shareholder approval of any
necessary amendment to this Restated Certificate of Incorporation.
(k) NOTICES. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock, shall be deemed given five days after being deposited in the United
States mail, postage prepaid, and addressed to each holder of record at his
address appearing on the books of this corporation.
13
<PAGE> 14
5. VOTING RIGHTS.
(a) GENERAL VOTING RIGHTS. The holder of each share of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series
D Preferred Stock, shall have the right to one vote for each share of Common
Stock into which such Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock and Series D Preferred Stock could then be converted, and with
respect to such vote, such holder shall have full voting rights and powers equal
to the voting rights and powers of the holders of Common Stock, and shall be
entitled, notwithstanding any provision hereof, to notice of any stockholders'
meeting in accordance with the bylaws of this corporation, and shall be entitled
to vote, together with holders of Common Stock, with respect to any question
upon which holders of Common Stock have the right to vote. Fractional votes
shall not, however, be permitted and any fractional voting rights available on
an as-converted basis (after aggregating all shares into which shares of Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock held by each holder could be converted) shall be
rounded to the nearest whole number (with one-half being rounded upward).
(b) VOTING FOR THE ELECTION OF DIRECTORS. As long as at least a
majority of the shares of Series C Preferred Stock originally issued remain
outstanding, the holders of such shares of Series C Preferred Stock shall be
entitled to elect one (1) director of this corporation at each annual election
of directors. As long as at least a majority of the shares of Series B Preferred
Stock originally issued remain outstanding, the holders of such shares of Series
B Preferred Stock shall be entitled to elect one (1) director of the this
corporation at each annual election of directors. The holders of a majority of
the outstanding capital stock of the Company shall be entitled to elect the
remaining directors of this corporation at each annual election of directors.
In the case of any vacancy (other than a vacancy caused by removal) in the
office of a director occurring among the directors elected by the holders of a
class or series of stock pursuant to this Section 5(b), the remaining directors
so elected by that class or series may by affirmative vote of a majority thereof
(or the remaining director so elected if there be but one, or if there are no
such directors remaining, by the affirmative vote of the holders of a majority
of the shares of that class or series), elect a successor or successors to hold
office for the unexpired term of the director or directors whose place or places
shall be vacant. Any director who shall have been elected by the holders of a
class or series of stock or by any directors so elected as provided in the
immediately preceding sentence hereof may be removed during the aforesaid term
of office, either with or without cause, by, and only by, the affirmative vote
of the holders of the shares of the class or series of stock entitled to elect
such director or directors, given either at a special meeting of such
stockholders duly called for that purpose or pursuant to a written consent of
stockholders, and any vacancy thereby created may be filled by the holders of
that class or series of stock represented at the meeting or pursuant to
unanimous written consent.
14
<PAGE> 15
6. PROTECTIVE PROVISIONS.
(a) So long as any shares of Series C Preferred Stock or Series
D Preferred Stock are outstanding, this corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the then outstanding shares of Series C
Preferred Stock and Series D Preferred Stock, voting together as a class:
(i) sell, convey, or otherwise dispose of all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly-owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of this corporation is disposed of;
(ii) authorize or issue, or obligate itself to issue, any
other equity security (including any other security convertible into or
exercisable for any equity security) having a preference over the Series C
Preferred Stock or Series D Preferred Stock with respect to dividends,
liquidation, redemption or voting;
(iii) redeem, purchase or otherwise acquire (or pay into or
set aside for a sinking fund for such purpose) any share or shares of Preferred
Stock or Common Stock; provided, however, that this restriction shall not apply
to (i) the repurchase of shares of Common Stock from employees, officers,
directors, consultants or other persons performing services for this corporation
or any subsidiary pursuant to agreements under which this corporation has the
option to repurchase such shares at cost or at cost upon the occurrence of
certain events, such as the termination of employment or (ii) the redemption of
any share or shares of Preferred Stock in accordance with Section 3; or
(iv) change the authorized number of directors of this
corporation.
(b) So long as any shares of Series C Preferred Stock are
outstanding, this corporation shall not without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of at least a
majority of the then outstanding shares of Series C Preferred Stock, voting as a
class:
(i) alter or change the rights, preferences or privileges
of the shares of Series C Preferred Stock so as to adversely affect the shares
of Series C Preferred Stock; or
(ii) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Series C Preferred Stock.
(c) So long as any shares of Series D Preferred Stock are
outstanding, this corporation shall not without first obtaining the approval (by
vote or written consent, as
15
<PAGE> 16
provided by law) of the holders of at least a majority of the then outstanding
shares of Series D Preferred Stock, voting as a class:
(i) alter or change the rights, preferences or privileges
of the shares of Series D Preferred Stock so as to adversely affect the shares
of Series D Preferred Stock; or
(ii) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Series D Preferred Stock.
7. Status of Redeemed or Converted Stock. In the event any shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or
Series D Preferred Stock shall be redeemed or converted pursuant to Section 3 or
Section 4 hereof, the shares so redeemed or converted shall be cancelled and
shall not be issuable by this corporation.
16
<PAGE> 17
C. UNDESIGNATED REFERRED STOCK
1. AUTHORITY TO ISSUE. The total number of shares of Undesignated
Preferred Stock which the Corporation shall have authority to issue is ________
(________) shares.
Subject to any limitations prescribed by law, the Board of Directors or any
authorized committee thereof is expressly authorized to provide for the issuance
of the shares of Undesignated Preferred Stock in one or more series of such
stock, and by filing a certificate pursuant to applicable law of the State of
Delaware, to establish or change from time to time the number of shares to be
included in each such series, and to fix the designations, powers, preferences
and the relative, participating, optional or other special rights of the shares
of each series and any qualifications, limitations and restrictions thereof.
2. POWERS, PREFERENCES, RIGHTS, QUALIFICATIONS, LIMITATIONS AND
RESTRICTION OF EACH SERIES OF UNDESIGNATED PREFERRED STOCK. The Board of
Directors or any authorized committee thereof shall have the right to determine
or fix one or more of the following with respect to each series of Undesignated
Preferred Stock to the fullest extent permitted by law:
(a) The distinctive serial designation and the number of
shares constituting such series;
(b) The dividend rates or the amount of dividends to
be paid on the shares of such series, whether dividends shall be
cumulative and, if so, from which date or dates, the payment date or
dates for dividends, and the participating and other rights, if any,
with respect to dividends;
(c) The voting rights and powers, full or limited, if
any, of the shares of such series;
(d) Whether the shares of such series shall be redeemable
and, if so, the price or prices at which, and the terms and conditions
on which, such shares may be redeemed;
(e) The amount or amounts payable upon the shares of
such series and any preferences applicable thereto in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation;
(f) Whether the shares of such series shall be entitled
to the benefit of a sinking or retirement fund to be applied to the
purchase or redemption of such shares, and if so entitled, the amount
of such fund and the manner of its application, including the price or
prices at which such shares may be redeemed or purchased through the
application of such fund;
(g) Whether the shares of such series shall be
convertible into, or exchangeable for, shares of any other class or
classes or of any other series of the same or any other class or
classes of stock of the Corporation and, if so convertible or
exchangeable, the conversion price or prices, or the rate or rates of
exchange, and the adjustments thereof, if any, at which such conversion
or exchange may be made, and any other terms and conditions of such
conversion or exchange;
17
<PAGE> 18
(h) The consideration for which the shares of such series
shall be issued;
(i) Whether the shares of such series which are redeemed
or converted shall have the status of authorized but unissued shares of
Undesignated Preferred Stock (or series thereof) and whether such
shares may be reissued as shares of the same or any other class or
series of stock; and
(j) Such other powers, preferences, rights,
qualifications, limitations and restrictions thereof as the Board of
Directors or any authorized committee thereof may deem advisable.
ARTICLE V
STOCKHOLDER ACTION
1. ACTION WITHOUT MEETING. Except as otherwise provided herein,
any action required or permitted to be taken by the stockholders of the
Corporation at any annual or special meeting of stockholders of the Corporation
must be effected at a duly called annual or special meeting of stockholders and
may not be taken or effected by a written consent of stockholders in lieu
thereof.
2. SPECIAL MEETINGS. Except as otherwise required by statute and
subject to the rights, if any, of the holders of any series of Undesignated
Preferred Stock, special meetings of the stockholders of the Corporation may be
called only by the Board of Directors acting pursuant to a resolution approved
by the affirmative vote of a majority of the Directors then in office. Only
those matters set forth in the notice of the special meeting may be considered
or acted upon at a special meeting of stockholders of the Corporation.
ARTICLE VI
DIRECTORS
1. GENERAL. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors except as otherwise
provided herein or required by law.
2. ELECTION OF DIRECTORS. Election of Directors need not be by
written ballot unless the By-laws of the Corporation shall so provide.
3. TERMS OF DIRECTORS. The number of Directors of the Corporation
shall be fixed solely by resolution duly adopted from time to time by the Board
of Directors. The Directors, other than those who may be elected by the holders
of any series or class of Preferred Stock, shall be classified, with respect to
the term for which they severally hold office, into three
18
<PAGE> 19
classes, as nearly equal in number as possible. The initial Class I Directors
of the Corporation shall be ___________; the initial Class II Directors of the
Corporation shall be ___________; and the initial Class III Directors of the
Corporation shall be ________. The initial Class I Directors shall serve for a
term expiring at the annual meeting of stockholders to be held in _______, the
initial Class II Directors shall serve for a term expiring at the annual meeting
of stockholders to be held in __________, and the initial Class III Directors
shall serve for a term expiring at the annual meeting of stockholders to be held
in ________. At each annual meeting of stockholders, Directors elected to
succeed those Directors whose terms expire shall be elected for a term of office
to expire at the third succeeding annual meeting of stockholders after their
election. Notwithstanding the foregoing, the Directors elected to each class
shall hold office until their successors are duly elected and qualified or until
their earlier resignation or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this Certificate, the holders of any one or more series or class
of Preferred Stock shall have the right, voting separately as a series or
together with holders of other such series, to elect Directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate and any certificate of designation applicable thereto,
and such Directors so elected shall not be divided into classes pursuant to this
Article VI.3.
4. VACANCIES. Subject to the rights, if any, of the holders of
any series or class of Preferred Stock to elect Directors and to fill vacancies
in the Board of Directors relating thereto, any and all vacancies in the Board
of Directors, however occurring, including, without limitation, by reason of an
increase in size of the Board of Directors, or the death, resignation,
disqualification or removal of a Director, shall be filled solely by the
affirmative vote of a majority of the remaining Directors then in office, even
if less than a quorum of the Board of Directors. Any Director appointed in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of Directors in which the new directorship was
created or the vacancy occurred and until such Director's successor shall have
been duly elected and qualified or until his or her earlier resignation or
removal. Subject to the rights, if any, of the holders of any series or class of
Preferred Stock to elect Directors, when the number of Directors is increased or
decreased, the Board of Directors shall determine the class or classes to which
the increased or decreased number of Directors shall be apportioned; PROVIDED,
HOWEVER, that no decrease in the number of Directors shall shorten the term of
any incumbent Director. In the event of a vacancy in the Board of Directors, the
remaining Directors, except as otherwise provided by law, shall exercise the
powers of the full Board of Directors until the vacancy is filled.
5. REMOVAL. Subject to the rights, if any, of any series or class
of Preferred Stock to elect Directors and to remove any Director whom the
holders of any such stock have the right to elect, any Director (including
persons elected by Directors to fill vacancies in the Board of Directors) may be
removed from office (i) only with cause and (ii) only by the affirmative vote of
the holders of 75% or more of the shares then entitled to vote at an election
19
<PAGE> 20
of Directors. At least thirty (30) days prior to any meeting of stockholders at
which it is proposed that any Director be removed from office, written notice of
such proposed removal shall be sent to the Director whose removal will be
considered at the meeting.
ARTICLE VII
LIMITATION OF LIABILITY
A Director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (a) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) under Section 174 of the DGCL or (d) for any transaction
from which the Director derived an improper personal benefit. If the DGCL is
amended after the effective date of this Certificate to authorize corporate
action further eliminating or limiting the personal liability of Directors, then
the liability of a Director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the DGCL, as so amended.
Any repeal or modification of this Article VII by either of (i) the
stockholders of the Corporation or (ii) an amendment to the DGCL, shall not
adversely affect any right or protection existing at the time of such repeal or
modification with respect to any acts or omissions occurring before such repeal
or modification of a person serving as a Director at the time of such repeal or
modification.
ARTICLE VIII
AMENDMENT OF BY-LAWS
1. AMENDMENT BY DIRECTORS. Except as otherwise provided by law,
the By-laws of the Corporation may be amended or repealed by the Board of
Directors by the affirmative vote of a majority of the Directors then in office.
2. AMENDMENT BY STOCKHOLDERS. The By-laws of the Corporation may
be amended or repealed at any annual meeting of stockholders, or special meeting
of stockholders called for such purpose as provided in the By-laws, by the
affirmative vote of at least 75% of the shares present in person or represented
by proxy at such meeting and entitled to vote on such amendment or repeal,
voting together as a single class; PROVIDED, HOWEVER, that if the Board of
Directors recommends that stockholders approve such amendment or repeal at such
meeting of stockholders, such amendment or repeal shall only require the
affirmative vote of the majority of the shares present in person or represented
by proxy at such meeting and entitled to vote on such amendment or repeal,
voting together as a single class.
20
<PAGE> 21
ARTICLE IX
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation reserves the right to amend or repeal this Certificate
in the manner now or hereafter prescribed by statute and this Certificate, and
all rights conferred upon stockholders herein are granted subject to this
reservation. No amendment or repeal of this Certificate shall be made unless the
same is first approved by the Board of Directors pursuant to a resolution
adopted by the Board of Directors in accordance with Section 242 of the DGCL,
and, except as otherwise provided by law, thereafter approved by the
stockholders. Whenever any vote of the holders of voting stock is required to
amend or repeal any provision of this Certificate, and in addition to any other
vote of holders of voting stock that is required by this Certificate or by law,
such amendment or repeal shall require the affirmative vote of the majority of
the outstanding shares entitled to vote on such amendment or repeal, and the
affirmative vote of the majority of the outstanding shares of each class
entitled to vote thereon as a class, at a duly constituted meeting of
stockholders called expressly for such purpose; PROVIDED, HOWEVER, that the
affirmative vote of not less than 75% of the outstanding shares entitled to vote
on such amendment or repeal, and the affirmative vote of not less than 75% of
the outstanding shares of each class entitled to vote thereon as a class, shall
be required to amend or repeal any provision of Article V, Article VI, Article
VII or Article IX of this Certificate.
[End of Text]
21
<PAGE> 22
THIS SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION is executed
as of this ____ day of __________, ____.
FairMarket, Inc.
By: ________________________________
Name: _________________________
Title: _________________________
<PAGE> 1
EXHIBIT 3.3
FORM OF
THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
FAIRMARKET, INC.
FairMarket, Inc., a corporation organized and existing under the laws
of the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is FairMarket, Inc. The date of
the filing of its original Certificate of Incorporation with the Secretary of
State of the State of Delaware was February 20, 1997 (the "Original
Certificate").
2. This Third Amended and Restated Certificate of Incorporation
(the "Certificate") amends, restates and integrates the provisions of the
Amended and Restated Certificate of Incorporation that was filed with the
Secretary of State of the State of Delaware on _________ (the "Second Amended
and Restated Certificate"), and (i) was duly adopted by the Board of Directors
of the Corporation (the "Board of Directors") in accordance with the provisions
of Sections 242 and 245 of the Delaware General Corporation Law (the "DGCL"),
(ii) was declared by the Board of Directors to be advisable and in the best
interests of the Corporation and was directed by the Board of Directors to be
submitted to and considered by the stockholders of the Corporation entitled to
vote thereon in accordance with the DGCL and (iii) was duly adopted by the
stockholders in accordance with the provisions of the DGCL and the terms of the
Amended and Restated Certificate.
3. The text of the Second Amended and Restated Certificate is
hereby amended and restated in its entirety to provide as herein set forth in
full.
ARTICLE I
The name of the Corporation is FairMarket, Inc.
<PAGE> 2
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is c/o The Corporation Trust Company, 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the DGCL.
ARTICLE IV
CAPITAL STOCK
The total number of shares of capital stock which the Corporation shall
have authority to issue is ______________ (________) shares, of which (i)
_________________ (_______) shares shall be Common Stock, par value $___ per
share, and (ii) ___________________ (________) shares shall be undesignated
preferred stock, par value $___ per share (the "Undesignated Preferred Stock").
Except as otherwise restricted by this Certificate, the Board of
Directors may, at any time and from time to time, if all of the shares of
capital stock which the Corporation is authorized by this Certificate to issue
have not been issued, subscribed for, or otherwise committed to be issued, issue
or take subscriptions for additional shares of its capital stock up to the
amount authorized in this Certificate to such person or persons and for such
lawful consideration as it may deem appropriate, and generally in its absolute
discretion to determine the terms and the manner of disposition of such
authorized but unissued capital stock.
Any and all such shares issued for which the full consideration has
been paid or delivered shall be deemed fully paid shares of capital stock, and
the holder of such shares shall not be liable for any further call or assessment
or any other payment thereon.
The number of authorized shares of the class of Undesignated Preferred
Stock may from time to time be increased or decreased (but not below the number
of shares outstanding) by the affirmative vote of the holders of a majority of
the outstanding shares of Common Stock entitled to vote, without a vote of the
holders of the Undesignated Preferred Stock (except as otherwise provided in any
certificate of designation of any series of Undesignated Preferred Stock).
The designations, powers, preferences and rights of, and the
qualifications, limitations and restrictions upon, each class or series of stock
shall be determined in accordance with, or as set forth below in, this Article
IV.
2
<PAGE> 3
A. COMMON STOCK
Subject to all the rights, powers and preferences of the
Undesignated Preferred Stock and except as provided by law or in this Article IV
(or in any certificate of designation of any series of Undesignated Preferred
Stock):
(a) the holders of the Common Stock shall have
the exclusive right to vote for the election of Directors and on all other
matters requiring stockholder action, each share being entitled to one vote;
(b) dividends may be declared and paid or set
apart for payment upon the Common Stock out of any assets or funds of the
Corporation legally available for the payment of dividends, but only when and as
declared by the Board of Directors or any authorized committee thereof; and
(c) upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the net assets of the
Corporation shall be distributed pro rata to the holders of the Common Stock.
B. UNDESIGNATED REFERRED STOCK
1. AUTHORITY TO ISSUE. The total number of shares of Undesignated
Preferred Stock which the Corporation shall have authority to issue is
___________ (_______) shares. Subject to any limitations prescribed by law, the
Board of Directors or any authorized committee thereof is expressly authorized
to provide for the issuance of the shares of Undesignated Preferred Stock in one
or more series of such stock, and by filing a certificate pursuant to applicable
law of the State of Delaware, to establish or change from time to time the
number of shares to be included in each such series, and to fix the
designations, powers, preferences and the relative, participating, optional or
other special rights of the shares of each series and any qualifications,
limitations and restrictions thereof.
2. POWERS, PREFERENCES, RIGHTS, QUALIFICATIONS, LIMITATIONS AND
RESTRICTION OF EACH SERIES OF UNDESIGNATED PREFERRED STOCK. The Board of
Directors or any authorized committee thereof shall have the right to determine
or fix one or more of the following with respect to each series of Undesignated
Preferred Stock to the fullest extent permitted by law:
(a) The distinctive serial designation and the
number of shares constituting such series;
(b) The dividend rates or the amount of
dividends to be paid on the shares of such series, whether dividends
shall be cumulative and, if so, from which date or dates, the payment
date or dates for dividends, and the participating and other rights, if
any, with respect to dividends;
3
<PAGE> 4
(c) The voting rights and powers, full or
limited, if any, of the shares of such series;
(d) Whether the shares of such series shall be
redeemable and, if so, the price or prices at which, and the terms and
conditions on which, such shares may be redeemed;
(e) The amount or amounts payable upon the
shares of such series and any preferences applicable thereto in the
event of voluntary or involuntary liquidation, dissolution or winding
up of the Corporation;
(f) Whether the shares of such series shall be
entitled to the benefit of a sinking or retirement fund to be applied
to the purchase or redemption of such shares, and if so entitled, the
amount of such fund and the manner of its application, including the
price or prices at which such shares may be redeemed or purchased
through the application of such fund;
(g) Whether the shares of such series shall be
convertible into, or exchangeable for, shares of any other class or
classes or of any other series of the same or any other class or
classes of stock of the Corporation and, if so convertible or
exchangeable, the conversion price or prices, or the rate or rates of
exchange, and the adjustments thereof, if any, at which such conversion
or exchange may be made, and any other terms and conditions of such
conversion or exchange;
(h) The consideration for which the shares of
such series shall be issued;
(i) Whether the shares of such series which are
redeemed or converted shall have the status of authorized but unissued
shares of Undesignated Preferred Stock (or series thereof) and whether
such shares may be reissued as shares of the same or any other class or
series of stock; and
(j) Such other powers, preferences, rights,
qualifications, limitations and restrictions thereof as the Board of
Directors or any authorized committee thereof may deem advisable.
ARTICLE V
STOCKHOLDER ACTION
1. ACTION WITHOUT MEETING. Except as otherwise provided herein,
any action required or permitted to be taken by the stockholders of the
Corporation at any annual or special meeting of stockholders of the Corporation
must be effected at a duly called annual or
4
<PAGE> 5
special meeting of stockholders and may not be taken or effected by a written
consent of stockholders in lieu thereof.
2. SPECIAL MEETINGS. Except as otherwise required by statute and
subject to the rights, if any, of the holders of any series of Undesignated
Preferred Stock, special meetings of the stockholders of the Corporation may be
called only by the Board of Directors acting pursuant to a resolution approved
by the affirmative vote of a majority of the Directors then in office. Only
those matters set forth in the notice of the special meeting may be considered
or acted upon at a special meeting of stockholders of the Corporation.
ARTICLE VI
DIRECTORS
1. GENERAL. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors except as otherwise
provided herein or required by law.
2. ELECTION OF DIRECTORS. Election of Directors need not be by
written ballot unless the By-laws of the Corporation shall so provide.
3. TERMS OF DIRECTORS. The number of Directors of the Corporation
shall be fixed solely by resolution duly adopted from time to time by the Board
of Directors. The Directors, other than those who may be elected by the holders
of any series of Undesignated Preferred Stock, shall be classified, with respect
to the term for which they severally hold office, into three classes, as nearly
equal in number as possible. The initial Class I Directors of the Corporation
shall be ________________; the initial Class II Directors of the Corporation
shall be ________________; and the initial Class III Directors of the
Corporation shall be ________________. The initial Class I Directors shall serve
for a term expiring at the annual meeting of stockholders to be held in ____,
the initial Class II Directors shall serve for a term expiring at the annual
meeting of stockholders to be held in _______, and the initial Class III
Directors shall serve for a term expiring at the annual meeting of stockholders
to be held in _______. At each annual meeting of stockholders, Directors elected
to succeed those Directors whose terms expire shall be elected for a term of
office to expire at the third succeeding annual meeting of stockholders after
their election. Notwithstanding the foregoing, the Directors elected to each
class shall hold office until their successors are duly elected and qualified or
until their earlier resignation or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this Certificate, the holders of any one or more series of
Undesignated Preferred Stock shall have the right, voting separately as a series
or together with holders of other such series, to elect Directors at an annual
or special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of
5
<PAGE> 6
this Certificate and any certificate of designation applicable thereto, and such
Directors so elected shall not be divided into classes pursuant to this Article
VI.3.
4. VACANCIES. Subject to the rights, if any, of the holders of
any series of Undesignated Preferred Stock to elect Directors and to fill
vacancies in the Board of Directors relating thereto, any and all vacancies in
the Board of Directors, however occurring, including, without limitation, by
reason of an increase in size of the Board of Directors, or the death,
resignation, disqualification or removal of a Director, shall be filled solely
by the affirmative vote of a majority of the remaining Directors then in office,
even if less than a quorum of the Board of Directors. Any Director appointed in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of Directors in which the new directorship was
created or the vacancy occurred and until such Director's successor shall have
been duly elected and qualified or until his or her earlier resignation or
removal. Subject to the rights, if any, of the holders of any series of
Undesignated Preferred Stock to elect Directors, when the number of Directors is
increased or decreased, the Board of Directors shall determine the class or
classes to which the increased or decreased number of Directors shall be
apportioned; PROVIDED, HOWEVER, that no decrease in the number of Directors
shall shorten the term of any incumbent Director. In the event of a vacancy in
the Board of Directors, the remaining Directors, except as otherwise provided by
law, shall exercise the powers of the full Board of Directors until the vacancy
is filled.
5. REMOVAL. Subject to the rights, if any, of any series of
Undesignated Preferred Stock to elect Directors and to remove any Director whom
the holders of any such stock have the right to elect, any Director (including
persons elected by Directors to fill vacancies in the Board of Directors) may be
removed from office (i) only with cause and (ii) only by the affirmative vote of
the holders of 75% or more of the shares then entitled to vote at an election of
Directors. At least thirty (30) days prior to any meeting of stockholders at
which it is proposed that any Director be removed from office, written notice of
such proposed removal shall be sent to the Director whose removal will be
considered at the meeting.
ARTICLE VII
LIMITATION OF LIABILITY
A Director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (a) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) under Section 174 of the DGCL or (d) for any transaction
from which the Director derived an improper personal benefit. If the DGCL is
amended after the effective date of this Certificate to authorize corporate
action further eliminating or limiting the personal liability of Directors, then
the liability of a Director of the
6
<PAGE> 7
Corporation shall be eliminated or limited to the fullest extent permitted by
the DGCL, as so amended.
Any repeal or modification of this Article VII by either of (i) the
stockholders of the Corporation or (ii) an amendment to the DGCL, shall not
adversely affect any right or protection existing at the time of such repeal or
modification with respect to any acts or omissions occurring before such repeal
or modification of a person serving as a Director at the time of such repeal or
modification.
ARTICLE VIII
AMENDMENT OF BY-LAWS
1. AMENDMENT BY DIRECTORS. Except as otherwise provided by law,
the By-laws of the Corporation may be amended or repealed by the Board of
Directors by the affirmative vote of a majority of the Directors then in office.
2. AMENDMENT BY STOCKHOLDERS. The By-laws of the Corporation may
be amended or repealed at any annual meeting of stockholders, or special meeting
of stockholders called for such purpose as provided in the By-laws, by the
affirmative vote of at least 75% of the shares present in person or represented
by proxy at such meeting and entitled to vote on such amendment or repeal,
voting together as a single class; PROVIDED, HOWEVER, that if the Board of
Directors recommends that stockholders approve such amendment or repeal at such
meeting of stockholders, such amendment or repeal shall only require the
affirmative vote of the majority of the shares present in person or represented
by proxy at such meeting and entitled to vote on such amendment or repeal,
voting together as a single class.
ARTICLE IX
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation reserves the right to amend or repeal this Certificate
in the manner now or hereafter prescribed by statute and this Certificate, and
all rights conferred upon stockholders herein are granted subject to this
reservation. No amendment or repeal of this Certificate shall be made unless the
same is first approved by the Board of Directors pursuant to a resolution
adopted by the Board of Directors in accordance with Section 242 of the DGCL,
and, except as otherwise provided by law, thereafter approved by the
stockholders. Whenever any vote of the holders of voting stock is required to
amend or repeal any provision of this Certificate, and in addition to any other
vote of holders of voting stock that is required by this Certificate or by law,
such amendment or repeal shall require the affirmative vote of the majority of
the outstanding shares entitled to vote on such amendment or repeal, and the
affirmative vote of the majority of the outstanding shares of each class
entitled to vote thereon
7
<PAGE> 8
as a class, at a duly constituted meeting of stockholders called expressly for
such purpose; PROVIDED, HOWEVER, that the affirmative vote of not less than 75%
of the outstanding shares entitled to vote on such amendment or repeal, and the
affirmative vote of not less than 75% of the outstanding shares of each class
entitled to vote thereon as a class, shall be required to amend or repeal any
provision of Article V, Article VI, Article VII or Article IX of this
Certificate.
[End of Text]
8
<PAGE> 9
THIS THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION is
executed as of this ____ day of __________, ____.
FairMarket, Inc.
By: ____________________________
Name: _____________________
Title: _____________________
<PAGE> 1
EXHIBIT 3.4
BY-LAWS
of
FAIRMARKET, INC.
ARTICLE I
---------
STOCKHOLDERS
1. ANNUAL MEETING. The annual meeting of stockholders shall be held on
the 16th day of March in each year after 1997 (or if that be a legal holiday in
the place where the meeting is to be held, on the next succeeding full business
day) at the principal office of the corporation or at a place within or without
the State of Delaware as fixed by the Board of Directors or the President. The
purposes for which the annual meeting is to be held, in addition to those
prescribed by law, by the Certificate of Incorporation or by these By-laws, may
be specified by the Board of Directors or the President. If no annual meeting
has been held on the date fixed above, a special meeting in lieu thereof may be
held or there may be action by written consent of the stockholders on matters to
be voted on at the annual meeting, and such special meeting or written consent
shall have for the purposes of these By-Laws or otherwise all the force and
effect of an annual meeting.
2. SPECIAL MEETINGS. Special meetings of stockholders may be called by
the President or by the Board of Directors. Special meetings shall be called by
the Secretary, or in case of death, absence, incapacity or refusal of the
Secretary, by any other officer, upon written application of one or more
stockholders who hold at least twenty-five percent in interest of the capital
stock entitled to vote at such meeting. The call for the meeting shall state the
place, date, hour and purposes of the meeting. Only the purposes specified in
the notice of special meeting shall be considered or dealt with at such special
meeting.
3. NOTICE OF MEETINGS. A written notice stating the place, date and hour
of all meetings of stockholders, and in the case of special meetings, the
purposes of the meeting shall be given by the Secretary (or other person
authorized by these By-Laws or by law) not less than ten nor more than sixty
days before the meeting to each stockholder entitled to vote thereat and to each
stockholder who, under the Certificate of Incorporation or under these By-laws
is entitled to such notice, by delivering such notice to him or by mailing it,
postage prepaid, and addressed to such stockholder at his address as it appears
in the records of the corporation. Notice need not be given to a stockholder if
a written waiver of notice is executed before or after the meeting by such
stockholder, if communication with such stockholder is unlawful, or if such
stockholder attends the meeting in question, unless such attendance was for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting was not lawfully called or
convened. If a meeting is adjourned to another time or place, notice need not be
given of the adjourned meeting if the time and place are announced at the
meeting at which the adjournment is taken,
<PAGE> 2
except that if the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, notice of the
adjourned meeting shall be given to each stockholder of record entitled to vote
at the meeting.
4. QUORUM. The holders of a majority in interest of all stock issued,
outstanding and entitled to vote at a meeting shall constitute a quorum. Any
meeting may be adjourned from time to time by a majority of the votes properly
cast upon the question, whether or not a quorum is present. The stockholders
present at a duly constituted meeting may continue to transact business until
adjournment notwithstanding the withdrawal of enough stockholders to reduce the
voting shares below a quorum.
5. VOTING AND PROXIES. Stockholders shall have one vote for each share of
stock entitled to vote owned by them of record according to the books of the
corporation unless otherwise provided by law or by the Certificate of
Incorporation. Stockholders may vote either in person or by written proxy or
express directly or by written proxy their consent or dissent to a corporate
action taken without a meeting, but no proxy shall be voted or acted upon after
three years from its date, unless the proxy provides for a longer period or is
irrevocable and coupled with an interest. Proxies shall be filed with the
Secretary of the meeting, or of any adjournment thereof. Except as otherwise
limited therein, proxies shall entitle the persons authorized thereby to vote at
any adjournment of such meeting.
6. ACTION AT MEETING. When a quorum is present, any matter before the
meeting shall be decided by vote of the holders of a majority of the shares of
stock voting on such matter except where a larger vote is required by law, by
the Certificate of Incorporation or by these By-laws. Any election by
stockholders shall be determined by a plurality of the votes cast, except where
a larger vote is required by law, by the Certificate of Incorporation or by
these By-laws. The corporation shall not directly or indirectly vote any share
of its own stock; provided, however, that the corporation may vote shares which
it holds in a fiduciary capacity to the extent permitted by law.
7. ACTION WITHOUT A MEETING. Any action required or permitted by law to
be taken at any annual or special meeting of stockholders, may be taken without
a meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holders of
all of the outstanding shares of stock entitled to vote on the matter and shall
be delivered to the corporation by delivery to its registered office, by hand or
by certified mail, return receipt requested or to the corporation's principal
place of business or to the officer of the corporation having custody of the
minute book. Every written consent shall bear the date of signature and no
written consent shall be effective unless, within sixty days of the earliest
dated consent delivered pursuant to these By-laws, written consents signed by
all of stockholders entitled to take action are delivered to the corporation in
the manner set forth in these By-laws.
8. STOCKHOLDER LISTS. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a
2
<PAGE> 3
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
ARTICLE II
----------
DIRECTORS
1. POWERS. The business of the corporation shall be managed by or under
the direction of a Board of Directors who may exercise all the powers of the
corporation except as otherwise provided by law, by the Certificate of
Incorporation or by these By-laws. In the event of a vacancy in the Board of
Directors, the remaining Directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
2. ELECTION AND QUALIFICATION. Unless otherwise provided in the
Certificate of Incorporation or in these By-laws, the number of Directors which
shall constitute the whole board shall be determined by vote of the Board of
Directors or by the stockholders at the annual meeting. Directors need not be
stockholders.
3. VACANCIES; REDUCTION OF BOARD. A majority of the Directors then in
office, although less than a quorum, or a sole remaining Director, may fill
vacancies in the Board of Directors occurring for any reason and newly created
directorships resulting from any increase in the authorized number of Directors.
In lieu of filling any vacancy the stockholders or the Board of Directors may
reduce the number of Directors.
4. ENLARGEMENT OF THE BOARD. The Board of Directors may be enlarged by
the stockholders at any meeting or by vote of a majority of the Directors then
in office.
5. TENURE. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-laws, Directors shall hold office until their
successors are elected and qualified or until their earlier resignation or
removal. Any Director may resign by delivering his written resignation to the
corporation. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
6. REMOVAL. To the extent permitted by law, a Director may be removed
from office with or without cause by vote of the holders of a majority of the
shares of stock entitled
3
<PAGE> 4
to vote in the election of Directors. A Director may be removed for cause only
after reasonable notice and opportunity to be heard before the body proposing to
remove him.
7. MEETINGS. Regular meetings of the Board of Directors may be held
without notice at such time, date and place as the Board of Directors may from
time to time determine. Special meetings of the Board of Directors may be
called, orally or in writing, by the President, Treasurer or two or more
Directors, designating the time, date and place thereof. Directors may
participate in meetings of the Board of Directors by means of conference
telephone or similar communications equipment by means of which all Directors
participating in the meeting can hear each other, and participation in a meeting
in accordance herewith shall constitute presence in person at such meeting.
8. NOTICE OF MEETINGS. Notice of the time, date and place of all special
meetings of the Board of Directors shall be given to each Director by the
Secretary, or Assistant Secretary, or in case of the death, absence, incapacity
or refusal of such persons, by the officer or one of the Directors calling the
meeting. Notice shall be given to each Director in person or by telephone or by
telegram sent to his business or home address at least twenty-four hours in
advance of the meeting, or by written notice mailed to his business or home
address at least forty-eight hours in advance of the meeting. Notice need not be
given to any Director if a written waiver of notice is executed by him before or
after the meeting, or if communication with such Director is unlawful. A notice
or waiver of notice of a meeting of the Board of Directors need not specify the
purposes of the meeting.
9. QUORUM. At any meeting of the Board of Directors, a majority of the
Directors then in office shall constitute a quorum. Less than a quorum may
adjourn any meeting from time to time and the meeting may be held as adjourned
without further notice.
10. ACTION AT MEETING. At any meeting of the Board of Directors at which a
quorum is present, a majority of the Directors present may take any action on
behalf of the Board of Directors, unless a larger number is required by law, by
the Certificate of Incorporation or by these By-laws.
11. ACTION BY CONSENT. Any action required or permitted to be taken at any
meeting of the Board of Directors may be taken without a meeting if a written
consent thereto is signed by all the Directors and filed with the records of the
meetings of the Board of Directors. Such consent shall be treated as a vote of
the Board of Directors for all purposes.
12. COMMITTEES. The Board of Directors, by vote of a majority of the
Directors then in office, may establish one or more committees, each committee
to consist of one or more Directors, and may delegate thereto some or all of its
powers except those which by law, by the Certificate of Incorporation, or by
these By-laws may not be delegated. Except as the Board of Directors may
otherwise determine, any such committee may make rules for the conduct of its
business, but in the absence of such rules its business shall be conducted so
far as possible in the same manner as is provided in these By-laws for the Board
of Directors. All
4
<PAGE> 5
members of such committees shall hold their committee offices at the pleasure of
the Board of Directors, and the Board may abolish any committee at any time.
Each such committee shall report its action to the Board of Directors who shall
have power to rescind any action of any committee without retroactive effect.
ARTICLE III
-----------
OFFICERS
1. ENUMERATION. The officers of the corporation shall consist of a
President, a Treasurer, a Secretary, and such other officers, including one or
more Vice Presidents, Assistant Treasurers and Assistant Secretaries, as the
Board of Directors may determine.
2. ELECTION. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at their first meeting following the annual
meeting of stockholders. Other officers may be chosen by the Board of Directors
at such meeting or at any other meeting.
3. QUALIFICATION. No officer need be a stockholder or Director. Any two
or more offices may be held by the same person. Any officer may be required by
the Board of Directors to give bond for the faithful performance of his duties
in such amount and with such sureties as the Board of Directors may determine.
4. TENURE. Except as otherwise provided by the Certificate of
Incorporation or by these By-laws, each of the officers of the corporation shall
hold his office until his successor is elected and qualified or until his
earlier resignation or removal. Any officer may resign by delivering his written
resignation to the corporation, and such resignation shall be effective upon
receipt unless it is specified to be effective at some other time or upon the
happening of some other event.
5. REMOVAL. The Board of Directors may remove any officer with or without
cause by a vote of a majority of the entire number of Directors then in office;
provided, that an officer may be removed for cause only after reasonable notice
and opportunity to be heard by the Board of Directors.
6. VACANCIES. Any vacancy in any office may be filled for the unexpired
portion of the term by the Board of Directors.
7. PRESIDENT AND VICE PRESIDENTS. The President shall be the chief
operating officer of the corporation and shall have general charge of its
business operations, subject to the direction of the Board of Directors. In the
absence of the President shall preside, when present, at all meetings of
stockholders and the Board of Directors. The Board of Directors shall have
5
<PAGE> 6
the authority to appoint a temporary presiding officer to serve at any meeting
of the stockholders or Board of Directors if the or the President is unable to
do so for any reason.
Any Vice President shall have such powers and shall perform such duties as
the Board of Directors may from time to time designate. In the absence of the
President or in the event of his inability or refusal to act, the Vice President
(or in the event there be more than one Vice President, the Vice Presidents in
the order designated by the directors, or in the absence of any designation,
then in the order of their election) shall perform the duties of the President,
and when so acting, shall have all the powers and responsible of and be subject
to all the restrictions upon the President.
8. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall, subject to
the direction of the Board of Directors, have general charge of the financial
affairs of the corporation and shall cause to be kept accurate books of account.
He shall have custody of all funds, securities, and valuable documents of the
corporation, except as the Board of Directors may otherwise provide.
Any Assistant Treasurer shall have such powers and perform such duties as
the Board of Directors may from time to time designate.
9. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall record the
proceedings of all meetings of the stockholders and the Board of Directors in
books kept for that purpose. In his absence from any such meeting an Assistant
Secretary, or if he is absent, a temporary secretary chosen at the meeting,
shall record the proceedings thereof.
The Secretary shall have charge of the stock ledger (which may, however, be
kept by any transfer or other agent of the corporation) and shall have such
other duties and powers as may be designated from time to time by the Board of
Directors or the President.
Any Assistant Secretary shall have such powers and perform such duties as
the Board of Directors may from time to time designate.
10. OTHER POWERS AND DUTIES. Subject to these By-laws, each officer of the
corporation shall have in addition to the duties and powers specifically set
forth in these By-laws, such duties and powers as are customarily incident to
his office, and such duties and powers as may be designated from time to time by
the Board of Directors.
ARTICLE IV
----------
CAPITAL STOCK
1. CERTIFICATES OF STOCK. Each stockholder shall be entitled to a
certificate of the capital stock of the corporation in such form as may from
time to time be prescribed by the
6
<PAGE> 7
Board of Directors. Such certificate shall be signed by the President or a Vice
President and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary. Such signatures may be facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed on such certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent or
registrar at the time of its issue. Every certificate for shares of stock which
are subject to any restriction on transfer and every certificate issued when the
corporation is authorized to issue more than one class or series of stock shall
contain such legend with respect thereto as is required by law. The corporation
shall be permitted to issue fractional shares.
2. TRANSFERS. Subject to any restrictions on transfer, shares of stock
may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate therefor properly endorsed
or accompanied by a written assignment or power of attorney properly executed,
with transfer stamps (if necessary) affixed, and with such proof of the
authenticity of signature as the corporation or its transfer agent may
reasonably require.
3. RECORD HOLDERS. Except as may otherwise be required by law, by the
Certificate of Incorporation or by these By-laws, the corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to vote with respect thereto, regardless of any transfer, pledge or other
disposition of such stock, until the shares have been transferred on the books
of the corporation in accordance with the requirements of these By-laws.
It shall be the duty of each stockholder to notify the corporation of his
post office address.
4. RECORD DATE. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to consent to corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not precede the date on which it is established, and which shall not be more
than sixty nor less than ten days before the date of such meeting, more than ten
days after the date on which the record date for stockholder consent without a
meeting is established, nor more than sixty days prior to any other action. In
such case only stockholders of record on such record date shall be so entitled
notwithstanding any transfer of stock on the books of the corporation after the
record date.
If no record date is fixed, (a) the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held, (b) the record date
7
<PAGE> 8
for determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is necessary,
shall be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the corporation by delivery
to its registered office in this state, to its principal place of business, or
to an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded, and (c) the record date
for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto.
5. REPLACEMENT OF CERTIFICATES. In case of the alleged loss,
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
ARTICLE V
---------
INDEMNIFICATION
1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The corporation shall
indemnify, to the fullest extent permitted by the General Corporation Law of the
State of Delaware any person who was or is a party or is threatened to be made a
party to or is otherwise involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative,
investigative or otherwise, and whether by or in the right of the corporation,
its stockholders, a third party or otherwise (a "Proceeding"), by reason of the
fact that he is or was a Director or officer of the corporation, or is or was a
Director or officer of the corporation serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against all expense (including, but not limited to,
attorneys' fees), liability, loss, judgments, fines, excise taxes, penalties and
amounts paid in settlement actually and reasonably incurred by him in connection
with such Proceeding, including expenses incurred in seeking such
indemnification. In addition, the corporation shall grant such indemnification
to each of its Directors and officers with respect to any matter in a Proceeding
as to which his liability is limited pursuant to Section 9 of the Certificate of
Incorporation of the corporation. However, such indemnification shall exclude
(i) indemnification with respect to any improper personal benefit which a
Director or officer is determined to have received and of the expenses of
defending against an improper personal benefit claim unless the Director or
officer is successful on the merits in said defense, and (ii) indemnification of
present or former officers, directors, employees or agents of a constituent
corporation absorbed in a merger or consolidation transaction with this
corporation with respect to their activities prior to said transaction, unless
specifically authorized by the Board of Directors or stockholders of this
corporation. Such indemnification shall include prompt payment of expenses
incurred by a Director or officer in defending a Proceeding in advance of the
final disposition of such Proceeding, upon receipt of an undertaking by or on
behalf of the Director or officer to repay such amounts if it shall ultimately
be determined that he is not entitled to be indemnified by the corporation under
this Article V, which undertaking
8
<PAGE> 9
shall be an unsecured general obligation of the Director or officer and may be
accepted without regard to his ability to make repayment.
2. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The corporation may, to the
extent authorized from time to time by the Board of Directors, grant rights to
indemnification and to an advancement of expenses, pursuant to the provisions of
this Article V, to any person who was or is a party or is threatened to be made
a party to or is otherwise involved in any Proceeding by reason of the fact that
he is or was an employee or agent of the corporation or is or was serving at the
request of the corporation, as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise.
3. NATURE OF INDEMNIFICATION RIGHTS. The indemnification rights provided
in this Article V shall be a contract right and shall not be deemed exclusive of
any other rights to which any person, whether or not entitled to be indemnified
hereunder, may be entitled under any statute, by-law, agreement, vote of
stockholders or Directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a Director, officer, employee
or agent and inure to the benefit of the heirs, executors and administrators of
such a person. A Director or officer shall be entitled to the benefit of any
amendment of the Delaware General Corporation Law which enlarges indemnification
rights hereunder, but any such amendment which adversely affects indemnification
rights with respect to prior activities shall not apply to him without his
consent unless otherwise required by law. Each person who is or becomes a
Director or officer of the corporation shall be deemed to have served or to have
continued to serve in such capacity in reliance upon the indemnity provided for
in this Article V.
4. AMENDMENT. The provisions of this Article may be amended as provided
in Article VI; however, no amendment or repeal of such provisions which
adversely affects the rights of a Director or officer under this Article V with
respect to his acts or omissions prior to such amendment or repeal, shall apply
to him without his consent.
ARTICLE VI
----------
MISCELLANEOUS PROVISIONS
1. FISCAL YEAR. Except as otherwise determined by the Board of Directors,
the fiscal year of the corporation shall end on December 31 of each year.
2. SEAL. The Board of Directors shall have power to adopt and alter the
seal of the corporation.
3. EXECUTION OF INSTRUMENTS. All deeds, leases, transfers, contracts,
bonds, notes and other obligations authorized to be executed by an officer of
the corporation in its behalf shall be signed by the President or Treasurer, or
by any other officer of the corporation
9
<PAGE> 10
designated by the Board of Directors, except as the Board of Directors may
generally or in particular cases otherwise determine.
4. VOTING OF SECURITIES. Unless otherwise provided by the Board of
Directors, the or President or Treasurer may waive notice of and act on behalf
of this corporation, or appoint another person or persons to act as proxy or
attorney in fact for this corporation with or without discretionary power and/or
power of substitution, at any meeting of stockholders or shareholders of any
other corporation or organization, any of whose securities are held by this
corporation.
5. RESIDENT AGENT. The Board of Directors may appoint a resident agent
upon whom legal process may be served in any action or proceeding against the
corporation.
6. CORPORATE RECORDS. The original or attested copies of the Certificate
of Incorporation, By-laws and records of all meetings of the incorporators,
stockholders and the Board of Directors and the stock and transfer records,
which shall contain the names of all stockholders, their record addresses and
the amount of stock held by each, shall be kept at the principal office of the
corporation, at the office of its counsel, or at an office of its transfer
agent.
7. CERTIFICATE OF INCORPORATION. All references in these By-laws to the
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
8. AMENDMENTS. These By-laws may be amended or repealed or additional
By-laws adopted by the stockholders or by the Board of Directors; provided, that
(a) the Board of Directors may not amend or repeal Article V or this Section 8
of Article VI or any provision of these By-laws which by law, by the Certificate
of Incorporation or by these By-laws requires action by the stockholders, (b)
any amendment or repeal of these By-laws by the Board of Directors and any
By-law adopted by the Board of Directors may be amended or repealed by the
stockholders.
10
<PAGE> 1
EXHIBIT 3.5
FORM OF
AMENDED AND RESTATED
BY-LAWS
OF
FAIRMARKET, INC.
(the "Corporation")
ARTICLE I
STOCKHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of stockholders (any such
meeting being referred to in these By-laws as an "Annual Meeting") shall be held
at the hour, date and place within or without the United States which is fixed
by the Board of Directors, which time, date and place may subsequently be
changed at any time by vote of the Board of Directors. If no Annual Meeting has
been held for a period of thirteen months after the Corporation's last Annual
Meeting, a special meeting in lieu thereof may be held, and such special meeting
shall have, for the purposes of these By-laws or otherwise, all the force and
effect of an Annual Meeting. Any and all references hereafter in these By-laws
to an Annual Meeting or Annual Meetings also shall be deemed to refer to any
special meeting(s) in lieu thereof.
SECTION 2. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(a) ANNUAL MEETINGS OF STOCKHOLDERS.
(1) Nominations of persons for election to the Board of
Directors of the Corporation and the proposal of business to be
considered by the stockholders may be made at an Annual Meeting (a)
pursuant to the Corporation's notice of meeting, (b) by or at the
direction of the Board of Directors or (c) by any stockholder of the
Corporation who was a stockholder of record at the time of giving of
notice provided for in this By-law, who is entitled to vote at the
meeting, who is present at the meeting and who complies with the notice
procedures set forth in this By-law. In addition to the other
requirements set forth in this By-law, for any proposal of business to
be considered at an Annual Meeting such proposal must be a proper
subject for action by stockholders of the Corporation under Delaware
law.
(2) For nominations or other business to be properly
brought before an Annual Meeting by a stockholder pursuant to clause
(c) of paragraph (a)(1) of this Bylaw, the stockholder must have given
timely notice thereof in writing to the Secretary of the Corporation.
To be timely, a stockholder's notice shall be delivered to the
Secretary at the principal executive offices of the Corporation not
later than the close of business on the 75th day nor earlier than the
close of business on the 105th day prior to the first
<PAGE> 2
anniversary of the preceding year's Annual Meeting; provided, however,
that in the event that the date of the Annual Meeting is advanced by
more than 30 days before or delayed by more than 60 days after such
anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the 105th day prior
to such Annual Meeting and not later than the close of business on the
later of the 75th day prior to such Annual Meeting or the 10th day
following the day on which public announcement of the date of such
meeting is first made. Notwithstanding anything to the contrary
provided herein, for the first annual meeting following the initial
public offering of common stock of the corporation, a stockholder's
notice shall be timely if delivered to the secretary at the principal
executive offices of the corporation not later than the close of
business on the later of the 75th day prior to the scheduled date of
such annual meeting or the 10th day following the day on which public
announcement of the date of such annual meeting is first made or sent
by the corporation. Such stockholder's notice shall set forth (a) as to
each person whom the stockholder proposes to nominate for election or
reelection as a director, all information relating to such person that
is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder
(including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); (b) as
to any other business that the stockholder proposes to bring before the
meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the
meeting, any material interest in such business of such stockholder and
the beneficial owner, if any, on whose behalf the proposal is made, and
the names and addresses of other stockholders known by the stockholder
proposing such business to support such proposal, and the class and
number of shares of the Corporation's capital stock beneficially owned
by such other stockholders; and (c) as to the stockholder giving the
notice and the beneficial owner, if any, on whose behalf the nomination
or proposal is made (i) the name and address of such stockholder, as
they appear on the Corporation's books, and of such beneficial owner,
and (ii) the class and number of shares of the Corporation which are
owned beneficially and of record by such stockholder and such
beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (a)(2) of this By-law to the contrary, in the event that the
number of directors to be elected to the Board of Directors of the
Corporation is increased and there is no public announcement naming all
of the nominees for director or specifying the size of the increased
Board of Directors made by the Corporation at least 85 days prior to
the first anniversary of the preceding year's Annual Meeting, a
stockholder's notice required by this By-law shall also be considered
timely, but only with respect to nominees for any new positions created
by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close
of business on the 10th day following the day on which such public
announcement is first made by the Corporation.
2
<PAGE> 3
(b) GENERAL.
(1) Only such persons who are nominated in accordance
with the provisions of this By-law shall be eligible for election and
to serve as directors and only such business shall be conducted at an
Annual Meeting as shall have been brought before the meeting in
accordance with the provisions of this By-law. The Board of Directors
or a designated committee thereof shall have the power to determine
whether a nomination or any business proposed to be brought before the
meeting was made in accordance with the provisions of this By-law. If
neither the Board of Directors nor such designated committee makes a
determination as to whether any stockholder proposal or nomination was
made in accordance with the provisions of this By-law, the presiding
officer of the Annual Meeting shall have the power and duty to
determine whether the stockholder proposal or nomination was made in
accordance with the provisions of this By-law. If the Board of
Directors or a designated committee thereof or the presiding officer,
as applicable, determines that any stockholder proposal or nomination
was not made in accordance with the provisions of this By-law, such
proposal or nomination shall be disregarded and shall not be presented
for action at the Annual Meeting.
(2) For purposes of this By-law, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable national news service or in a
document publicly filed by the Corporation with the Securities and
Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange
Act.
(3) Notwithstanding the foregoing provisions of this
By-law, a stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this By-law.
Nothing in this By-law shall be deemed to affect any rights of (i)
stockholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act or (ii)
the holders of any series of preferred stock to elect directors under
specified circumstances.
SECTION 3. SPECIAL MEETINGS. Except as otherwise required by statute
and subject to the rights, if any, of the holders of any series of Undesignated
Preferred Stock, special meetings of the stockholders of the Corporation may be
called only by the Board of Directors acting pursuant to a resolution approved
by the affirmative vote of a majority of the Directors then in office. Only
those matters set forth in the notice of the special meeting may be considered
or acted upon at a special meeting of stockholders of the Corporation.
SECTION 4. NOTICE OF MEETINGS; ADJOURNMENTS. A written notice of each
Annual Meeting stating the hour, date and place of such Annual Meeting shall be
given by the Secretary or an Assistant Secretary (or other person authorized by
these By-laws or by law) not less than 10 days nor more than 60 days before the
Annual Meeting, to each stockholder entitled to vote thereat and to each
stockholder who, by law or under the Certificate of Incorporation of the
Corporation (as the same may hereafter be amended and/or restated, the
"Certificate") or under
3
<PAGE> 4
these By-laws, is entitled to such notice, by delivering such notice to him or
by mailing it, postage prepaid, addressed to such stockholder at the address of
such stockholder as it appears on the Corporation's stock transfer books. Such
notice shall be deemed to be given when hand delivered to such address or
deposited in the mail so addressed, with postage prepaid.
Notice of all special meetings of stockholders shall be given in the
same manner as provided for Annual Meetings, except that the written notice of
all special meetings shall state the purpose or purposes for which the meeting
has been called.
Notice of an Annual Meeting or special meeting of stockholders need not
be given to a stockholder if a written waiver of notice is signed before or
after such meeting by such stockholder or if such stockholder attends such
meeting, unless such attendance was for the express purpose of objecting at the
beginning of the meeting to the transaction of any business because the meeting
was not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any Annual Meeting or special meeting of stockholders need
be specified in any written waiver of notice.
The Board of Directors may postpone and reschedule any previously
scheduled Annual Meeting or special meeting of stockholders and any record date
with respect thereto, regardless of whether any notice or public disclosure with
respect to any such meeting has been sent or made pursuant to Section 2 of this
Article I of these By-laws or otherwise. In no event shall the public
announcement of an adjournment, postponement or rescheduling of any previously
scheduled meeting of stockholders commence a new time period for the giving of a
stockholder's notice under Section 2 of this Article I of these By-laws.
When any meeting is convened, the presiding officer may adjourn the
meeting if (a) no quorum is present for the transaction of business, (b) the
Board of Directors determines that adjournment is necessary or appropriate to
enable the stockholders to consider fully information which the Board of
Directors determines has not been made sufficiently or timely available to
stockholders, or (c) the Board of Directors determines that adjournment is
otherwise in the best interests of the Corporation. When any Annual Meeting or
special meeting of stockholders is adjourned to another hour, date or place,
notice need not be given of the adjourned meeting other than an announcement at
the meeting at which the adjournment is taken of the hour, date and place to
which the meeting is adjourned; provided, however, that if the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote thereat and each stockholder who, by
law or under the Certificate or these By-laws, is entitled to such notice.
SECTION 5. QUORUM. A majority of the shares entitled to vote, present
in person or represented by proxy, shall constitute a quorum at any meeting of
stockholders. If less than a quorum is present at a meeting, the holders of
voting stock representing a majority of the voting power present at the meeting
or the presiding officer may adjourn the meeting from time to time, and the
meeting may be held as adjourned without further notice, except as provided in
Section 5 of this Article I. At such adjourned meeting at which a quorum is
present, any business may be
4
<PAGE> 5
transacted which might have been transacted at the meeting as originally
noticed. The stockholders present at a duly constituted meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
SECTION 6. VOTING AND PROXIES. Stockholders shall have one vote for
each share of stock entitled to vote owned by them of record according to the
books of the Corporation, unless otherwise provided by law or by the
Certificate. Stockholders may vote either in person or by written proxy or by a
transmission permitted by law, but no proxy shall be voted or acted upon after
three years from its date, unless the proxy provides for a longer period.
Proxies shall be filed with the Secretary of the meeting before being voted. Any
copy, facsimile telecommunication or other reliable reproduction of the writing
or transmission created pursuant to this paragraph may be substituted or used in
lieu of the original writing or transmission for any and all purposes for which
the original writing or transmission could be used, provided that such copy,
facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission. Except as otherwise
limited therein or as otherwise provided by law, proxies shall entitle the
persons authorized thereby to vote at any adjournment of such meeting, but they
shall not be valid after final adjournment of such meeting. A proxy with respect
to stock held in the name of two or more persons shall be valid if executed by
or on behalf of any one of them unless at or prior to the exercise of the proxy
the Corporation receives a specific written notice to the contrary from any one
of them.
SECTION 7. ACTION AT MEETING. When a quorum is present at any meeting
of stockholders, any matter before any such meeting (other than an election of a
director or directors) shall be decided by a majority of the votes properly cast
on such matter, except where a larger vote is required by law, by the
Certificate or by these By-laws. Any election of directors by stockholders shall
be determined by a plurality of the votes properly cast on the election of
directors, except where a larger vote is required by law, by the Certificate or
by these By-laws. The Corporation shall not directly or indirectly vote any
shares of its own stock; provided, however, that the Corporation may vote shares
which it holds in a fiduciary capacity to the extent permitted by law.
SECTION 8. STOCKHOLDER LISTS. The Secretary or an Assistant Secretary
(or the Corporation's transfer agent or other person authorized by these By-laws
or by law) shall prepare and make, at least 10 days before every Annual Meeting
or special meeting of stockholders, a complete list of the stockholders entitled
to vote at the meeting, arranged in alphabetical order, and showing the address
of each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least 10 days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the hour, date and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
5
<PAGE> 6
SECTION 9. PRESIDING OFFICER. The Chairman of the Board, if one is
elected, or if not elected or in his or her absence, the President, shall
preside at all Annual Meetings or special meetings of stockholders and shall
have the power, among other things, to adjourn such meeting at any time and from
time to time, subject to Sections 5 and 6 of this Article I. The order of
business and all other matters of procedure at any meeting of the stockholders
shall be determined by the presiding officer.
SECTION 10. VOTING PROCEDURES AND INSPECTORS OF ELECTIONS. The
Corporation shall, in advance of any meeting of stockholders, appoint one or
more inspectors to act at the meeting and make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is able to act at a
meeting of stockholders, the presiding officer shall appoint one or more
inspectors to act at the meeting. Any inspector may, but need not, be an
officer, employee or agent of the Corporation. Each inspector, before entering
upon the discharge of his or her duties, shall take and sign an oath faithfully
to execute the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspectors shall perform such duties as are
required by the General Corporation Law of the State of Delaware, as amended
from time to time (the "DGCL"), including the counting of all votes and ballots.
The inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of the duties of the inspectors. The presiding
officer may review all determinations made by the inspectors, and in so doing
the presiding officer shall be entitled to exercise his or her sole judgment and
discretion and he or she shall not be bound by any determinations made by the
inspectors. All determinations by the inspectors and, if applicable, the
presiding officer, shall be subject to further review by any court of competent
jurisdiction.
ARTICLE II
DIRECTORS
SECTION 1. POWERS. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors except as otherwise
provided by the Certificate or required by law.
SECTION 2. NUMBER AND TERMS. The number of directors of the Corporation
shall be fixed solely by resolution duly adopted from time to time by the Board
of Directors. The directors shall hold office in the manner provided in the
Certificate.
SECTION 3. QUALIFICATION. No director need be a stockholder of the
Corporation.
SECTION 4. VACANCIES. Vacancies in the Board of Directors shall be
filled in the manner provided in the Certificate.
6
<PAGE> 7
SECTION 5. REMOVAL. Directors may be removed from office in the manner
provided in the Certificate.
SECTION 6. RESIGNATION. A director may resign at any time by giving
written notice to the Chairman of the Board, if one is elected, the President or
the Secretary. A resignation shall be effective upon receipt, unless the
resignation otherwise provides.
SECTION 7. REGULAR MEETINGS. The regular annual meeting of the Board of
Directors shall be held, without notice other than this Section 7, on the same
date and at the same place as the Annual Meeting following the close of such
meeting of stockholders. Other regular meetings of the Board of Directors may be
held at such hour, date and place as the Board of Directors may by resolution
from time to time determine without notice other than such resolution.
SECTION 8. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called, orally or in writing, by or at the request of a majority of the
directors, the Chairman of the Board, if one is elected, or the President. The
person calling any such special meeting of the Board of Directors may fix the
hour, date and place thereof.
SECTION 9. NOTICE OF MEETINGS. Notice of the hour, date and place of
all special meetings of the Board of Directors shall be given to each director
by the Secretary or an Assistant Secretary, or in case of the death, absence,
incapacity or refusal of such persons, by the Chairman of the Board, if one is
elected, or the President or such other officer designated by the Chairman of
the Board, if one is elected, or the President. Notice of any special meeting of
the Board of Directors shall be given to each director in person, by telephone,
or by facsimile, electronic mail or other form of electronic communication, sent
to his or her business or home address, at least 24 hours in advance of the
meeting, or by written notice mailed to his or her business or home address, at
least 48 hours in advance of the meeting. Such notice shall be deemed to be
delivered when hand delivered to such address, read to such director by
telephone, deposited in the mail so addressed, with postage thereon prepaid if
mailed, dispatched or transmitted if faxed, telexed or telecopied, or when
delivered to the telegraph company if sent by telegram.
When any Board of Directors meeting, either regular or special, is
adjourned for 30 days or more, notice of the adjourned meeting shall be given as
in the case of an original meeting. It shall not be necessary to give any notice
of the hour, date or place of any meeting adjourned for less than 30 days or of
the business to be transacted thereat, other than an announcement at the meeting
at which such adjournment is taken of the hour, date and place to which the
meeting is adjourned.
A written waiver of notice signed before or after a meeting by a
director and filed with the records of the meeting shall be deemed to be
equivalent to notice of the meeting. The attendance of a director at a meeting
shall constitute a waiver of notice of such meeting, except where a director
attends a meeting for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because such meeting is not lawfully
called or convened. Except as otherwise required by law, by the Certificate or
by these By-laws, neither
7
<PAGE> 8
the business to be transacted at, nor the purpose of, any meeting of the Board
of Directors need be specified in the notice or waiver of notice of such
meeting.
SECTION 10. QUORUM. At any meeting of the Board of Directors, a
majority of the total number of directors then in office shall constitute a
quorum for the transaction of business, but if less than a quorum is present at
a meeting, a majority of the directors present may adjourn the meeting from time
to time, and the meeting may be held as adjourned without further notice, except
as provided in Section 9 of this Article II. Any business which might have been
transacted at the meeting as originally noticed may be transacted at such
adjourned meeting at which a quorum is present.
SECTION 11. ACTION AT MEETING. At any meeting of the Board of Directors
at which a quorum is present, a majority of the directors present may take any
action on behalf of the Board of Directors, unless otherwise required by law, by
the Certificate or by these By-laws.
SECTION 12. ACTION BY CONSENT. Any action required or permitted to be
taken at any meeting of the Board of Directors may be taken without a meeting if
all members of the Board of Directors consent thereto in writing. Such written
consent shall be filed with the records of the meetings of the Board of
Directors and shall be treated for all purposes as a vote at a meeting of the
Board of Directors.
SECTION 13. MANNER OF PARTICIPATION. Directors may participate in
meetings of the Board of Directors by means of conference telephone or similar
communications equipment by means of which all directors participating in the
meeting can hear each other, and participation in a meeting in accordance
herewith shall constitute presence in person at such meeting for purposes of
these By-laws.
SECTION 14. COMMITTEES. The Board of Directors, by vote of a majority
of the directors then in office, may elect from its number one or more
committees, including, without limitation, an Executive Committee, a
Compensation Committee, a Stock Option Committee and an Audit Committee, and may
delegate thereto some or all of its powers except those which by law, by the
Certificate or by these By-laws may not be delegated. Except as the Board of
Directors may otherwise determine, any such committee may make rules for the
conduct of its business, but unless otherwise provided by the Board of Directors
or in such rules, its business shall be conducted so far as possible in the same
manner as is provided by these By-laws for the Board of Directors. All members
of such committees shall hold such offices at the pleasure of the Board of
Directors. The Board of Directors may abolish any such committee at any time.
Any committee to which the Board of Directors delegates any of its powers or
duties shall keep records of its meetings and shall report its action to the
Board of Directors.
SECTION 15. COMPENSATION OF DIRECTORS. Directors shall receive such
compensation for their services as shall be determined by a majority of the
Board of Directors provided that directors who are serving the Corporation as
employees and who receive compensation for their services as such, shall not
receive any salary or other compensation for their services as directors of the
Corporation.
8
<PAGE> 9
ARTICLE III
OFFICERS
SECTION 1. ENUMERATION. The officers of the Corporation shall consist
of a President, a Treasurer, a Secretary and such other officers, including,
without limitation, a Chairman of the Board of Directors, a Chief Executive
Officer and one or more Vice Presidents (including Executive Vice Presidents or
Senior Vice Presidents), Assistant Vice Presidents, Assistant Treasurers and
Assistant Secretaries, as the Board of Directors may determine.
SECTION 2. ELECTION. At the regular annual meeting of the Board of
Directors following the Annual Meeting, the Board of Directors shall elect the
President, the Treasurer and the Secretary. Other officers may be elected by the
Board of Directors at such regular annual meeting of the Board of Directors or
at any other regular or special meeting.
SECTION 3. QUALIFICATION. No officer need be a stockholder or a
director. Any person may occupy more than one office of the Corporation at any
time. Any officer may be required by the Board of Directors to give bond for the
faithful performance of his or her duties in such amount and with such sureties
as the Board of Directors may determine.
SECTION 4. TENURE. Except as otherwise provided by the Certificate or
by these Bylaws, each of the officers of the Corporation shall hold office until
the regular annual meeting of the Board of Directors following the next Annual
Meeting and until his or her successor is elected and qualified or until his or
her earlier resignation or removal.
SECTION 5. RESIGNATION. Any officer may resign by delivering his or her
written resignation to the Corporation addressed to the President or the
Secretary, and such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
SECTION 6. REMOVAL. Except as otherwise provided by law, the Board of
Directors may remove any officer with or without cause by the affirmative vote
of a majority of the directors then in office.
SECTION 7. ABSENCE OR DISABILITY. In the event of the absence or
disability of any officer, the Board of Directors may designate another officer
to act temporarily in place of such absent or disabled officer.
SECTION 8. VACANCIES. Any vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors.
SECTION 9. PRESIDENT. The President shall, subject to the direction of
the Board of Directors, have general supervision and control of the
Corporation's business. If there is no Chairman of the Board or if he or she is
absent, the President shall preside, when present, at all
9
<PAGE> 10
meetings of stockholders and of the Board of Directors. The President shall have
such other powers and perform such other duties as the Board of Directors may
from time to time designate.
SECTION 10. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one is
elected, shall preside, when present, at all meetings of the stockholders and of
the Board of Directors. The Chairman of the Board shall have such other powers
and shall perform such other duties as the Board of Directors may from time to
time designate.
SECTION 11. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer, if
one is elected, shall have such powers and shall perform such duties as the
Board of Directors may from time to time designate.
SECTION 12. VICE PRESIDENTS AND ASSISTANT VICE PRESIDENTS. Any Vice
President (including any Executive Vice President or Senior Vice President) and
any Assistant Vice President shall have such powers and shall perform such
duties as the Board of Directors or the Chief Executive Officer may from time to
time designate.
SECTION 13. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall,
subject to the direction of the Board of Directors and except as the Board of
Directors or the Chief Executive Officer may otherwise provide, have general
charge of the financial affairs of the Corporation and shall cause to be kept
accurate books of account. The Treasurer shall have custody of all funds,
securities, and valuable documents of the Corporation. He or she shall have such
other duties and powers as may be designated from time to time by the Board of
Directors or the Chief Executive Officer.
Any Assistant Treasurer shall have such powers and perform such duties
as the Board of Directors or the Chief Executive Officer may from time to time
designate.
SECTION 14. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall
record all the proceedings of the meetings of the stockholders and the Board of
Directors (including committees of the Board) in books kept for that purpose. In
his or her absence from any such meeting, a temporary secretary chosen at the
meeting shall record the proceedings thereof. The Secretary shall have charge of
the stock ledger (which may, however, be kept by any transfer or other agent of
the Corporation). The Secretary shall have custody of the seal of the
Corporation, and the Secretary, or an Assistant Secretary, shall have authority
to affix it to any instrument requiring it, and, when so affixed, the seal may
be attested by his or her signature or that of an Assistant Secretary. The
Secretary shall have such other duties and powers as may be designated from time
to time by the Board of Directors or the Chief Executive Officer. In the absence
of the Secretary, any Assistant Secretary may perform his or her duties and
responsibilities.
Any Assistant Secretary shall have such powers and perform such duties
as the Board of Directors or the Chief Executive Officer may from time to time
designate.
SECTION 15. OTHER POWERS AND DUTIES. Subject to these By-laws and to
such limitations as the Board of Directors may from time to time prescribe, the
officers of the
10
<PAGE> 11
Corporation shall each have such powers and duties as generally pertain to their
respective offices, as well as such powers and duties as from time to time may
be conferred by the Board of Directors or the Chief Executive Officer.
ARTICLE IV
CAPITAL STOCK
SECTION 1. CERTIFICATES OF STOCK. Each stockholder shall be entitled to
a certificate of the capital stock of the Corporation in such form as may from
time to time be prescribed by the Board of Directors. Such certificate shall be
signed by the Chairman of the Board of Directors, the President or a Vice
President and by the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary. The Corporation seal and the signatures by the
Corporation's officers, the transfer agent or the registrar may be facsimiles.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on such certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the time of its issue. Every certificate
for shares of stock which are subject to any restriction on transfer and every
certificate issued when the Corporation is authorized to issue more than one
class or series of stock shall contain such legend with respect thereto as is
required by law.
SECTION 2. TRANSFERS. Subject to any restrictions on transfer and
unless otherwise provided by the Board of Directors, shares of stock may be
transferred only on the books of the Corporation by the surrender to the
Corporation or its transfer agent of the certificate theretofore properly
endorsed or accompanied by a written assignment or power of attorney properly
executed, with transfer stamps (if necessary) affixed, and with such proof of
the authenticity of signature as the Corporation or its transfer agent may
reasonably require.
SECTION 3. RECORD HOLDERS. Except as may otherwise be required by law,
by the Certificate or by these By-laws, the Corporation shall be entitled to
treat the record holder of stock as shown on its books as the owner of such
stock for all purposes, including the payment of dividends and the right to vote
with respect thereto, regardless of any transfer, pledge or other disposition of
such stock, until the shares have been transferred on the books of the
Corporation in accordance with the requirements of these By-laws.
It shall be the duty of each stockholder to notify the Corporation of
his or her post office address and any changes thereto.
SECTION 4. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix a record date, which
11
<PAGE> 12
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which record date: (a) in
the case of determination of stockholders entitled to vote at any meeting of
stockholders, shall, unless otherwise required by law, not be more than sixty
nor less than ten days before the date of such meeting and (b) in the case of
any other action, shall not be more than sixty days prior to such other action.
If no record date is fixed: (i) the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held and (ii) the record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
SECTION 5. REPLACEMENT OF CERTIFICATES. In case of the alleged loss,
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
ARTICLE V
INDEMNIFICATION
SECTION 1. DEFINITIONS. For purposes of this Article:
(a) "Director" means any person who serves or has served the
Corporation as a director on the Board of Directors of the Corporation.
(b) "Officer" means any person who serves or has served the Corporation
as an officer appointed by the Board of Directors of the Corporation;
(c) "Non-Officer Employee" means any person who serves or has served as
an employee or agent of the Corporation, but who is not or was not a Director or
Officer;
(d) "Proceeding" means any threatened, pending or completed action,
suit, arbitration, alternate dispute resolution mechanism, inquiry,
investigation, administrative hearing or other proceeding, whether civil,
criminal, administrative, arbitrative or investigative;
(e) "Expenses" means all reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of expert witnesses, private investigators and
professional advisors (including, without limitation, accountants and investment
bankers), travel expenses, duplicating costs, printing and binding costs, costs
of preparation of demonstrative evidence and other courtroom presentation aids
and devices, costs incurred in connection with document review, organization,
imaging and computerization, telephone charges, postage, delivery service fees,
and all other disbursements, costs or expenses of the type customarily incurred
in connection with prosecuting, defending, preparing to prosecute or defend,
investigating, being or preparing to be a witness in, settling or otherwise
participating in, a Proceeding;
12
<PAGE> 13
(f) "Corporate Status" describes the status of a person who is serving
or has served (i) as a Director of the Corporation, (ii) as an Officer of the
Corporation, or (iii) as a director, partner, trustee, officer, employee or
agent of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise which such person is or was serving at the
request of the Corporation. For purposes of this Section 1(f), an Officer or
Director of the Corporation who is serving or has served as a director, partner,
trustee, officer, employee or agent of a Subsidiary shall be deemed to be
serving at the request of the Corporation.
(g) "Disinterested Director" means, with respect to each Proceeding in
respect of which indemnification is sought hereunder, a Director of the
Corporation who is not and was not a party to such Proceeding; and
(h) "Subsidiary" shall mean any corporation, partnership, limited
liability company, joint venture, trust or other entity of which the Corporation
owns (either directly or through or together with another Subsidiary of the
Corporation) either (i) a general partner, managing member or other similar
interest or (ii) (A) 50% or more of the voting power of the voting capital
equity interests of such corporation, partnership, limited liability company,
joint venture or other entity, or (B) 50% or more of the outstanding voting
capital stock or other voting equity interests of such corporation, partnership,
limited liability company, joint venture or other entity.
SECTION 2. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Subject to the
operation of Section 4 of this Article V of these By-laws, each Director and
Officer shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the DGCL, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide prior to such amendment) against any and
all Expenses, judgments, penalties, fines and amounts reasonably paid in
settlement that are incurred by such Director or Officer or on such Director's
or Officer's behalf in connection with any threatened, pending or completed
Proceeding or any claim, issue or matter therein, which such Director or Officer
is, or is threatened to be made, a party to or participant in by reason of such
Director's or Officer's Corporate Status, if such Director or Officer acted in
good faith and in a manner such Director or Officer reasonably believed to be in
or not opposed to the best interests of the Corporation and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The rights of indemnification provided by this Section 2 shall
continue as to a Director or Officer after he or she has ceased to be a Director
or Officer and shall inure to the benefit of his or her heirs, executors,
administrators and personal representatives. Notwithstanding the foregoing, the
Corporation shall indemnify any Director or Officer seeking indemnification in
connection with a Proceeding initiated by such Director or Officer only if such
Proceeding was authorized by the Board of Directors of the Corporation, unless
such Proceeding was brought to enforce an Officer or Director's rights to
Indemnification under these By-laws in accordance with the provisions set forth
herein.
SECTION 3. INDEMNIFICATION OF NON-OFFICER EMPLOYEES. Subject to the
operation of Section 4 of this Article V of these By-laws, each Non-Officer
Employee may, in the discretion
13
<PAGE> 14
of the Board of Directors of the Corporation, be indemnified by the Corporation
to the fullest extent authorized by the DGCL, as the same exists or may
hereafter be amended, against any or all Expenses, judgments, penalties, fines
and amounts reasonably paid in settlement that are incurred by such Non-Officer
Employee or on such Non-Officer Employee's behalf in connection with any
threatened, pending or completed Proceeding, or any claim, issue or matter
therein, which such Non-Officer Employee is, or is threatened to be made, a
party to or participant in by reason of such Non-Officer Employee's Corporate
Status, if such Non-Officer Employee acted in good faith and in a manner such
Non-Officer Employee reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal proceeding, had
no reasonable cause to believe his or her conduct was unlawful. The rights of
indemnification provided by this Section 3 shall exist as to a Non- Officer
Employee after he or she has ceased to be a Non-Officer Employee and shall inure
to the benefit of his or her heirs, personal representatives, executors and
administrators. Notwithstanding the foregoing, the Corporation may indemnify any
Non-Officer Employee seeking indemnification in connection with a Proceeding
initiated by such Non-Officer Employee only if such Proceeding was authorized by
the Board of Directors of the Corporation.
SECTION 4. GOOD FAITH. Unless ordered by a court, no indemnification
shall be provided pursuant to this Article V to a Director, to an Officer or to
a Non-Officer Employee unless a determination shall have been made that such
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Corporation and, with respect to
any criminal Proceeding, such person had no reasonable cause to believe his or
her conduct was unlawful. Such determination shall be made by (a) a majority
vote of the Disinterested Directors, even though less than a quorum of the Board
of Directors, (b) a committee comprised of Disinterested Directors, such
committee having been designated by a majority vote of the Disinterested
Directors (even though less than a quorum), (c) if there are no such
Disinterested Directors, or if a majority of Disinterested Directors so directs,
by independent legal counsel in a written opinion, or (d) by the stockholders of
the Corporation.
SECTION 5. ADVANCEMENT OF EXPENSES TO DIRECTORS PRIOR TO FINAL
DISPOSITION.
(a) The Corporation shall advance all Expenses incurred by or on
behalf of any Director in connection with any Proceeding in which such Director
is involved by reason of such Director's Corporate Status within ten (10) days
after the receipt by the Corporation of a written statement from such Director
requesting such advance or advances from time to time, whether prior to or after
final disposition of such Proceeding. Such statement or statements shall
reasonably evidence the Expenses incurred by such Director and shall be preceded
or accompanied by an undertaking by or on behalf of such Director to repay any
Expenses so advanced if it shall ultimately be determined that such Director is
not entitled to be indemnified against such Expenses.
(b) If a claim for advancement of Expenses hereunder by a Director
is not paid in full by the Corporation within 10 days after receipt by the
Corporation of documentation of Expenses and the required undertaking, such
Director may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and if successful in whole or in part,
such
14
<PAGE> 15
Director shall also be entitled to be paid the expenses of prosecuting such
claim. The failure of the Corporation (including its Board of Directors or any
committee thereof, independent legal counsel, or stockholders) to make a
determination concerning the permissibility of such advancement of Expenses
under this Article V shall not be a defense to the action and shall not create a
presumption that such advancement is not permissible. The burden of proving that
a Director is not entitled to an advancement of expenses shall be on the
Corporation.
(c) In any suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the Corporation
shall be entitled to recover such expenses upon a final adjudication that the
Director has not met any applicable standard for indemnification set forth in
the DGCL.
SECTION 6. ADVANCEMENT OF EXPENSES TO OFFICERS AND NON-OFFICER
EMPLOYEES PRIOR TO FINAL DISPOSITION.
(a) The Corporation may, at the discretion of the Board of
Directors of the Corporation, advance any or all Expenses incurred by or on
behalf of any Officer and Non- Officer Employee in connection with any
Proceeding in which such is involved by reason of the Corporate Status of such
Officer or Non-Officer Employee upon the receipt by the Corporation of a
statement or statements from such Officer or Non-Officer Employee requesting
such advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
evidence the Expenses incurred by such Officer and Non-Officer Employee and
shall be preceded or accompanied by an undertaking by or on behalf of such to
repay any Expenses so advanced if it shall ultimately be determined that such
Officer or Non-Officer Employee is not entitled to be indemnified against such
Expenses.
(b) In any suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the Corporation
shall be entitled to recover such expenses upon a final adjudication that the
Officer or Non-Officer Employee has not met any applicable standard for
indemnification set forth in the DGCL.
SECTION 7. CONTRACTUAL NATURE OF RIGHTS.
(a) The foregoing provisions of this Article V shall be deemed to
be a contract between the Corporation and each Director and Officer entitled to
the benefits hereof at any time while this Article V is in effect, and any
repeal or modification thereof shall not affect any rights or obligations then
existing with respect to any state of facts then or theretofore existing or any
Proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
(b) If a claim for indemnification of Expenses hereunder by a Director
or Officer is not paid in full by the Corporation within 60 days after receipt
by the Corporation of a written claim for indemnification, such Director or
Officer may at any time thereafter bring suit against
15
<PAGE> 16
the Corporation to recover the unpaid amount of the claim, and if successful in
whole or in part, such Director or Officer shall also be entitled to be paid the
expenses of prosecuting such claim. The failure of the Corporation (including
its Board of Directors or any committee thereof, independent legal counsel, or
stockholders) to make a determination concerning the permissibility of such
indemnification under this Article V shall not be a defense to the action and
shall not create a presumption that such indemnification is not permissible. The
burden of proving that a Director or Officer is not entitled to indemnification
shall be on the Corporation.
(c) In any suit brought by a Director or Officer to enforce a
right to indemnification hereunder, it shall be a defense that such Director or
Officer has not met any applicable standard for indemnification set forth in the
DGCL.
SECTION 8. NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification and
advancement of Expenses set forth in this Article V shall not be exclusive of
any other right which any Director, Officer, or Non-Officer Employee may have or
hereafter acquire under any statute, provision of the Certificate or these
By-laws, agreement, vote of stockholders or Disinterested Directors or
otherwise.
SECTION 9. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any Director, Officer or Non-Officer Employee
against any liability of any character asserted against or incurred by the
Corporation or any such Director, Officer or Non-Officer Employee, or arising
out of any such person's Corporate Status, whether or not the Corporation would
have the power to indemnify such person against such liability under the DGCL or
the provisions of this Article V.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 1. FISCAL YEAR. The fiscal year of the Corporation shall be
determined by the Board of Directors.
SECTION 2. SEAL. The Board of Directors shall have power to adopt and
alter the seal of the Corporation.
SECTION 3. EXECUTION OF INSTRUMENTS. All deeds, leases, transfers,
contracts, bonds, notes and other obligations to be entered into by the
Corporation in the ordinary course of its business without director action may
be executed on behalf of the Corporation by the Chairman of the Board, if one is
elected, the President or the Treasurer or any other officer, employee or agent
of the Corporation as the Board of Directors or Executive Committee may
authorize.
SECTION 4. VOTING OF SECURITIES. Unless the Board of Directors
otherwise provides, the Chairman of the Board, if one is elected, the President
or the Treasurer may waive notice of and act on behalf of this Corporation, or
appoint another person or persons to act as proxy or attorney
16
<PAGE> 17
in fact for this Corporation with or without discretionary power and/or power of
substitution, at any meeting of stockholders or shareholders of any other
corporation or organization, any of whose securities are held by this
Corporation.
SECTION 5. RESIDENT AGENT. The Board of Directors may appoint a
resident agent upon whom legal process may be served in any action or proceeding
against the Corporation.
SECTION 6. CORPORATE RECORDS. The original or attested copies of the
Certificate, By-laws and records of all meetings of the incorporators,
stockholders and the Board of Directors and the stock transfer books, which
shall contain the names of all stockholders, their record addresses and the
amount of stock held by each, may be kept outside the State of Delaware and
shall be kept at the principal office of the Corporation, at the office of its
counsel or at an office of its transfer agent or at such other place or places
as may be designated from time to time by the Board of Directors.
SECTION 7. CERTIFICATE. All references in these By-laws to the
Certificate shall be deemed to refer to the Amended and Restated Certificate of
Incorporation of the Corporation, as amended and in effect from time to time.
SECTION 8. AMENDMENT OF BY-LAWS.
(a) AMENDMENT BY DIRECTORS. Except as provided otherwise by law,
these By-laws may be amended or repealed by the Board of Directors by the
affirmative vote of a majority of the directors then in office.
(b) AMENDMENT BY STOCKHOLDERS. These By-laws may be amended or
repealed at any Annual Meeting, or special meeting of stockholders called for
such purpose, by the affirmative vote of at least 75% of the shares present in
person or represented by proxy at such meeting and entitled to vote on such
amendment or repeal, voting together as a single class; provided, however, that
if the Board of Directors recommends that stockholders approve such amendment or
repeal at such meeting of stockholders, such amendment or repeal shall only
require the affirmative vote of the majority of the shares present in person or
represented by proxy at such meeting and entitled to vote on such amendment or
repeal, voting together as a single class. Notwithstanding the foregoing,
stockholder approval shall not be required unless mandated by the Certificate,
these By-laws, or other applicable law.
Adopted ___________, ____ and effective as of ___________, ____.
17
<PAGE> 1
EXHIBIT 4.2
INVESTORS' RIGHTS AGREEMENT
THIS INVESTORS' RIGHTS AGREEMENT is made as of the 25th day of
February, 1999, by and among FairMarket, Inc., a Delaware corporation (the
"Company"), and the investors listed on SCHEDULE A hereto, each of which is
herein referred to as an "Investor."
RECITALS
--------
WHEREAS, certain of the Investors (the "Series A Investors") hold
shares of the Company's Series A Preferred Stock and/or shares of the Common
Stock issuable upon conversion thereof (the "Series A Preferred Stock");
WHEREAS, certain of the Investors (the "Series B Investors") hold
shares of the Company's Series B Preferred Stock and/or shares of Common Stock
issued upon conversion thereof (the "Series B Preferred Stock") and possess
information rights, rights of participation, and other rights pursuant to a
Series B Convertible Preferred Stock Agreement dated as of December 31, 1997
among the Company and such Series B Investors (the "Series B Agreement"); and
WHEREAS, the Series B Investors are holders of "Preferred Shares" (as
defined in the Series B Agreement) of the Company representing at least
two-thirds of the outstanding shares of Common Stock issued or issuable upon
conversion of the Preferred Shares, and desire to terminate Section 6.7 of the
Series B Agreement and to accept the rights created pursuant hereto in lieu of
the rights granted to them under Section 6.7 of the Series B Agreement; and
WHEREAS, certain Investors (the "Series C Investors") are parties to
the Series C Preferred Stock Purchase Agreement of even date herewith among the
Company and the Series C Investors (the "Series C Agreement"), which provides
that as a condition to the closing of the sale of the Series C Preferred Stock,
this Agreement must be executed and delivered by: (i) the Series C Investors;
(ii) the Series A Investors; (iii) Series B Investors holding "Preferred Shares"
(as defined in the Series B Agreement) of the Company representing at least
two-thirds of the outstanding shares of Common Stock issued or issuable upon
conversion of the Preferred Shares; and (iv) the Company.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the Series B Investors hereby agree that Section 6.7 of the
Series B Agreement shall be terminated in its entirety, and all of the rights of
the Series B Investors under that Section are hereby waived by the Series B
Investors.
The parties hereto hereby further agree as follows:
1. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as
amended.
<PAGE> 2
(b) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the SEC that permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
(c) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.11 hereof.
(d) The term "Initial Offering" means the Company's first
firm commitment underwritten public offering of its Common Stock under the Act.
(e) The term "1934 Act" means the Securities Exchange Act
of 1934, as amended.
(f) The term "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the declaration or
ordering of effectiveness of such registration statement or document.
(g) The term "Registrable Securities" means (i) the Common
Stock issuable or issued upon conversion of the Series A Preferred Stock, Series
B Preferred Stock, and Series C Preferred Stock of the Company and (ii) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security that is issued as) a dividend
or other distribution with respect to, or in exchange for, or in replacement of,
the shares referenced in (i) above, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which his rights
under this Section 1 are not assigned.
(h) The number of shares of "Registrable Securities"
outstanding shall be determined by the number of shares of Common Stock
outstanding that are, and the number of shares of Common Stock issuable pursuant
to then exercisable or convertible securities that are, Registrable Securities.
(i) The term "SEC" shall mean the Securities and Exchange
Commission.
1.2 REQUEST FOR REGISTRATION.
(a) Subject to the conditions of this Section 1.2, if the
Company shall receive at any time after January 1, 2001 a written request from
the Holders of fifty percent (50%) or more of the Registrable Securities then
outstanding (the "Initiating Holders") that the Company file a registration
statement under the Act covering the registration of Registrable Securities,
then the Company shall, within twenty (20) days of the receipt thereof, give
written notice of such request to all Holders, and subject to the limitations of
this Section 1.2, use best efforts to effect, as soon as practicable, the
registration under the Act of all Registrable Securities that the Holders
request to be registered in a written request received by
2
<PAGE> 3
the Company within twenty (20) days of the mailing of the Company's notice
pursuant to this Section 1.2(a).
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 1.2 and the Company shall include such information in the written
notice referred to in Section 1.2(a). In such event, the right of any Holder to
include its Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders and such Holder) to
the extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by a majority in interest of the Initiating Holders (which
underwriter or underwriters shall be reasonably acceptable to the Company).
Notwithstanding any other provision of this Section 1.2, if the underwriter
advises the Company that marketing factors require a limitation of the number of
securities underwritten (including Registrable Securities), then the Company
shall so advise all Holders of Registrable Securities that would otherwise be
underwritten pursuant hereto, and the number of shares that may be included in
the underwriting shall be allocated to the Holders of such Registrable
Securities on a pro rata basis based on the number of Registrable Securities
held by all such Holders (including the Initiating Holders). Any Registrable
Securities excluded or withdrawn from such underwriting shall be withdrawn from
the registration.
(c) The Company shall not be required to effect a
registration pursuant to this Section 1.2:
(i) in any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, unless the Company is already subject to service in
such jurisdiction and except as may be required under the Act; or
(ii) after the Company has effected two (2)
registrations pursuant to this Section 1.2, and such registrations have been
declared or ordered effective; or
(iii) during the period starting with the date sixty
(60) days prior to the Company's good faith estimate of the date of the filing
of, and ending on a date one hundred eighty (180) days following the effective
date of, a Company-initiated registration subject to Section 1.3 below, provided
that the Company is actively employing in good faith all reasonable efforts to
cause such registration statement to become effective; or
(iv) if the Initiating Holders propose to dispose of
Registrable Securities that may be registered on Form S-3 pursuant to Section
1.4 hereof; or
(v) if the Company shall furnish to Holders requesting
a registration statement pursuant to this Section 1.2, a certificate signed by
the Company's Chief Executive Officer or Chairman of the Board stating that in
the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its
3
<PAGE> 4
shareholders for such registration statement to be effected at such time, in
which event the Company shall have the right to defer such filing for a period
of not more than one hundred twenty (120) days after receipt of the request of
the Initiating Holders, provided that such right to delay a request shall be
exercised by the Company not more than once in any twelve (12)-month period; or
(vi) upon a request for registration pursuant to
Section 1.2(a) hereof, if the Company has not completed the sale of any of its
securities in a registered offering prior to its receipt of such request, such
request is for registration of less than twenty percent (20%) of the Registrable
Securities held by the Initiating Holders of such request at the time such
request is received, and the Company's good faith estimate of the aggregate
offering price, net of underwriting discounts and commissions, is $5,000,000 or
less.
1.3 COMPANY REGISTRATION.
(a) If (but without any obligation to do so) the Company
proposes to register (including for this purpose a registration effected by the
Company for shareholders other than the Holders) any of its stock or other
securities under the Act in connection with the public offering of such
securities (other than a registration relating solely to the sale of securities
to participants in a Company stock plan, a registration relating to a corporate
reorganization or other transaction under Rule 145 of the Act, a registration on
any form that does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities, or a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt securities that are
also being registered), the Company shall, at such time, promptly give each
Holder written notice of such registration. Upon the written request of each
Holder given within twenty (20) days after mailing of such notice by the Company
in accordance with Section 3.5, the Company shall, subject to the provisions of
Section 1.3(c), use all reasonable efforts to cause to be registered under the
Act all of the Registrable Securities that each such Holder has requested to be
registered.
(b) RIGHT TO TERMINATE REGISTRATION. The Company shall have
the right to terminate or withdraw any registration initiated by it under this
Section 1.3 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration. The expenses of
such withdrawn registration shall be borne by the Company in accordance with
Section 1.7 hereof.
(c) UNDERWRITING REQUIREMENTS. In connection with any
offering involving an underwriting of shares of the Company's capital stock, the
Company shall not be required under this Section 1.3 to include any of the
Holders' securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it (or by other persons entitled to select the underwriters) and enter into an
underwriting agreement in customary form with an underwriter or underwriters
selected by the Company, and then only in such quantity as the underwriters
determine in their sole discretion will not jeopardize the success of the
offering by the Company. If the total amount of securities, including
Registrable Securities, requested by shareholders to be included in such
offering exceeds the amount of securities sold other than by the Company that
4
<PAGE> 5
the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Company shall be required to include in the
offering only that number of such securities, including Registrable Securities,
that the underwriters determine in their sole discretion will not jeopardize the
success of the offering (the securities so included to be apportioned pro rata
among the selling Holders according to the total amount of securities entitled
to be included therein owned by each selling Holder or in such other proportions
as shall mutually be agreed to by such selling Holders), but in no event shall
(i) the amount of securities of the selling Holders included in the offering be
reduced below thirty-five percent (35%) of the total amount of securities
included in such offering, unless such offering is the initial public offering
of the Company's securities, in which case the selling Holders may be excluded
if the underwriters make the determination described above and no other
shareholder's securities are included, or (ii) notwithstanding (i) above, any
shares being sold by a shareholder exercising a demand registration right
similar to that granted in Section 1.2 be excluded from such offering. For
purposes of the preceding parenthetical concerning apportionment, for any
selling shareholder that is a Holder of Registrable Securities and that is a
partnership or corporation, the partners, retired partners and shareholders of
such Holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "selling Holder," and any pro rata reduction with respect
to such "selling Holder" shall be based upon the aggregate amount of Registrable
Securities owned by all such related entities and individuals.
1.4 FORM S-3 REGISTRATION. In case the Company shall receive
from any Holders of more than two percent (2%) of the Registrable Securities a
written request or requests that the Company effect a registration on Form S-3
and any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company shall:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
(b) use best efforts to effect, as soon as practicable,
such registration and all such qualifications and compliances as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Holders' Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of any
other Holders joining in such request as are specified in a written request
given within fifteen (15) days after receipt of such written notice from the
Company, provided, however, that the Company shall not be obligated to effect
any such registration, qualification or compliance, pursuant to this section
1.4:
(i) if Form S-3 is not available for such offering by
the Holders;
(ii) if the Holders, together with the holders of any
other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public (net of any underwriters' discounts or
commissions) of less than $1,000,000;
5
<PAGE> 6
(iii) if the Company shall furnish to the Holders a
certificate signed by the Chief Executive Officer or Chairman of the Board of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than one hundred twenty (120)
days after receipt of the request of the Holder or Holders under this Section
1.4; provided, however, that the Company shall not utilize this right more than
once in any twelve month period;
(iv) in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. Registrations effected pursuant to this
Section 1.4 shall not be counted as requests for registration effected pursuant
to Sections 1.2.
1.5 OBLIGATIONS OF THE COMPANY. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for a period of up to one hundred twenty (120)
days or, if earlier, until the distribution contemplated in the Registration
Statement has been completed;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement;
(c) furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them;
(d) use best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions;
6
<PAGE> 7
(e) in the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering;
(f) notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act or the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing;
(g) cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed; and
(h) provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration.
1.6 INFORMATION FROM HOLDER. It shall be a condition precedent
to the obligations of the Company to take any action pursuant to this Section 1
with respect to the Registrable Securities of any selling Holder that such
Holder shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required to effect the registration of such Holder's
Registrable Securities.
1.7 EXPENSES OF REGISTRATION. All expenses (other than
underwriting discounts and commissions) incurred in connection with
registrations, filings or qualifications pursuant to Sections 1.2, 1.3 and 1.4,
including (without limitation) all registration, filing and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the Company
and the reasonable fees and disbursements of one counsel for the selling Holders
shall be borne by the Company. Notwithstanding the foregoing, the Company shall
not be required to pay for any expenses of any registration proceeding begun
pursuant to Section 1.2 or Section 1.4 if the registration request is
subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to be registered (in which case all participating Holders
shall bear such expenses pro rata based upon the number of Registrable
Securities that were to be requested in the withdrawn registration), unless, in
the case of a registration requested under Section 1.2, the Holders of a
majority of the Registrable Securities agree to forfeit their right to one
demand registration pursuant to Section 1.2, provided, however, that if at the
time of such withdrawal, the Holders have learned of a material adverse change
in the condition, business, or prospects of the Company from that known to the
Holders at the time of their request and have withdrawn the request with
reasonable promptness following disclosure by the Company of such material
adverse change, then the Holders shall not be required to pay any of such
expenses and shall retain their rights pursuant to Section 1.2 or 1.4.
1.8 DELAY OF REGISTRATION. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any
7
<PAGE> 8
controversy that might arise with respect to the interpretation or
implementation of this Section 1.
1.9 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners or officers, directors and
shareholders of each Holder, legal counsel and accountants for each Holder, any
underwriter (as defined in the Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the Act or the 1934
Act, against any losses, claims, damages or liabilities (joint or several) to
which they may become subject under the Act, the 1934 Act or any state
securities laws, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the Act, the 1934 Act, any
state securities laws or any rule or regulation promulgated under the Act, the
1934 Act or any state securities laws; and the Company will reimburse each such
Holder, underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this subsection l.9(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation that occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person;
provided further, however, that the foregoing indemnity agreement with respect
to any preliminary prospectus shall not inure to the benefit of any Holder or
underwriter, or any person controlling such Holder or underwriter, from whom the
person asserting any such losses, claims, damages or liabilities purchased
shares in the offering, if a copy of the prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Holder or underwriter to
such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the shares to such person, and if the
prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage or liability.
(b) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, legal counsel and
accountants for the Company, any underwriter, any other Holder selling
securities in such registration statement and any controlling person of any such
underwriter or other Holder, against any losses, claims, damages or liabilities
(joint or several) to which any of the foregoing persons may become subject,
under the Act, the 1934 Act or any
8
<PAGE> 9
state securities laws, insofar as such losses, claims, damages or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will reimburse any person intended to be indemnified pursuant to this
subsection l.9(b), for any legal or other expenses reasonably incurred by such
person in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
contained in this subsection l.9(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder (which consent shall
not be unreasonably withheld), provided that in no event shall any indemnity
under this subsection l.9(b) exceed the gross proceeds from the offering
received by such Holder.
(c) Promptly after receipt by an indemnified party under
this Section 1.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties that may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.9, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.9.
(d) If the indemnification provided for in this Section 1.9
is held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
9
<PAGE> 10
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.9 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.10 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view
to making available to the Holders the benefits of Rule 144 promulgated under
the Act and any other rule or regulation of the SEC that may at any time permit
a Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to use its best
efforts to:
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times after the
effective date of the Initial Offering;
(b) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC that permits the
selling of any such securities without registration or pursuant to such form.
1.11 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities that (i) is a subsidiary, parent, partner, limited
partner, retired partner or shareholder of a Holder, (ii) is a Holder's family
member or trust for the benefit of an individual Holder, or (iii) after such
assignment or transfer, holds at least twenty percent (20%) of the number of
Registrable Securities held by the transferring Holder immediately prior to the
transfer, provided: (a) the Company is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; (b) such transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement, including without limitation the provisions of Section 1.13 below;
(c) such transferee is acceptable to the Company, provided that such acceptance
shall not be unreasonably withheld; and (d) such assignment shall be
10
<PAGE> 11
effective only if immediately following such transfer the further disposition of
such securities by the transferee or assignee is restricted under the Act.
1.12 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company that would allow such holder or prospective holder (a) to include
such securities in any registration filed under Section 1.3 hereof, unless under
the terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of
such securities will not reduce the amount of the Registrable Securities of the
Holders that are included or (b) to demand registration of their securities.
1.13 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that
it will not, without the prior written consent of the managing underwriter,
during the period commencing on the date of the final prospectus distributed in
connection with a registration statement of the Company filed under the Act and
ending on the date specified by the Company and the managing underwriter (such
period not to exceed one hundred eighty (180) days in the case of the Company's
initial public offering and ninety (90) days in the case of any offering of
securities other than the Company's initial public offering) (i) lend, offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock (whether such shares or any such securities are
then owned by the Holder or are thereafter acquired), or (ii) enter into any
swap or other arrangement that transfers to another, in whole or in part, any of
the economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. The foregoing
provisions of this Section 1.13 shall apply only to the Company's initial public
offering of equity securities and to offerings commenced during the one year
period following the date of the final prospectus distributed in connection with
the Company's initial public offering of securities, shall not apply to the sale
of any shares to an underwriter pursuant to an underwriting agreement, and shall
only be applicable to the Holders if all officers and directors and greater than
five percent (5%) shareholders of the Company enter into similar agreements. The
underwriters in connection with the Company's initial public offering are
intended third party beneficiaries of this Section 1.13 and shall have the
right, power and authority to enforce the provisions hereof as though they were
a party hereto.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
1.14 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be
entitled to exercise any right provided for in this Section 1 after five (5)
years following the consummation of the Initial Offering or, as to any Holder,
such earlier time at which all Registrable Securities held by such Holder (and
any affiliate of the Holder with whom such Holder must aggregate its
11
<PAGE> 12
sales under Rule 144) can be sold in any three (3)-month period without
registration in compliance with Rule 144 of the Act.
2. COVENANTS OF THE COMPANY.
2.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver:
(a) to each holder of Series C Preferred Stock holding at
least 500,000 shares of Series C Preferred Stock or of the shares of Common
Stock then issued upon conversion thereof (a "Major Investor"), as soon as
practicable, but in any event within ninety (90) days after the end of each
fiscal year of the Company, an income statement for such fiscal year, a balance
sheet of the Company and statement of shareholder's equity as of the end of such
year, and a statement of cash flows for such year, such year-end financial
reports to be in reasonable detail, prepared in accordance with generally
accepted accounting principles ("GAAP"), and audited and certified by
independent public accountants of nationally recognized standing selected by the
Company;
(b) to each Major Investor, as soon as practicable, but in
any event within forty-five (45) days after the end of each of the first three
(3) quarters of each fiscal year of the Company, an unaudited income statement,
statement of cash flows for such fiscal quarter and an unaudited balance sheet
as of the end of such fiscal quarter.
(c) to each Major Investor, as soon as practicable, but in
any event at least thirty (30) days prior to the end of each fiscal year, a
budget and business plan for the next fiscal year, prepared on a monthly basis,
including balance sheets, income statements and statements of cash flows for
such months and, as soon as prepared, any other budgets or revised budgets
prepared by the Company;
(d) to each Major Investor, with respect to the financial
statements called for in subsection (b) of this Section 2.1, an instrument
executed by the Chief Financial Officer or President of the Company certifying
that such financials were prepared in accordance with GAAP consistently applied
with prior practice for earlier periods (with the exception of footnotes that
may be required by GAAP) and fairly present the financial condition of the
Company and its results of operation for the period specified, subject to
year-end audit adjustment; and
(e) such other information relating to the financial
condition, business, prospects or corporate affairs of the Company as the Major
Investor or any assignee of the Major Investor may from time to time request,
provided, however, that the Company shall not be obligated under this subsection
(e) or any other subsection of Section 2.1 to provide information that it deems
in good faith to be a trade secret or similar confidential information.
2.2 INSPECTION. The Company shall permit each Major Investor, at
such Major Investor's expense, to visit and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's affairs,
finances and accounts with its officers, all at such reasonable times as may be
requested by the Major Investor; provided, however, that the Company shall not
be obligated pursuant to this Section 2.2 to provide access
12
<PAGE> 13
to any information that it reasonably considers to be a trade secret or similar
confidential information.
2.3 TERMINATION OF INFORMATION AND INSPECTION COVENANTS. The
covenants set forth in Sections 2.1 and 2.2 shall terminate and be of no further
force or effect when the sale of securities pursuant to a registration statement
filed by the Company under the Act in connection with the firm commitment
underwritten offering of its securities to the general public is consummated or
when the Company first becomes subject to the periodic reporting requirements of
Sections 12(g) or 15(d) of the 1934 Act, whichever event shall first occur.
2.4 RIGHT OF FIRST OFFER. Subject to the terms and conditions
specified in this paragraph 2.4, the Company hereby grants to each Major
Investor a right of first offer with respect to future sales by the Company of
its Shares (as hereinafter defined). For purposes of this Section 2.4, Major
Investor includes any general partners and affiliates of a Major Investor. A
Major Investor shall be entitled to apportion the right of first offer hereby
granted it among itself and its partners and affiliates in such proportions as
it deems appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exchangeable or exercisable for any shares of, any class of
its capital stock ("Shares"), the Company shall first make an offering of such
Shares to each Major Investor in accordance with the following provisions.
(a) The Company shall deliver a notice in accordance with
Section 3.5 ("Notice") to the Major Investors stating (i) its bona fide
intention to offer such Shares, (ii) the number of such Shares to be offered,
and (iii) the price and terms upon which it proposes to offer such Shares.
(b) By written notification received by the Company, within
twenty (20) calendar days after receipt of the Notice, the Major Investor may
elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to that portion of such Shares that equals the proportion that the
number of shares of Common Stock issued and held, or issuable upon conversion of
the Series C Preferred Stock (the "Series C Preferred Stock") then held, by such
Major Investor bears to the total number of shares of Common Stock of the
Company then outstanding (assuming full conversion of all convertible
securities). The Company shall promptly, in writing, inform each Major Investor
that elects to purchase all the shares available to it (a "Fully-Exercising
Investor") of any other Major Investor's failure to do likewise. During the ten
(10) day period commencing after such information is given, each
Fully-Exercising Investor may elect to purchase that portion of the Shares for
which Major Investors were entitled to subscribe but which were not subscribed
for by the Major Investors that is equal to the proportion that the number of
shares of Common Stock issued and held, or issuable upon conversion of Series C
Preferred Stock then held, by such Fully-Exercising Investor bears to the total
number of shares of Common Stock issued and held, or issuable upon conversion of
the Series Preferred Stock then held, by all Fully-Exercising Investors who wish
to purchase some of the unsubscribed shares.
(c) If all Shares that Major Investors are entitled to
obtain pursuant to subsection 2.4(b) are not elected to be obtained as provided
in subsection 2.4(b)
13
<PAGE> 14
hereof, the Company may, during the ninety (90) day period following the
expiration of the period provided in subsection 2.4(b) hereof, offer the
remaining unsubscribed portion of such Shares to any person or persons at a
price not less than, and upon terms no more favorable to the offeree than those
specified in the Notice. If the Company does not enter into an agreement for the
sale of the Shares within such period, or if such agreement is not consummated
within ninety (90) days of the execution thereof, the right provided hereunder
shall be deemed to be revived and such Shares shall not be offered unless first
reoffered to the Major Investors in accordance herewith.
(d) The right of first offer in this paragraph 2.4 shall
not be applicable to (i) the issuance or sale of up to 4,171,237 shares of
Common Stock (or options therefor) to employees, directors and consultants for
the primary purpose of soliciting or retaining their services; (ii) the issuance
of securities pursuant to a bona fide, firmly underwritten public offering of
shares of Common Stock, registered under the Act, at an offering price of at
least $5.14 per share (appropriately adjusted for any stock split, dividend,
combination or other recapitalization) and resulting in proceeds to the Company
of at least $15,000,000 in the aggregate, (iii) the issuance of securities
pursuant to the conversion or exercise of convertible or exercisable securities,
or (iv) the issuance of securities in connection with a bona fide business
acquisition of or by the Company, whether by merger, consolidation, sale of
assets, sale or exchange of stock or otherwise or (v) securities issued as a
result of any stock split, stock dividend, or reclassification of the Company's
capital stock.
2.5 DIRECTORS' AND OFFICERS' INSURANCE. The Company has as of
the date hereof or shall within sixty (60) days of the date hereof use its best
efforts to obtain from financially sound and reputable insurers a Directors' and
Officers' insurance policy covering the directors and officers of the Company in
the amount of at least $5,000,000.
2.6 VOTING OF SHARES FOR ELECTION OF DIRECTORS OF THE COMPANY.
With respect to each election or removal of members of the Board of Directors of
the Company (including, without limitation, any replacement members), whether at
an annual or special meeting of shareholders or by written consent of
shareholders, each of the parties to this Agreement (including all transferees
of shares purchased hereunder) agrees to vote his, her or its shares of capital
stock of the Company (and any shares over which he, she or it exercises voting
control), whether now owned or later acquired, and to take such other action as
may be necessary to effect the following:
(a) The Company's Board of Directors shall consist of five
(5) members.
(b) For as long as a majority of the outstanding shares of
Series C Preferred Stock are owned by the Series C Investors or their
affiliates, the holders of a majority of the outstanding shares of Series C
Preferred Stock shall have the right to designate one person to be elected as
Director of the Company.
(c) The holders of a majority of the outstanding shares of
Series B Preferred Stock shall have the right to designate one person to be
elected as Director of the Company.
14
<PAGE> 15
(d) Scott T. Randall shall have the right to be elected as
a Director of the Company and shall have the right to select two other persons
to be selected as Directors of the Company, one of whom must be reasonably
acceptable to the holders of a majority of the outstanding shares of Series C
Preferred Stock for as long as a majority of the outstanding shares of Series C
Preferred Stock is owned by Series C Investors or their affiliates.
(e) The parties hereto will take such action as may be
necessary or appropriate to cause the designees to be nominated, elected and
continued as Directors of the Company as set forth in clauses (b) through (d)
above and not to be removed for any reason other than for cause or in connection
with the designation and election of a successor. Each of the parties hereto
agrees to vote any securities of the Company over which they exercise voting
control to effect the provisions of this Section 2.6 and to take such actions as
shall be necessary or appropriate to ensure that any vacancy of a Director's
seat on the Board of Directors (occurring for any reason) shall be filled only
in accordance with this Section 2.6.
(f) Each of the parties hereto agrees, as a condition to
any transfer of voting securities of the Company held by them, to cause the
transferee to agree to the provisions of this Section 2.6. If any transfer is
made and the transferee has not expressly agreed to be bound by this Section
2.6, then such transferee shall be deemed to have so agreed.
(g) Any failure by any of the parties hereto to fully
exercise their rights to designate one or more Directors under this Section 2.6
at any time shall not be construed to waive or limit their rights to designate
such Director(s) hereunder at any time thereafter.
2.7 TERMINATION OF CERTAIN COVENANTS. The covenants set forth in
Section 2.4 through 2.6 shall terminate and be of no further force or effect
upon the consummation of the sale of securities pursuant to a bona fide, firmly
underwritten public offering of shares of common stock, registered under the
Act, at an offering price of at least $5.14 per share (appropriately adjusted
for any stock split, dividend, combination or other recapitalization) and
resulting in proceeds to the Company of at least $15,000,000.
2.8 LOCK-UP AGREEMENTS. The Company shall use its best efforts
to cause all employees of the Company who have been granted stock options
pursuant to the Company's Amended and Restated 1997 Stock Option Plan to enter
into a standard form lock up agreement with the following language:
"The undersigned hereby agrees that he/she will not, without the prior written
consent of the managing underwriter, during the period commencing on the date of
the final prospectus relating to the Company's initial public offering and
ending on the date specified by the Company and the managing underwriter (such
period not to exceed one hundred eighty (180) days) (i) lend, offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock (whether such shares or any such securities are then owned by the
undersigned or are thereafter acquired), or (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of
15
<PAGE> 16
ownership of the Common Stock, whether any such transaction described in clause
(i) or (ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The underwriters in connection with the
Company's initial public offering are intended third party beneficiaries of this
Agreement and shall have the right, power and authority to enforce the
provisions hereof as though they were a party hereto. In order to enforce the
foregoing covenant, the Company may impose stop-transfer instructions with
respect to the securities of the Founder until the end of such period."
If the Company fails to receive lock-up agreements from at least a majority of
the employees who have been granted stock options pursuant to the Company's
Amended and Restated 1997 Stock Option Plan within ninety (90) days of the date
of this agreement, then the Investors shall not be subject to Section 1.13 of
this agreement.
3. MISCELLANEOUS.
3.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
3.2 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of Delaware as applied to agreements among
Delaware residents entered into and to be performed entirely within Delaware.
3.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.4 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 NOTICES. All notices and other communications required or
permitted hereunder shall be in writing, shall be effective when given, and
shall in any event be deemed to be given (a) five (5) days after deposit with
the U.S. Postal Service or other applicable postal service, if delivered by
first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c)
one business day after the business day of deposit with Federal Express or
similar overnight courier, freight prepaid, or (d) one day after the business
day of delivery by facsimile transmission, if deliverable by facsimile
transmission, with a copy by first class mail, postage prepaid, and shall be
addressed, if to Investor, at each Investor's address as set forth beneath the
Investor's signature to this Agreement, and, if to the Company, at the address
of its principal corporate offices (attention: Secretary), or at such other
address as such party may designate by ten (10) days' advance written notice to
the other parties hereto.
16
<PAGE> 17
3.6 EXPENSES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
3.7 ENTIRE AGREEMENT: AMENDMENTS AND WAIVERS. This Agreement
(including the Exhibits hereto, if any) constitutes the full and entire
understanding and agreement among the parties with regard to the subjects hereof
and thereof. Any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the holders of a majority of the Registrable
Securities and in the case of Section 2.7, Scott T. Randall. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any Registrable Securities each future holder of all such Registrable
Securities, and the Company.
3.8 SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
3.9 AGGREGATION OF STOCK. All shares of Registrable Securities
held or acquired by affiliated entities or persons shall be aggregated together
for the purpose of determining the availability of any rights under this
Agreement.
17
<PAGE> 18
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY:
FairMarket, Inc.
By: /s/ Scott T. Randall
------------------------------
Scott T. Randall, President
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 19
INVESTORS:
SIERRA VENTURES VENTURES VII, L.P.
By: Sierra Ventures Associates
VII, L.L.C.
Its: General Partner
By: /s/ Jeff Drazan
-----------------------------
Managing Member
3000 Sand Hill Road
Building 4, Suite 210
Menlo Park, CA 94025
SIERRA VENTURES ASSOCIATES VII,
L.L.C.
By: /s/ Jeff Drazan
-----------------------------
Managing Member
3000 Sand Hill Road
Building 4, Suite 210
Menlo Park, CA 94025
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 20
INVESTORS:
Gregory Shlopak
/s/ Gregory Shlopak
--------------------------
Gregory Shlopak
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 21
INVESTORS:
Equities Enterprises
By:_______________________________
Name:_____________________________
Title (if applicable):____________
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 22
INVESTORS:
Mercator Ventures Fund
By: /s/ Howard A. Samuels
------------------------------
Name: Howard A. Samuels
----------------------------
Title (if applicable): Manager
-----------
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 23
INVESTORS:
Randall Becker & Donna Becker
/s/ Randall Becker & Donna Becker
---------------------------------
Randall Becker & Donna Becker
Address:
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 24
INVESTORS:
Todd H. Becker
/s/ Todd H. Becker
-------------------------
Address:
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 25
INVESTORS:
MLPF&S Custodian FBO
Todd H. Becker IRA
By: /s/ Todd Becker
---------------------------
Name: Todd H. Becker
-------------------------
Title (if applicable):____________
Address:
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 26
INVESTORS:
Byrne Defined Benefit Trust
By: /s/ Robert F. Byrne
----------------------------------------
Name: Robert F. Byrne
--------------------------------------
Title (if applicable): Trustee and Fiduciary
---------------------
Address:
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 27
INVESTORS:
Joanne M. Eldred
/s/ Joanne M. Eldred
-----------------------
Joanne M. Eldred
Address:
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 28
INVESTORS:
Robert and Lisa Anders
/s/ Robert Anders
----------------------------------
/s/ Lisa Anders
----------------------------------
Address:
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 29
INVESTORS:
Arthur Remillard, Jr.
/s/ Arthur Remillard
----------------------------------
Address:
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 30
INVESTORS:
Surykant M. Patel and Sarla S.
Patel
/s/ Surykant M. Patel
----------------------------------
/s/ Sarla S. Patel
----------------------------------
Address:
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 31
INVESTORS:
Sam S. Pappas
/s/ Sam S. Pappas
----------------------------------
Address:
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 32
INVESTORS:
RKG Associates
By: /s/ Richard Plotzer
--------------------------------------
Name: Richard Plotzer
--------------------------------
Title (if applicable): General Partner
---------------
Address:
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 33
INVESTORS:
F. William Helming III
/s/ F. William Helming III
----------------------------------
Address:
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 34
INVESTORS:
Jonathan C. McKay
__________________________________
Address:
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 35
INVESTORS:
Noreaster Research Partners
By: /s/ Richard W. Hoole
-------------------------------
Name: Richard W. Hoole
-----------------------------
Title (if applicable): Partner
------------
Address:
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 36
INVESTORS:
Naren M. Patel & Ila N. Patel
/s/ Naren M. Patel
----------------------------------
/s/ Ila N. Patel
----------------------------------
Address:
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 37
INVESTORS:
Mark and Kathleen Puliafico
/s/ Kathleen Puliafico
----------------------------------
/s/ Mark Puliafico
----------------------------------
Address:
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 38
INVESTORS:
Charles R. Puliafico
/s/ Charles Puliafico
----------------------------------
Address:
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 39
INVESTORS:
J. Scott Hefter
__________________________________
Address:
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 40
INVESTORS:
John C. Becker and Cheryl L.
Becker
/s/ John C. Becker
----------------------------------
/s/ Cheryl L. Becker
----------------------------------
Address:
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 41
INVESTORS:
Edward J. Ruggieri
/s/ Edward J. Ruggieri
----------------------------------
Address:
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 42
INVESTORS:
Robert & Jane Sylvester
__________________________________
__________________________________
Address:
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 43
INVESTORS:
Richard Y. Woo & Jania N. Woo
/s/ Richard Y. Woo
----------------------------------
/s/ Jania N. Woo
----------------------------------
Address:
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 44
INVESTORS:
Herman Becker
/s/ Herman Becker
----------------------------------
Address:
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 1
EXHIBIT 4.3
FAIRMARKET, INC.
AMENDMENT TO INVESTORS' RIGHTS AGREEMENT
August 23, 1999
This Amendment to Investors' Rights Agreement (this "Amendment") is by and
among FairMarket, Inc., a Delaware corporation (the "Company"), Sierra Ventures
VII, L.P., a Delaware limited partnership ("Sierra Ventures"), Microsoft
Corporation ("Microsoft") and Excite, Inc. ("Excite" and, together with
Microsoft, the "New Investors"), and amends certain provisions contained in the
Investors' Rights Agreement, dated February 25, 1999, by and among the Company,
Sierra Ventures and certain other stockholders of the Company (the "Investors'
Rights Agreement").
WHEREAS, on the date hereof the New Investors are purchasing capital stock
of the Company; and
WHEREAS, the parties hereto desire to modify the Investors' Rights
Agreement to provide certain rights thereunder to the New Investors.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the parties hereto agree that the New Investors shall
become parties to the Investors' Rights Agreement and shall, as holders of
securities of the Company, be entitled to the benefit of and subject to the
obligations contained in the Investors' Rights Agreement. In furtherance
thereof, the parties agree that the Investors' Rights Agreement shall be amended
as follows:
1. Section 1.1(g) of the Investors' Rights Agreement shall be
restated in its entirety to read as follows:
"The term "Registrable Securities" means (i) the Common Stock issuable
or issued upon conversion of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, and Series D Preferred
Stock of the Company and upon exercise of warrants to purchase shares
of Common Stock issued to the New Investors on August 20, 1999 and
(ii) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security that is
issued as) a dividend or other distribution with respect to, or in
exchange for, or in replacement of, the shares referenced in (i)
above, excluding in all cases, however, any Registrable Securities
sold by a person in a transaction in which his rights under this
Section 1 are not assigned."
2. For purposes of Section 2 of the Investors' Rights
Agreement, any holder of at least 200,000 shares of Series D
Preferred Stock shall be a "Major Investor" and shall be
entitled to the benefits of and subject to the obligations
contained in Section 2 of the Investors' Rights Agreement.
The term "Series C Preferred Stock" in Section 2.4(b) of the
Investors' Rights Agreement shall be replaced with the term
"Series C Preferred Stock and Series D Preferred Stock".
3. Section 2.7 of the Investors' Rights Agreement shall be
modified such that the price per share of $5.14 be changed
to $7.00 per share.
4. Section 2.8 of the Investors' Rights Agreement shall be
deleted in its entirety.
5. Sierra Ventures hereby consents to the addition of the New
Investors as parties to the Investors' Rights Agreement and
waives any rights under the Investors' Rights Agreement with
respect to such addition, including any rights under Section
2.4 thereof.
<PAGE> 2
Sierra Ventures and the New Investors waive any rights under
the Investors' Rights Agreement with respect to the sale of
any authorized shares of Series D Preferred Stock by the
Company.
6. The reference in Section 3.7 of the Investors' Rights
Agreement to "Section 2.7" shall be changed to a reference
to "Section 2.6."
7. Except as amended hereby, the Investors' Rights Agreement
shall remain in full force and effect without modification
or waiver.
[END OF TEXT]
<PAGE> 3
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as of the date first set forth above.
FAIRMARKET, INC.
By: /s/ Scott T. Randall
--------------------------
Scott T. Randall
SIERRA VENTURES VII, L.P.
By: /S/ Jeff Drazan
--------------------------
Name: Jeff Drazan
Title: General Partner
MICROSOFT CORPORATION
By: /s/ Robert A. Eschelman
--------------------------
Name: Robert A. Eschelman
Title: Assistant Secretary
EXCITE, INC.
By: /s/ David Pine
--------------------------
Name: David Pine
Title: General Counsel &
Secretary
<PAGE> 1
EXHIBIT 4.4
FAIRMARKET, INC.
AMENDMENT TO INVESTORS' RIGHTS AGREEMENT
September 15, 1999
This Amendment to Investors' Rights Agreement (this "Amendment") is by and
among FairMarket, Inc., a Delaware corporation (the "Company") and Ticketmaster
Online-CitySearch, Inc. (the "New Investor"), and amends certain provisions
contained in the Investors' Rights Agreement, dated February 25, 1999, as
amended on August 23, 1999 (the "Investors' Rights Agreement").
WHEREAS, on the date hereof the New Investor is purchasing capital stock of
the Company; and
WHEREAS, the requisite parties to the Investors' Rights Agreement have
consented to the addition of the New Investor as a party to the Investors'
Rights Agreement and as a stockholder of the Company, and the parties hereto
desire to modify the Investors' Rights Agreement to provide certain rights
thereunder to the New Investor.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the parties hereto agree that the New Investor shall
become a party to the Investors' Rights Agreement and shall, as holders of
securities of the Company, be entitled to the benefit of and subject to the
obligations contained in the Investors' Rights Agreement. Except as amended
hereby, the Investors' Rights Agreement shall remain in full force and effect
without modification or waiver.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as of the date first set forth above.
FAIRMARKET, INC.
By: /s/ Scott T. Randall
-------------------------
Scott T. Randall
TICKETMASTER
ONLINE-CITYSEARCH, INC.
By: /s/ Bradley K. Serwin
-------------------------
Name: Bradley K. Serwin
Title: Vice President
<PAGE> 1
EXHIBIT 10.2
FAIRMARKET, INC.
AMENDED AND RESTATED 1997 STOCK OPTION PLAN
-------------------------------------------
The purpose of this Plan is to encourage and enable employees of
FairMarket, Inc. (the "Company") and of any subsidiary corporation of which 50%
or more of the outstanding voting stock is owned by the Company (the
"Subsidiary") to acquire an interest in the Company through the granting of
stock options ("Options") or the purchase of common stock of the Company, as
herein provided. By encouraging such individuals to acquire or increase their
ownership of its stock, the Company seeks to attract and retain the services of
persons of exceptional competence and to furnish an added incentive for them to
increase their efforts on behalf of the Company. The Options that may be granted
hereunder include both incentive stock options ("Incentive Stock Options") as
provided under the Internal Revenue Code of 1986, as amended (the "Code"), and
Options that are not qualified under the Code ("NonQualified Options").
1. SHARES OF STOCK SUBJECT TO THE PLAN
The stock that may be issued and sold under the Plan (pursuant to Options
or otherwise) shall not exceed, in the aggregate, 750,000 shares of the common
stock, $.001 par value, of the Company (the "Common Stock"), which may be (i)
either authorized but unissued shares or treasury shares or (ii) shares
previously reserved for issue upon exercise of Options under the Plan, which
Options have expired or been terminated; provided, however, that the number of
shares subject to the Plan shall be subject to adjustment as provided in Section
8.
2. ELIGIBILITY
Shares of Common Stock may be sold to persons who are employees or
directors of the Company or a Subsidiary. Incentive Stock Options may be granted
to persons who are employees of the Company or a Subsidiary and eligible to
receive an Incentive Stock Option under the Code. Non-Qualified Options may be
granted under the Plan to non-employee directors of the Company, to consultants
to the Company and to such other persons as the Board may select from time to
time.
3. ADMINISTRATION
The Board of Directors of the Company (the "Board") acting by a majority of
its members, shall determine the employees and other persons to whom Common
Stock is to be sold or to whom Options are to be granted ("Optionees") and (i)
in the case of a sale of Common Stock, the number of shares, purchase price,
vesting schedule for such shares, and the form of purchase agreement, and (ii)
in case of an Option grant, the number of Options, the number of shares subject
to each Option, the vesting schedule for each Option and the form of each
Option. The Board shall also determine, interpret and construe any provision of
the Plan, any subscription for shares of Common Stock, and any Option and shall
effect the
<PAGE> 2
issuance of shares of Common Stock and the grant of Options under the Plan. The
Board may appoint from its members a committee of two or more persons who may
exercise the powers of the Board in granting Options and taking any other action
under the Plan. Any of the foregoing actions taken by the Board or the committee
appointed by the Board shall be final and conclusive and shall be binding on
each Optionee or other Plan participant.
4. PRICE OF INCENTIVE STOCK OPTIONS
The purchase price of shares that may be purchased under each Incentive
Stock Option shall be at least equal to the fair market value (determined as of
the date of grant of the Option) per share or, in the case of a stockholder
owning more than ten percent of the total combined voting power of all classes
of stock of the Company, as determined under the Code (a "greater-than ten
percent stockholder"), 110% of such fair market value.
5. NATURE OF OPTIONS AND CERTAIN LIMITATIONS ON AMOUNT OF GRANT
The aggregate fair market value (determined as of the date of grant of the
Option) of the shares of Common Stock as to which any Incentive Stock Option
granted under the Plan shall first become exercisable (I.E., shall "vest") in
any calendar year shall not exceed $100,000. To the extent that the shares of
Common Stock as to which any Option granted under the Plan shall vest in any
calendar year shall have a fair market value (determined as of the date of the
grant of the Option) in excess of $100,000, or to the extent that the Board
shall so specify upon the grant of any Option under the Plan, such Option shall
be a Non-Qualified Option with respect to such excess or specified shares of
Common Stock.
6. PERIOD OF OPTIONS AND CERTAIN LIMITATIONS ON RIGHT TO EXERCISE
Each Option shall be exercisable at such time or times as the Board shall
from time to time determine but, with respect to an Incentive Stock Option, in
no event after the expiration of ten years (five years in the case of a
greater-than ten percent stockholder) from the date such Option is granted. The
delivery of certificates representing shares under any Option will be contingent
upon receipt by the Company from the Optionee (or a purchaser acting in his
stead in accordance with the provisions of the Option) of the full purchase
price for such shares and the fulfillment of any other requirements contained in
the Option or applicable provisions of law. No Optionee or person entitled to
exercise the Option shall be, or shall be deemed to be, a holder of any shares
subject to the Option for any purpose unless and until certificates for such
shares are issued to such Optionee under the terms of the Plan.
7. NON-TRANSFERABILITY OF OPTIONS
Options granted under the Plan shall not be transferable by the Optionee,
other than by will or the laws of descent and distribution, and are exercisable
during the Optionee's lifetime only by the Optionee.
2
<PAGE> 3
8. OPTIONS: DILUTION OR OTHER ADJUSTMENTS; MERGERS
(a) If the Company effects a subdivision or consolidation of shares
or other capital readjustment, the payment of a stock dividend, or other
increase or reduction of the number of shares of the Common Stock outstanding,
without receiving compensation therefor in money, services or property, then (i)
the number, class, and per share price of shares of stock subject to outstanding
Options hereunder shall be appropriately adjusted in such a manner as to entitle
an Optionee to receive upon exercise of an Option, for the same aggregate cash
consideration, the same total number and class of shares the optionee would have
received as a result of the event requiring the adjustment had the Optionee
exercised the Option in full immediately prior to such event, and (ii) the
number and class of shares then reserved for issuance under the Plan shall be
adjusted by substituting for the total number of shares of Common Stock then
reserved that number and class of shares of stock that would have been received
by the owner of an equal number of outstanding shares of Common Stock as the
result of the event requiring the adjustment.
(b) In the case of (i) the dissolution or liquidation of the Company,
(ii) a merger, reorganization or consolidation in which a majority of the
outstanding voting power of the Company is acquired by another person or entity
(other than a holding company formed by the Company), (iii) the sale of all or
substantially all of the assets of the Company to an unrelated person or entity,
or (iv) the sale of all of the Common Stock of the Company to an unrelated
person or entity (in each case, a "Transaction"), fifty percent (50%) of the
outstanding Options held by any Optionee which have not yet vested shall become
fully vested and exercisable as of the closing or consummation of such
Transaction (except as the Board may otherwise specify with respect to
particular grants), provided that such acceleration and any notice of exercise
of options that become vested as of such closing or consummation shall in all
cases be subject to and contingent upon such closing or consummation. The Plan
and the options issued hereunder shall terminate upon the effectiveness of any
such Transaction, unless provision is made in connection with such transaction
in the sole discretion of the parties thereto for the assumption of options
theretofore granted, or the substitution for such options of new options of the
successor entity or a parent or subsidiary thereof, with such adjustment as to
the number and kind of shares and the per share exercise prices as such parties
shall agree. In the event of any Transaction subject to this Section 8(b), each
Optionee shall be given notice thereof at least fifteen (15) days prior to the
closing or anticipated consummation date, or the record date for such
transaction, if earlier.
9. OPTIONS: TAX WITHHOLDING
Each Optionee shall, no later than the date as of which the value of an
Option or of any Common Stock or other amount received thereunder first becomes
includable in the gross income of the participant for Federal income tax
purposes, pay to the Company, or make arrangements satisfactory to the Board
regarding payment of, any Federal, State, or local taxes of any kind required by
law to be withheld with respect to such income. The Company shall,
3
<PAGE> 4
to the extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the Optionee. An Optionee may elect to have
such tax withholding obligation satisfied, in whole or in part, by (i)
authorizing the Company to withhold from shares of Common Stock to be issued
pursuant to any Option a number of shares with an aggregate fair market value
that would satisfy the withholding amount due, or (ii) transferring to the
Company shares of Common Stock owned by the Optionee with an aggregate fair
market value that would satisfy the withholding amount due.
10. WRITTEN AGREEMENT
Each Option granted hereunder shall be embodied in a written Option
agreement, which shall be subject to the terms and conditions prescribed above
and shall be signed by the President or any Vice President of the Company for
and in the name of and on behalf of the Company. Such an Option agreement may
contain such other provisions as the Board in its discretion shall deem
advisable. Each sale of Common Stock hereunder shall be memorialized in a
written purchase agreement, which shall be subject to the terms and conditions
prescribed above and shall be signed by the President or any Vice President of
the Company for and in the name of and on behalf of the Company. Such a purchase
agreement may contain such other provisions as the Board in its discretion shall
deem advisable.
11. AMENDMENT OF THE PLAN
The Board may modify, amend or revise this Plan at any time and from time
to time. Such action shall be binding on all Options theretofore granted
hereunder, except as otherwise provided in the written agreement with respect to
a particular Option.
12. EXPIRATION AND TERMINATION OF THE PLAN
Options may be granted under the Plan at any time, or from time to time,
prior to March 17, 2007. The Plan may be abandoned or terminated at any time by
the Board, except with respect to any Options then outstanding under the Plan.
4
<PAGE> 1
Exhibit 10.3
FAIRMARKET, INC.
1999 STOCK OPTION PLAN
----------------------
The purpose of this Plan is to encourage and enable employees of
FairMarket, Inc. (the "Company") and of any subsidiary corporation of which 50%
or more of the outstanding voting stock is owned by the Company (the
"Subsidiary") to acquire an interest in the Company through the granting of
stock options ("Options") or the purchase of common stock of the Company, as
herein provided. By encouraging such individuals to acquire or increase their
ownership of its stock, the Company seeks to attract and retain the services of
persons of exceptional competence and to furnish an added incentive for them to
increase their efforts on behalf of the Company. The Options that may be granted
hereunder include both incentive stock options ("Incentive Stock Options") as
provided under the Internal Revenue Code of 1986, as amended (the "Code"), and
Options that are not qualified under the Code ("Non-Qualified Options").
1. SHARES OF STOCK SUBJECT TO THE PLAN
The stock that may be issued and sold under the Plan (pursuant to
Options or otherwise) shall not exceed, in the aggregate, 3,421,237 shares of
the common stock, $.001 par value, of the Company (the "Common Stock"), which
may be (i) either authorized but unissued shares or treasury shares or (ii)
shares previously reserved for issue upon exercise of Options under the Plan,
which Options have expired or been terminated; PROVIDED, HOWEVER, that the
number of shares subject to the Plan shall be subject to adjustment as provided
in Section 8.
2. ELIGIBILITY
Shares of Common Stock may be sold to persons who are employees or
directors of the Company or a Subsidiary. Incentive Stock Options may be granted
to persons who are employees of the Company or a Subsidiary and eligible to
receive an Incentive Stock Option under the Code. Non-Qualified Options may be
granted under the Plan to non-employee directors of the Company, to consultants
to the Company and to such other persons as the Board may select from time to
time.
3. ADMINISTRATION
The Board of Directors of the Company (the "Board") acting by a
majority of its members, shall determine the employees and other persons to whom
Common Stock is to be sold or to whom Options are to be granted ("Optionees")
and (i) in the case of a sale of Common Stock, the number of shares, purchase
price, vesting schedule for such shares, and the form of purchase agreement, and
(ii) in case of an Option grant, the number of Options, the number of shares
subject to each Option, the vesting schedule for each Option and the form of
each Option. The Board shall also determine, interpret
<PAGE> 2
and construe any provision of the Plan, any subscription for shares of Common
Stock, and any Option and shall effect the issuance of shares of Common Stock
and the grant of Options under the Plan. The Board may appoint from its members
a committee of two or more persons who may exercise the powers of the Board in
granting Options and taking any other action under the Plan. Any of the
foregoing actions taken by the Board or the committee appointed by the Board
shall be final and conclusive and shall be binding on each Optionee or other
Plan participant.
4. PRICE OF INCENTIVE STOCK OPTIONS
The purchase price of shares that may be purchased under each Incentive
Stock Option shall be at least equal to the fair market value (determined as of
the date of grant of the Option) per share or, in the case of a stockholder
owning more than ten percent of the total combined voting power of all classes
of stock of the Company, as determined under the Code (a "greater-than ten
percent stockholder"), 110% of such fair market value.
5. NATURE OF OPTIONS AND CERTAIN LIMITATIONS ON AMOUNT OF GRANT
The aggregate fair market value (determined as of the date of grant of
the Option) of the shares of Common Stock as to which any Incentive Stock Option
granted under the Plan shall first become exercisable (I.E., shall "vest") in
any calendar year shall not exceed $100,000. To the extent that the shares of
Common Stock as to which any Option granted under the Plan shall vest in any
calendar year shall have a fair market value (determined as of the date of the
grant of the Option) in excess of $100,000, or to the extent that the Board
shall so specify upon the grant of any Option under the Plan, such Option shall
be a Non-Qualified Option with respect to such excess or specified shares of
Common Stock.
6. PERIOD OF OPTIONS AND CERTAIN LIMITATIONS ON RIGHT TO EXERCISE
Each Option shall be exercisable at such time or times as the Board
shall from time to time determine but, with respect to an Incentive Stock
Option, in no event after the expiration of ten years (five years in the case of
a greater-than ten percent stockholder) from the date such Option is granted.
The delivery of certificates representing shares under any Option will be
contingent upon receipt by the Company from the Optionee (or a purchaser acting
in his stead in accordance with the provisions of the Option) of the full
purchase price for such shares and the fulfillment of any other requirements
contained in the Option or applicable provisions of law. No Optionee or person
entitled to exercise the Option shall be, or shall be deemed to be, a holder of
any shares subject to the Option for any purpose unless and until certificates
for such shares are issued to such Optionee under the terms of the Plan.
7. NON-TRANSFERABILITY OF OPTIONS
<PAGE> 3
Options granted under the Plan shall not be transferable by the
Optionee, other than by will or the laws of descent and distribution, and are
exercisable during the Optionee's lifetime only by the Optionee.
8. OPTIONS: DILUTION OR OTHER ADJUSTMENTS; MERGERS
(a) If the Company effects a subdivision or consolidation of
shares or other capital readjustment, the payment of a stock dividend, or other
increase or reduction of the number of shares of the Common Stock outstanding,
without receiving compensation therefor in money, services or property, then (i)
the number, class, and per share price of shares of stock subject to outstanding
Options hereunder shall be appropriately adjusted in such a manner as to entitle
an Optionee to receive upon exercise of an Option, for the same aggregate cash
consideration, the same total number and class of shares the optionee would have
received as a result of the event requiring the adjustment had the Optionee
exercised the Option in full immediately prior to such event, and (ii) the
number and class of shares then reserved for issuance under the Plan shall be
adjusted by substituting for the total number of shares of Common Stock then
reserved that number and class of shares of stock that would have been received
by the owner of an equal number of outstanding shares of Common Stock as the
result of the event requiring the adjustment.
(b) In the case of (i) the dissolution or liquidation of the
Company, (ii) a merger, reorganization or consolidation in which a majority of
the outstanding voting power of the Company is acquired by another person or
entity (other than a holding company formed by the Company), (iii) the sale of
all or substantially all of the assets of the Company to an unrelated person or
entity, or (iv) the sale of all of the Common Stock of the Company to an
unrelated person or entity (in each case, a "Transaction"), provision shall be
made in connection with such Transaction (i) for the assumption of options
theretofore granted, or the substitution for such options of new options of the
successor entity or a parent or subsidiary thereof, with such adjustment as to
the number and kind of shares and the per share exercise prices as the parties
shall agree, and (ii) for the vesting of such options to accelerate by one year
if the option holder continues to be employed by the successor to the Company
(or its successor) on the anniversary date of the closing of the Transaction. If
no such provision is made, then all options granted hereunder shall become fully
vested immediately prior to the closing of the Transaction. In the event of any
Transaction subject to this Section 8(b), each Optionee shall be given notice
thereof at least fifteen (15) days prior to the closing or anticipated
consummation date, or the record date for such transaction, if earlier.
9. OPTIONS: TAX WITHHOLDING
Each Optionee shall, no later than the date as of which the value of an
Option or of any Common Stock or other amount received thereunder first becomes
includable in the gross income of the participant for Federal income tax
purposes, pay to the Company, or make arrangements satisfactory to the Board
regarding payment of, any Federal, State, or local taxes of any kind required by
law to be withheld with respect to
<PAGE> 4
such income. The Company shall, to the extent permitted by law, have the right
to deduct any such taxes from any payment of any kind otherwise due to the
Optionee. An Optionee may elect to have such tax withholding obligation
satisfied, in whole or in part, by (i) authorizing the Company to withhold from
shares of Common Stock to be issued pursuant to any Option a number of shares
with an aggregate fair market value that would satisfy the withholding amount
due, or (ii) transferring to the Company shares of Common Stock owned by the
Optionee with an aggregate fair market value that would satisfy the withholding
amount due.
10. WRITTEN AGREEMENT
Each Option granted hereunder shall be embodied in a written Option
agreement, which shall be subject to the terms and conditions prescribed above
and shall be signed by the President or any Vice President of the Company for
and in the name of and on behalf of the Company. Such an Option agreement may
contain such other provisions as the Board in its discretion shall deem
advisable. Each sale of Common Stock hereunder shall be memorialized in a
written purchase agreement, which shall be subject to the terms and conditions
prescribed above and shall be signed by the President or any Vice President of
the Company for and in the name of and on behalf of the Company. Such a purchase
agreement may contain such other provisions as the Board in its discretion shall
deem advisable.
11. AMENDMENT OF THE PLAN
The Board may modify, amend or revise this Plan at any time and from
time to time. Such action shall be binding on all Options theretofore granted
hereunder, except as otherwise provided in the written agreement with respect to
a particular Option.
12. EXPIRATION AND TERMINATION OF THE PLAN
Options may be granted under the Plan at any time, or from time to
time, prior to February 25, 2009. The Plan may be abandoned or terminated at any
time by the Board, except with respect to any Options then outstanding under the
Plan.
<PAGE> 1
EXHIBIT 10.4
500 UNICORN PARK DRIVE
WOBURN, MASSACHUSETTS
LEASE by and between DIV UNICORN, LLC, a Massachusetts limited liability
company (hereinafter called "Lessor"), and FairMarket, Inc., a Delaware
corporation (hereinafter called "Lessee").
ARTICLE 1 - DEMISED PREMISES - TERM OF LEASE
Section 1.01. Upon and subject to the conditions and limitations
hereinafter set forth, Lessor does hereby lease and demise unto Lessee and
Lessee accepts and leases from Lessor a portion of the first and second floor of
the building ("Building") located at, known as and numbered 500 Unicorn Park
Drive, Woburn, Middlesex County, Massachusetts containing approximately 56,642
square feet of rentable area, as shown on the plan attached hereto and labeled
EXHIBIT A (hereinafter referred to as the "Demise d Premises") together with the
right to use, in common with others entitled thereto, driveways, walkways,
hallways, stairways and passenger elevators convenient for access to the Demised
Premises and lavatories nearest thereto, such other building amenities as are
from time to time available for use by tenants in the Building generally (such
as the cafeteria and fitness center) on terms and conditions applicable to all
users of such amenities, and the non-exclusive right to use one vertical chase
in the Building for the running of fiber optic cable from the demarcation
telephone closet in the Building to the Demised Premises. Loading docks and
areas and freight elevators may be used by Lessee in common with other lessees
entitled to the use thereof subject to the rules and regulations established
from time to time by Lessor. The Building, which contains approximately 191,000
square feet of rentable area, and the parcel of land on which it is located are
referred to herein as the "Premises."
Section 1.02. The term of this Lease shall commence on January 1, 2000 (the
"Commencement Date") and the term shall expire on December 31, 2004, unless this
Lease is sooner terminated as hereinafter provided.
THIS LEASE IS MADE UPON THE FOLLOWING COVENANTS, AGREEMENTS, TERMS,
PROVISIONS, CONDITIONS AND LIMITATIONS, ALL OF WHICH LESSEE COVENANTS AND AGREES
TO PERFORM AND COMPLY WITH, EXCEPTING ONLY THE COVENANTS OF THE LESSOR:
ARTICLE 2 - RENT
Section 2.01. Beginning on the Rent Commencement Date, the Lessee covenants
and agrees to pay to Lessor minimum rent (hereinafter called "Base Rent") for
the Demised Premises of Seven Hundred Ninety Two Thousand Nine Hundred Eighty
Eight Dollars(S792,988.00)
<PAGE> 2
($14.00 per rentable square foot per year) for the first year of the term hereof
and One Million Five Hundred Fifteen Thousand One Hundred Seventy Three and
50/100 Dollars(S1,515,173.50) ($26.75 per rentable square foot per year) for the
second through the fifth years of the term, which shall be payable in equal
monthly installments as follows:
Rent for any partial month shall be prorated and paid on the first of that
month. All monthly payments are due and payable in advance on the first day of
each calendar month, without demand, deduction, counterclaim or setoff except as
otherwise expressly provided in this Lease. The "Rent Commencement Date" shall
be the date that is 30 days after the Commencement Date. If the Rent
Commencement Date is other than the first day of the month, then, with respect
to such month, Lessee shall pay to Lessor the Pro-Rated Base Rent, as defined
herein, on the Rent Commencement Date. The "Pro-Rated Base Rent" for such month
shall be an amount equal to the product of (i) the Base Rent that would be
otherwise payable under the Lease for such month times (ii) the number of days
remaining in such month divided by 30.
Section 2.02. (a) The Lessee shall pay as additional rent to the Lessor
29.8% ("Lessee's Share") off (i) Taxes (as defined below) in excess of $2.40 per
square foot and (ii) Operating Expenses (as defined below) in excess of the
Operating Expenses actually incurred by Lessor with respect to the Premises for
calendar year 2000 (in both cases extrapolated (i.e., grossed-up) as set forth
in clause (b) below). If Taxes for the Fiscal Year 2000 shall be less than $2.40
per square foot, then Lessee shall be entitled to a rent credit for (i) the
portion of the Fiscal Year 2000 included in the first lease year of the Term
equal to (x) the Pro-Rata Factor, as defined below', multiplied by (y) the
difference between the actual amount of Taxes for Fiscal Year 2000 and $2.40 per
square foot but, in any event, such credit shall not exceed the Pro-Rata Factor
multiplied by $1.00 per square foot and (ii) the portion of the Fiscal Year 2001
included in the first lease year of the Term equal to (x) the Pro-Rata Fact or,
as defined below, multiplied by (y) the difference between the actual amount of
Taxes for Fiscal Year 2001 and $2.40 per square foot but, in any event, such
credit shall not exceed the Pro-Rata Factor multiplied by $1.00 per square foot.
The "Pro-Rata Factor" shall be the number of days in the Fiscal Year 2000, or,
where applicable, Fiscal Year 2001, included in first lease year of the Term
divided by 365. Lessor shall notify Lessee promptly after Taxes for Fiscal Year
2000 or, where applicable, Fiscal Year 2001, are finally determined and the rent
credit, if any, shall be applied to the next installment of Base Rent then due
under the Lease.
(b) If less than the total rentable floor area of the Premises is occupied
at any time during the term of this Lease, Lessor shall extrapolate components
of Operating Expenses and Taxes as though the total rentable floor area of the
Premises had been occupied at all times during such period.
(c) Additional rent for Operating Expenses and Taxes under this Section
2.02 shall be paid for any portion of a month at the beginning of the term and
thereafter in monthly installments on the first day of each calendar month in
amounts reasonably estimated by Lessor for the then current calendar year.
Lessor may from time to time reasonably revise such estimates based on available
information relating to Operating Expenses and Taxes or otherwise affecting the
calculation hereunder. Within 90 days after the end of each calendar year,
Lessor
-2-
<PAGE> 3
will endeavor to provide and, in any event, within 120 days after the end of
each calendar year, Lessor shall provide Lessee with an accounting of Operating
Expenses and Taxes and other data necessary to calculate additional charges
hereunder for such calendar year prepared in accordance herewith. Upon issuance
thereof, there shall be an adjustment between Lessor and Lessee for the calendar
year covered by such accounting to the end that Lessor shall have received the
exact amount of additional charges due hereunder. Any overpayments by Lessee
hereunder shall be credited against the next payments of Base Rent or additional
rent due under this Lease, provided there are no outstanding amounts due Lessor
under this Lease at such time. Any underpayments by Lessee shall be due and
payable within thirty (30) days of delivery of Lessor's statement. With respect
to the calendar year in which the Term ends, the adjustment shall be pro rated
for the portion of the year included in the Term, but shall take place
nevertheless at the times provided in the preceding sentences.
(d) Lessee shall have the right for a period (the "Audit Period") of
ninety (90) days following its receipt of Lessor's statement of additional rent
due on account of Operating Expenses to examine Lessor's books and records
concerning Operating Expenses for the year in question. The examination shall
take place upon five (5) days prior written notice, during normal business
hours, at Lessor's office or such other place as Landlord shall reasonably
designate. If, by notice to Lessor given after such examination but during the
Audit Period, Lessee disputes the amount of additional rent for Operating
Expenses shown on the statement, then Lessee may request an audit of the books
and records concerning Operating Expenses for the year in question conducted by
a certified public accountant reasonably selected by both parties, provided that
Lessee shall have the right to select a certified public accountant not then
employed by either Lessor or Lessee if the parties are unable so to agree within
ten (10) days after receipt of Lessee's notice requesting an audit. Lessee and
each person participating in the audit shall agree in writing that all
information obtained in the audit shall be kept confidential and used only for
the purpose of determining amounts properly due under this Lease. If the
additional rent due was less than the additional rent paid by Lessee, Lessor
shall either, at Lessee's option, promptly refund to Lessee the difference or
credit same against rent next due from Lessee. Lessee shall pay the costs of
the audit unless the additional rent due was less than ninety-five percent (95%)
of the additional rent paid by Lessee, in which case Lessor shall reimburse
Lessee for the reasonable third-party costs of reviewing Lessor's books and
records. Lessor's statement shall be deemed conclusive if not disputed by Lessee
by written notice given within the Audit Period.
(e) "Operating Expenses" means all costs of Lessor in owning, servicing,
operating, managing, maintaining, and repairing the Premises, and providing
services to tenants including, without limitation, the costs of the following:
(i) supplies, materials and equipment purchased or rented, total wage and salary
costs paid to, and all contract payments made on account of, all persons engaged
in the operation, maintenance, security, cleaning and repair of the Premises,
including Social Security, old age and unemployment taxes and so-called "fringe
benefits"; (ii) building services furnished to tenants of the Premises at
Lessor's expense and maintenance and repair of and services provided to or on
behalf of the Premises performed by Lessor's employees or by other persons under
contract with Lessor; (iii) utilities consumed and expenses recurred in the
operation, maintenance and repair of the Premises including, without limitation,
oil, gas, electricity (other than electricity to tenants in their demised
premises if Lessee is directly
-3-
<PAGE> 4
responsible for payment under this Lease on account of electricity consumed by
Lessee), water, sewer and snow removal; (iv) casualty, liability and other
insurance, and unreimbursed costs incurred by Lessor which are subject to an
insurance deductible: (v) costs of operating any cafeteria, other food service
facility, or physical fitness facility for use of tenants generally; (vi) the
Premises' allocable share of costs of operating, maintaining and repairing
Unicorn Park Drive and providing other common services and facilities, all as
set forth in that certain Declaration of Easement and Maintenance Agreement
dated as of May 8, 1998, by Acquiport Unicorn, Inc., as it may be amended from
time to time; and (vii) management fees commensurate with those charged by
third-party, unaffiliated managers of similar buildings in the Woburn,
Massachusetts, area; provided, however, that a property management fee for the
Building of no greater than three percent (3%) (and not less than $75,000 per
year) of the collected income exclusive of capital expenditures shall be
permitted in all events. If Lessor, in its sole discretion, installs a new or
replacement capital item reasonably projected to reduce Operating Expenses, for
the purpose of complying with any building code or other law, regulation, or
legal requirement enacted after the date of this Lease, or for the purpose of
complying with requirements of any insurer, or otherwise relating to the
operation of the Premises if reasonably anticipated to result in any net
reduction in Operating Expenses after the amortized cost with interest is
included, the cost of such item amortized over the useful life of such item with
interest at the Prime Rate as published in the Wall Street Journal or comparable
source of financial information reasonably selected by Lessor on the date of
such expenditure shall be included in Operating Expenses. Operating Expenses
shall not include any costs or expenses incurred by Lessor in the construction
and development of the Premises including leasing costs and construction for
tenants; payments of principal, interest or other charges on mortgages; and
salaries of executives or principals of Lessor (except as the same may be
reflected in the management fee for the Premises or attributable to actual
Premises operations).
Notwithstanding the foregoing, Operating Expenses shall also exclude:
(i) office overhead such as rent payable for management office space or
salaries for executives above the grade of building manager except
that if any such executive performs a service that would have been
performed by an outside consultant, such as accounting, the
compensation paid to such executive for performing such service shall
be included in Operating Expenses. Lessee hereby acknowledging that
Operating Expenses shall include a management fee, subject to the
provisions of Paragraph (vi), below;
(ii) except as otherwise provided in this Section 2.02(e), expenditures for
capital improvements or other expenses that are capital in nature, as
determined pursuant to generally accepted accounting principles
consistently applied;
(iii) advertising, marketing and promotional expenditures;
(iv) amounts received by Lessor through proceeds of insurance to the
extent that such proceeds are compensation for expenses that were
previously included in Operating Expenses;
-4-
<PAGE> 5
(v) cost of repairs or replacements incurred by reasons of fire or other
casualty or caused by the exercise of the right of eminent domain or
compensable to Lessor by virtue of insurance carried or required to be
carried by Lessor, other than reasonable insurance deductibles;
(vi) all amounts paid to principals, subsidiaries, affiliates or other
parties related to Lessor for services for the Premises in excess of
the amount payable for comparable services provided by a party who is
not a principal, subsidiary, affiliate or otherwise related party;
except that a property management fee for the Building of no greater
than three percent (3%) (and not less than $75,000 per year) of the
collected income exclusive of capital expenditures shall be permitted
in all events;
(vii) costs and expenses to the extent related to ownership of the Premises
(as distinguished from operation and maintenance);
(viii) interest or penalties resulting from delinquent payments by Lessor;
(ix) the cost of any curative action required, or any repair, replacement
or alteration made, by Lessor (or by a third party, the cost of which
is imposed upon Lessor) to remedy a condition or damage caused by or
resulting from the negligence or willful misconduct of Lessor; and
(x) the costs associated with any services provide to other tenants of the
Building that are not provided to Lessee.
(f) "Taxes" means all taxes, assessments and similar charges assessed or
imposed for then current calendar year by any governmental authority
attributable to the Premises (including personal property associated therewith).
The amount of any special taxes, special assessments and agreed or
governmentally imposed "in lieu of tax" or similar charges shall be included in
Taxes for any year but shall be limited to the amount of the installment (plus
any interest, other than penalty interest, payable thereon) of such special tax,
special assessment or such charge required to be paid during or with respect to
the year in question. Taxes include expenses, including reasonable fees of
attorneys, appraisers and other consultants, incurred in connection with any
good faith efforts to obtain abatements or reduction or to assure maintenance of
Taxes for any year wholly or partially included in the term, whether or not
successful and whether or not such efforts involved filing of actual abatement
applications or initiation of formal proceedings. Taxes exclude income taxes of
general application and all estate, succession, inheritance, franchise, gift,
excise, capital stock and transfer taxes and any penalties or late payments
incurred with respect to Taxes by Lessor. If at any time during the term there
shall be assessed on Lessor, in addition to or lieu of the whole or any part of
the ad valorem tax on real or personal property, a capital levy or other tax on
the gross rents or other measures of building operations, or a governmental
income, franchise, excise or similar tax, assessment, levy, charge or fee
measured by or based, in whole or in part, upon Premises valuation, gross rents
or other
-5-
<PAGE> 6
measures of building operations or benefits of governmental services furnished
to the Premises, then any and all of such taxes, assessments, levies, charges
and fees. to the extent so measured or based, shall be included within the term
Taxes, but only to the extent that the same would be payable if the Premises
were the only property of Lessor.
Section 2.03. All payments of rent and additional rent shall be made to the
Lessor at c/o The Davis Companies, One Appleton Street, Boston Massachusetts
02116, or as may be otherwise directed by the Lessor in writing.
Section 2.04. Upon execution of this Lease, Lessee shall deposit with
Lessor the sum of $1,800,000 as security for the payment of all rent and the
performance and observance of the agreements and conditions in this Lease
contained on the part of Lessee to be performed and observed (the "Security
Deposit"). In the event of any default or defaults in such payments, performance
or observance, Lessor may apply said sum or any part thereof, including any
interest then accrued thereon, towards the curing of any such default or
defaults and/or towards compensating Lessor for any loss or damage arising from
any such default or defaults. If Lessor shall apply said sum or any part
thereof, as aforesaid, Lessee shall on demand pay to Lessor the amount so
applied by Lessor, to restore the security deposit to the original amount. Upon
the yielding up of the Demised Premises at the expiration or earlier termination
of this Lease, if Lessee shall not then be in default or otherwise liable to
Lessor, said sum or the then unapplied balance thereof shall be returned to
Lessee. In the event Lessor's interest in the Premises shall be transferred or
assigned and the assigning Lessor shall credit or turn over to such assignee the
sum of money referred to above or the unpaid balance thereof, upon receiving
notice of such assignment, Lessee agrees to look only to the assignee of such
assignor with respect to the sum referred to above, its application and return.
Notwithstanding the foregoing, Lessee may elect to pay Lessor the Security
Deposit in the form of a clean, irrevocable, freely transferable letter of
credit of at least a six month term, acceptable to Lessor and to Lessor's
mortgage lender, as security for the performance of the obligations of Lessee
hereunder. The letter of credit shall be from a bank that will honor the letter
of credit in Boston, Massachusetts, and is otherwise reasonably acceptable to
Lessor and its mortgage lender. If there is a material adverse change at any
time in the financial condition of the bank issuing the letter of credit, Lessor
may require Lessee to provide a substitute letter of credit from another
reasonably acceptable bank within thirty (30) days after request, and if not so
replaced Lessor may draw the letter of credit and hold the proceeds as set forth
below. The letter of credit shall be renewed at least thirty (30) days prior to
its expiration from time to time, and, if not so renewed, Lessor or its mortgage
lender may draw the letter of credit and hold the proceeds as set forth below.
If Lessee shall fail to perform any of its obligations under this Lease after
the expiration of any applicable notice and cure periods, Lessor or its mortgage
lender may, but shall not be obliged to, (i) draw the entire amount of the
letter of credit, (ii) hold the proceeds of the letter of credit as a cash
Security Deposit and/or (iii) apply the proceeds of the letter of credit to the
extent necessary to cure the default, and wi thin three (3) days following
request by Lessor, Lessee shall, by a cash payment made to Lessor, reinstate the
Security Deposit to the amount thereof at the time of the default. Any transfer
of the letter of
-6-
<PAGE> 7
credit to Lessor's successors or assigns shall be at the sole cost and expense
of Lessee and, if the issuer of the letter of credit does not promptly issue a
new letter of credit in favor of Lessor's successors and assigns, Lessee have
the right to draw the entire amount of the letter of credit as a cash Security
Deposit.
Lessor agrees that the letter of credit shall have as its draw condition
that the issuer receive a written certification stating that (i) an event has
occurred, and all applicable notices have been given and cure periods have
expired, such that Lessor is entitled to draw against the letter of credit and
(ii) the certificate is signed by a duly authorized officer of Lessor.
The Security Deposit amount shall be adjusted from time to time as follows:
commencing on June 1,2000, Lessee shall provide Lessor with a certificate of its
Chief Financial Officer twice each calendar year, dated as of June 30 or
December 3 I, as applicable, stating the minimum amount of Lessee's readily
available and unrestricted cash (determined according to generally accepted
accounting principles, consistently applied) in excess of Lessee's liabilities
for the entire six (6) month period preceding the date of such certificate
("Available Cash"). The certificate shall be delivered no later than 30 days
following the expiration of the applicable six month period (but, in any case,
prior to the expiration of any letter of credit then being held as the Security
Deposit by Lessor). Lessee shall thereafter provide such back-up documentation
as Lessor shall reasonably request. Within such 30 day period, Lessee shall also
provide a substitute letter of credit in accordance with the requirements of the
prior paragraph if necessary to provide a Security Deposit in the applicable
amount shown on Exhibit B (the "Security Deposit Exhibit"), provided that the
amount of the letter of credit may not be reduced without Lessor's written
consent, which shall not be unreasonably withheld or delayed. For example, if
Lessee's Available Cash increases from $14,999,999 to $ 15,000,002, then Lessee
shall be entitled to reduce its letter of credit from the amount of $25.11 per
square foot of the Premises to the amount of $18.22 per square foot with the
consent of Lessor as provided in the prior sentence. In no event shall Lessee's
Security Deposit be less than $4.46 per square foot at any time during the Term
of this Lease. If Lessee fails to deliver a certificate of Available Cash or an
increased letter of credit as required hereunder and such failure continues for
more than twenty (20) days, after written notice from Lessor, then, in addition
to any other rights that Lessor may have under the terms of this Lease, the
amount of Base Rent due under this Lease for the period of time until such
failure is cured shall be increased to 150% of the Base Rent otherwise due under
this Lease. The parties agree that such increase is reasonable compensation to
Lessor for the additional risk and uncertainty resulting from a breach of
Lessee's obligations hereunder.
ARTICLE 3 - UTILITY SERVICES
Section 3.01. Lessee agrees to pay, or cause to be paid, as additional
rent, all charges for electricity consumed in the Demised Premises (or by any
special facilities serving the Demised Premises, including the electricity used
to power the VAV units serving the Demised Premises) and water consumed in any
kitchen, shower, or other special facilities located in the Demised Premises.
Lessor shall have the right to select the utility providers, and Lessee shall
pay all costs associated with obtaining the utility service, including costs for
equipment installation,
-7-
<PAGE> 8
maintenance and repair; exit fees, stranded cost charges, and the like; and
brokerage, legal, and consultants fees. Lessee's electric service for the
Demised Premises originally leased hereunder. except for the electricity used to
power the VAV units serving the Demised Premises, shall be separately metered at
Lessee's expense as part of Landlord's Work. Lessee will comply with all
commercially reasonable contracts relating to any such services. Lessee's
charges for such utility usage shall be based upon Lessee's actual usage if
separately metered. However, if such usage is not separately metered, such usage
and billing shall be based upon a percentage of the total bill for such
unmetered utilities based upon a fraction equal to Lessee's square footage over
the total square footage served by such non-separately metered utilities on a
"net rentable" basis. Such additional rent for non-separately metered utilities
may be estimated monthly by Lessor, based upon prior usage at the building or as
projected by the appropriate utility company, and shall be paid monthly by
Lessee as billed with a final accounting based upon actual bills every six (6)
months. In the event Lessee is billed directly by the utility company for
separately metered utilities, then Lessee shall pay such bills directly to the
utility company. As of the date of this Lease, the Premises shall have
electricity service providing six (6) watts per rentable square foot.
Section 3.02. Lessor agrees to furnish reasonable heat and air conditioning
(HVAC) to the Demised Premises, common hallways and lavatories during normal
business hours on regular business days during the heating or air conditioning
season, as applicable, to light common passageways twenty-four (24) hours a day,
to provide hot water to lavatories, and to furnish reasonable cleaning services,
including vacuuming and emptying ashtrays and wastebaskets throughout the
building and clean common areas, common area glass, common lavatories and glass
main entry doorways to the Demised Premises Mondays through Fridays (holidays
excepted), in substantially the same fashion as furnished in similar buildings
in the City of Woburn all subject to interruption due to accident, to the making
of repairs, alterations or improvements, to labor difficulties, to trouble in
obtaining fuel, electricity, service or supplies from the sources from which
they are usually obtained for such building, governmental restraints, or to any
cause beyond the Lessor's control. Cleaning services shall be generally in
accordance with the specification attached as Exhibit For the equivalent.
Except as expressly provided in Section 3.03, below, in no event shall Lessor be
liable for any interruption or delay in any of the above services for any of
such causes. For the purposes of this clause, reasonable heat to common areas
shall be defined as a minimum of 66 degrees Fahrenheit between the hours of 8:00
a.m. to 6:00 p.m. Monday through Friday and 8:00 a.m. to 1:00 p.m. on Saturday
during the months from November through April (holidays excepted). Reasonable
cooling of common areas shall be provided between the hours of 8:00 a.m. and
6:00 p.m. Monday through Friday and 8:00 a.m. to 1:00 p.m. on Saturday during
the cooling season (holidays excepted). If Lessee requests Lessor to provide
heat or air conditioning at any other time, Lessee shall pay therefor (within
thirty (30) days after billing) at reasonable rates established by Lessor from
ti me to time (but in no event more than Lessor's actual out-of-pocket cost
therefor). Lessor shall also provide Lessee with access to the Demised Premises
and the Premises 24 hours per day, 365 days per year, subject to reasonable
security regulations imposed by Lessor during non-business hours.
Section 3.03. Notwithstanding anything contained in this Lease to the
contrary, if (i) an interruption or curtailment, suspension or stoppage of an
Essential Service (as defined below) shall occur for reasons other than a force
majeure event as described in Section 20.18 (any such
-8-
<PAGE> 9
interruption of an Essential Service being hereinafter referred to as a "Service
Interruption"), and (ii) such Service Interruption continues for more than five
(5) business days after Lessor shall have received notice thereof from Lessee,
and (iii) as a result of such Service Interruption, the conduct of Lessee's
normal operations in the Demised Premises are materially and adversely affected,
then there shall be an abatement of one day's Base Rent and additional rent for
each day during which such Service Interruption continues after such five (5)
business day period; provided, however, that if any part of the Demised Premises
is reasonably useable for Lessee's normal business operations or if Lessee
conducts all or any part of its operations in any portion of the Demised
Premises notwithstanding such Service Interruption, then the amount of each
daily abatement of Base Rent and additional rent shall only be proportionate to
the nature and extent of the interruption of Lessee's normal operations or
ability to sue the Demised premises. For purposes of this Section 3.03, the term
"Essential Services" shall mean access to the Demised Premises and water and
sewer/septic service, heat or ventilation and electricity serving the Demised
Premises.
ARTICLE 4 - INSURANCE
Section 4.01. The Lessee shall not permit any use of the Demised Premises
which will make voidable any insurance on the property of which the Demised
Premises are a part, or on the contents of said property, or which shall be
contrary to any requirements or recommendations from time to time established or
made by Lessor's insurer. The Lessee shall, on demand, reimburse the Lessor, and
all other tenants, in full for all extra insurance premiums caused by the
Lessee's use of the Demised Premises.
Section 4.02. The Lessee shall maintain with respect to the Demised
Premises and the property of which the Demised Premises are a part, Commercial
General Liability insurance in the amount of at least $1,000,000.00 combined
single limit, bodily injury and property damage per occurrence; $2,000,000.00
annual aggregate with a deductible of no more than $500.00, with companies
having Best Insurance Guide Rating of A- or better, qualified to do business in
Massachusetts and in good standing therein, insuring the Lessor and its
mortgagees, any ground lessors, as well as the Lessee, against injury to persons
or damage to property. The Lessee shall also maintain property insurance,
including so-called "Improvements and Betterments" coverage, on the Demised
Premises and the contents thereon, including any improvements made by Lessee.
The Lessee shall deposit with the Lessor certificates of such insurance at or
prior to the commencement of the term, and thereafter, at least thirty (30) days
prior to the expiration of any such policies. All such insurance certificates
shall provide that such policy shall not be canceled or modified without at
least thirty (30) days prior written notice to each insured named therein and
that Lessor, its mortgagees, any ground lessors and Managing Agent shall each be
named as an additional insured.
Section 4.03. The Lessor shall maintain at least One Million
($1,000,000.00) Dollars of Commercial General Liability insurance (including
so-called umbrella coverage) covering the land and buildings of which the
Demised Premises are a part. Lessor shall maintain property insurance on the
Premises in the amount of its full replacement value as reasonably determined by
Lessor.
-9-
<PAGE> 10
Section 4.04. During all construction by Lessee, if any, Lessee shall
maintain adequate builder's risk, liability and workmen's compensation insurance
to Lessor's reasonable satisfaction. and Lessor, its mortgagees, any ground
lessors and its managing agent shall each be named as an additional insured on
such policies.
Section 4.05. Any insurance carried by either party with respect to the
Premises or property therein or occurrences thereon shall, if it can be so
written without additional premium or with an additional premium which the other
party agrees to pay, include a clause or endorsement denying to the insurer
rights of subrogation against the other party to the extent rights have been
waived by the insured hereunder prior to occurrence of injury or loss. Each
party, notwithstanding any provisions of this Lease to the contrary, hereby
waives any rights of recovery against the other for injury or loss due to
hazards covered by such insurance to the extent of the indemnification received
thereunder.
Section 4.06. Within fifteen (15) days of the date hereof, Lessee shall
provide Lessor with certificates of all insurance maintained or required to be
maintained by Lessee. Upon Lessee's request, Lessor shall provide Lessee with
evidence of Lessor's insurance maintained or required to be maintained under
this Lease.
ARTICLE 5 - USE OF DEMISED PREMISES
Section 5.01. The Lessee covenants and agrees to use the Demised Premises
only for the purposes of general office use only, and for no other purpose
without Lessor's prior written consent, which shall not be unreasonably
withheld. Without limiting the generality of the foregoing, it shall be deemed
reasonable for Lessor to withhold such consent in the event that Lessee's
proposed use is not allowed as of right under the zoning by-laws then in affect
or if such use is deemed by Lessor to be incompatible with the other uses then
existing or reasonably anticipated at the Premises or the Unicorn Park Office
Park or if such use is inconsistent with the uses typically permitted in a
first-class suburban office building in the Boston metropolitan area.
Section 5.02. Lessee will not make or permit any occupancy or use of any
part of the Demised Premises for any hazardous, offensive, dangerous, or
unlawful occupation, trade, business or purpose or any occupancy or use thereof
which is contrary to any law, by-law, ordinance, rule, permit or license, and
will not cause, or permit any nuisance in the Demised Premises. The Lessee
hereby agrees not to maintain or permit noises, odors, or conditions of the
Demised Premises or any appurtenance thereto which are reasonably objectionable
to other tenants of the Building. Except as otherwise provided below, no
hazardous substances or oil shall be brought, kept or maintained on the Demised
Premises by Lessee, any other occupant of the Demised Premises, or their agents,
employees or contractors. No hazardous substances or oil shall be discharged on
the Premises by Lessee, any other occupant of the Demised Premises, or their
agents, employees or contractors. Customary office supplies may be maintained in
amounts and in a manner consistent with reasonable commercial office practices
and in compliance with all laws. Without limitation, hazardous substances shall
include those described in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended,
-10-
<PAGE> 11
42 U.S.C. ss.9601 et seq., the Resource Conservation and Recovery Act, as
amended, 42 U.S.C. ss.6901 et seq., the Massachusetts Hazardous Waste Management
Act, as amended, M.G.L. Chapter 21C, and the Massachusetts Oil and Hazardous
Material Release Prevention Act, as amended, M.G.L. Chapter 21 E, and the
regulations adopted under these acts (the "Environmental Laws").
Section 5.03. Lessor and Lessee shall indemnify, defend with counsel
reasonably acceptable to Lessor and hold the other, Lessor's managing agent and
any mortgagee or ground lessor of the Premises, fully harmless from and against
any and all liability, loss, suits, claims, actions, causes of action,
proceedings, demands, costs, penalties, damages, fines and expenses, including,
without limitation, reasonable attorneys fees, consultants' fees, laboratory
fees and clean up costs, and the costs and expenses of investigating and
defending any claims or proceedings, resulting from, or attributable to (i) the
presence of any oil or hazardous substances on the Premises or the Demised
Premises arising from the action or negligence of the party against whom
indemnity is sought, its officers, employees, contractors, agents and invitees,
or arising out of the generation, storage, treatment, handling, transportation,
disposal or release by the party against whom indemnity is sought of any oil or
hazardous substances at or near the Premises or the Demised Premises, and (ii)
any violation(s) by the party against whom indemnity is sought of any applicable
law regarding oil or hazardous substances. This hold harmless and indemnity
shall survive the expiration of the term, but shall not include consequential
damage or damage to or loss of personal property.
Lessor warrants and represents that, to the best of its knowledge, no
hazardous substances are located on the Premises in violation of applicable
Environmental Laws and no violations of the Environmental Laws has occurred on
the Premises.
Section 5.04. Except as provided in this Section 5.04, no sign, antenna or
other structure or thing, shall be erected or placed on the Demised Premises or
any part of the exterior of any building or on the land comprising the Premises
or erected so as to be visible from the exterior of the Building without first
securing the written consent of the Lessor. Lessee shall not post any paper
signs in or around the Demised Premises visible from the exterior of the
Building or any interior common areas. Lessee's interior signage shall conform
with Lessor's standard signage specifications. Lessee shall be given one
standard sign to Lessor's specifications at the entry to Demised Premises and on
the directory in the lobby of the Building. At the request of Lessee, Lessor
shall install on the exterior portion of the Building facing Interstate 93 up to
two signs supplied by Lessee and approved by Lessor, such approval not to be
unreasonably withheld, conditioned or delayed; provided, however, that (i) such
signs conform to all applicable law including, without limitation, any
municipal sign ordinances and (ii) such installation, including any costs
incurred in the course of obtaining any necessary permits and approvals, shall
be at Lessee's sole cost and expense. Lessee may elect to install such sign(s)
itself, subject to Lessor's prior written consent. In any case, such sign(s)
shall be installed at a location mutually agreeable to Lessor and Lessee with
the understanding that Lessee desires to have such sign (s) visible from
Interstate 93 at the time of installation. Notwithstanding the foregoing,
Lessee's rights to install and maintain a sign on the exterior of the Building
shall cease if Lessee ceases to occupy 50,000 or more square feet of the
Building. Lessor will not create any obstructions on the Premises that
-11-
<PAGE> 12
will interfere with the visibility of Lessee's sign(s) and Lessor further agrees
to trim vegetation on the Premises to prevent such obstructions.
Section 5.05. Lessee will not permit any abandonment of the Demised
Premises or any part thereof except
(a) to the extent caused by condemnation,
(b) to the extent caused by damage to or alterations of the Demised
Premises pending restoration thereof, or
(c) as herein otherwise specifically provided or consented to in writing
by the Lessor.
The cessation of business operations by Lessee at the Demised Premises
shall not per se be considered abandonment if Lessee timely observes and
performs all of its other obligations under this Lease and properly and with
reasonable continuity monitors and maintains the security of and at the Demised
Premises so as to prevent any vandalism thereat or improper use thereof.
Section 5.06. Lessee will not cause or permit any waste, overloading,
stripping, damage, disfigurement or injury of or to the Premises or the Demised
Premises or any part thereof. Lessor reserves the right to prescribe the weight
and position of all safes, business machines and mechanical equipment. Such
installation shall be placed and maintained by Lessee, at Lessee's expense, in
setting sufficient, in Lessor's judgment, to absorb and prevent vibration, noise
and annoyance.
Section 5.07. Reasonable rules and regulations, provided the same are not
inconsistent with or in limitation of the provisions of this Lease and are
applied to all tenants equally, affecting the cleanliness, safety, occupation
and use of the Demised Premises and common areas of the Premises, shall be
observed by the Lessee, its employees, agents, customers and business invitees.
Lessor agrees to provide written notice to Lessee of such rules and regulations
prior the effective date thereof or any amendment thereto
-12-
<PAGE> 13
ARTICLE 6 - COMPLIANCE WITH LEGAL REQUIREMENTS
Section 6.01. Throughout the term of this Lease, Lessee, at its sole cost
and expense, will promptly comply with all requirements of law related
specifically to Lessee's specific use and occupation of the Demised Premises (as
opposed to office use generally) or with respect to any modifications or
renovation to the Demised Premises proposed by Lessee and not to the Premises
generally, and will procure and maintain all permits, licenses and other
authorizations required with respect to the Demised P remises, or any part
thereof, for the lawful and proper operation, use and maintenance of the Demised
Premises or any part thereof excluding permits necessary for the construction of
Landlord's Work, which shall be the responsibility of Lessor. Lessee shall in
each and every event and instance, at its sole cost and expense, be responsible
for compliance with all codes and regulations with respect or relating to the
Demised Premises, including, without limitation, those occasioned by work
performed by, for or with consent of Lessor at the Premises. Lessor shall be
responsible for compliance of the Building and Premises with all requirements of
law in all other cases. To the best of Lessor's knowledge, the base building
structures, systems and common areas have not been constructed in violation of
any applicable laws, including without limitation zoning laws and building
codes.
ARTICLE 7 - RENOVATION, CONDITION, REPAIRS AND MAINTENANCE DEMISED PREMISES
Section 7.01. Lessor has made no representations, warranties or
undertakings as to the present or future condition of the Premises or the
fitness or availability of the Premises for any particular use. except as
specifically set forth in Section 7.02 below.
Section 7.02. (a) Lessor agrees to construct leasehold improvements in the
Demised Premises, in a good and workmanlike manner, substantially in accordance
with the provisions set forth below ("Landlord's Work"). Subject to delay by
causes beyond the reasonable control of Lessor or caused by action or inaction
of Lessee, Lessor shall endeavor, in good faith, to have the Demised Premises
(and the portions of the Building necessary for use and occupancy of the Demised
Premises) ready for Lessee's occupancy on February 3, 2000 (the "Estimated
Occupancy Date"). Lessor's failure to have the Demised Premises ready for
Lessee's occupancy on the Estimated Occupancy Date, for any reason, shall not
give rise to any liability of Lessor hereunder, shall not constitute a Lessor's
default, shall not affect the validity of this Lease, and shall have no effect
on the beginning or end of the Term as otherwise determined hereunder or on
Lessee's obligations associated therewith. If the Demised Premises are not ready
( or deemed ready) for Lessee's occupancy by March 6, 2000 (the "Outside
Occupancy Date"), which Date shall be extended for Lessee Delays (as defined in
(b) below) and for force majeure delays, then Lessee's obligation to pay base
rent and additional rent for Taxes and Operating Expenses shall be abated for
one day for each day from the Outside Occupancy Date until the Demised Premises
are ready (or deemed ready) for occupancy.
(b) The Demised Premises shall be conclusively deemed ready for Lessee's
occupancy as soon as Landlord's Work has been substantially completed by Lessor
insofar as is practicable in view of delays or defaults, if any, of Lessee or
its contractors and upon the issuance of a temporary Certificate of Occupancy by
the City of Woburn with respect to the
-13-
<PAGE> 14
Demised Premises; provided, however, that the Demised Premises shall be deemed
ready for Lessee's occupancy without a Certificate of Occupancy if substantial
completion occurs after the Estimated Occupancy Date due to Lessee Delay, as
defined below. The Demised Premises shall be deemed to be ready for Lessee's
occupancy if only minor or insubstantial details of construction, decoration or
mechanical adjustments remain to be done in the Demised Premises or any part
thereof, or if the delay in the availability of the Demised Premises for
occupancy is (i) due to special work, changes, alterations or additions required
or made by Lessee in the layout or finish of the Demised Premises or any part
thereof, (ii) caused in whole or in part by Lessee through the delay of Lessee
in submitting any plans and/or specifications, supplying information. approving
plans, specifications or estimates, giving authorizations or otherwise or (iii)
caused in whole or in part by delay and/or default on the part of Lessee or its
contractors (any of(i), (ii) or (iii), a "Lessee's Delay"). The date that the
Demised Premises is deemed ready for Lessee's occupancy shall be referred to
herein as the "Occupancy Date" If the Demised Premises are deemed ready for
Lessee's occupancy, but due to Lessee's Delay and through no fault of Lessor are
not in fact actually ready for Lessee's occupancy, Lessee shall not (except with
Lessor's consent) be entitled to take possession of the Demised Premises for the
conduct of its business until the Demised Premises are in fact actually ready
for such occupancy, notwithstanding the fact, because the Demised Premises
shall have as above stated been deemed ready for such occupancy, that the term
hereof shall on that account have commenced. Lessor's architect's certificate of
substantial completion, or of any other facts pertinent to this Section 7.02,
shall be deemed conclusive of the statements therein contained and binding upon
Lessee unless within five (5) Business Days after receipt of such certificate
Lessee notifies Lessor that it is disputing t he certificate and specifically
identifies alleged items of incomplete or defective work (or other grounds for
objection to the certificate). Any of Landlord's Work in the Demised Premises
not fully completed on the Occupancy Date shall thereafter be so completed
within sixty (60) days of the Occupancy Date by Lessor (except to the extent
Lessor is unable with due diligence to obtain necessary special equipment or
materials in a timely fashion).
(c) Lessee shall be solely responsible for the timely preparation and
submission to Lessor of the final architectural, electrical and mechanical
construction drawings, plans and specifications (called "Plans") for Landlord's
Work, which Plans shall be subject to approval by Lessor, which approval shall
not be unreasonably withheld, and shall comply with its requirements to avoid
aesthetic or other conflict with the design and function of the Building. Lessor
shall approve or disapprove of the Plans within ten (10) Business Days after
submission. Lessor's failure to deliver such approval or disapproval within such
10 day period shall be deemed a "Lessor's Delay". The architect and engineers
for the Building will prepare the Plans necessary for such layout at Lessee's
cost, except as provided in Section 7.02(d), below. Lessor shall have no
responsibility for the timely preparation and submission of all such Plans
(other than as set forth in this Section 7.02(c)) nor any errors or omissions
contained therein. Lessee shall furnish complete information concerning its
requirements to the architect and engineers as and when requested by them; and
Lessee covenants and agrees to cause final, approved Plans to be delivered to
Lessor on or before November 5, 1999 ("Plan Delivery Date") and to devote such
time as may be reasonable and necessary in consultation with said architect and
engineers to enable them to complete and submit the Plans within the required
time limit. In addition to any other remedies that Lessor may have under this
Lease, Lessee's failure to deliver the final,
-14-
<PAGE> 15
approved Plans to Lessor by the Plan Delivery Date for any reason other than
Lessor's Delay shall be considered a Lessee's Delay pursuant to Section 7.02(b)
and the Occupancy Date shall be deemed to have occurred one day earlier pursuant
to Section 7.02(b) for each day beyond the Plan Delivery Date that Lessee fails
to deliver final, approved Plans to the Lessor.
(d) Except as is otherwise herein provided or as may be otherwise approved
by the Lessor, all Landlord's Work, including work to be performed at Lessee's
expense, shall be performed substantially in accordance with the Plans by
contractors employed by Lessor. Lessor may make changes in the Landlord's Work
shown on the Plans as Lessor deems necessary or advisable during construction,
provided that Lessee shall have the right to approve any material changes
(including, without limitation, changes that result in a material reduction in
the quality of the work or a material increase of the cost of the work shown on
the Plans). Lessor shall bear all costs of materials and workmanship to be
furnished and installed by Lessor in accordance with the Plans and shall
reimburse Lessee for costs incurred to prepare the architectural and mechanical
plans and specifications for Landlord's Work up to an aggregate amount equal to
One Million Four Hundred Seventy Two Thousand Six Hundred Ninety Two
($1,472,692.00) dollars ("Lessee's Improvement Allowance"). Lessee shall bear
all other costs of Landlord's Work and for preparing the Demised Premises for
its occupancy and for occupying the Demised Premises. Lessor shall determine the
estimated construction cost of Landlord's Work in consultation with its
contractor and Lessee. Lessee shall notify Lessor of the portion of Lessor's
Improvement Allowance to be reserved to pay for the architectural and mechanical
plans and specifications for Landlord's Work. If the sum of the estimated cost
to prepare the architectural and mechanical plans and specifications and
construct Landlord's Work shall exceed Lessee's Improvement Allowance, (i)
twenty-five percent of such excess shall be paid by Lessee within ten (10) days
after Lessor notifies Lessee of the estimated construction cost, (ii) fifty
percent of such excess shall be paid by Lessee within ten (10) days,after Lessor
notifies Lessee that the construction is fifty percent complete and (iii) the
remainder of such excess shall be paid by Lessee upon substantial completion of
the Landlord's Work. Lessor's books and records concerning Landlord's Work shall
be available for inspection by Lessee on a reasonable basis. Lessee shall be
entitled to receive a rent credit to the extent, if any, that Lessee's
Improvement Allowance remains undisbursed after Lessor's payment to contractor
of the final total cost of construction and Lessor's reimbursement of Lessee's
architect's cost of architectural and mechanical plans and specification s.
Lessor shall not be required to reimburse Lessee for any architectural or
engineering costs until after Lessee has delivered to Lessor a copy of the fully
executed architect's contract and any engineering contracts for Landlord's Work
(including all exhibits) and then only if the following conditions have been
fully satisfied: (a) at the time payment is to be made, Lessee shall have paid
in full any rents due to Lessor hereunder within applicable grace periods and
this Lease is otherwise current and not in default beyond applicable grace
periods; (b) Lessor shall have verified that all plans and specifications for
which payment is requisitioned has been properly authorized and completed; (c)
Lessee shall submit to Lessor invoices evidencing the expenditures; and (d)
Lessee shall have complied with any other reasonable requirements of Lessor's
construction lender for disbursement of funds, including confirmation to
Lessee's best knowledge, that Lessor is not in default under the Lease.
-15-
<PAGE> 16
(e) If Lessee fails or omits to make timely submission to Lessor of the
Plans, or other pertinent information, or delays in submitting any other plans
or specifications, or in supplying information, or in approving plans,
specifications or estimates, or in giving authorizations or otherwise, any
additional cost to Lessor in connection with the completion of the Demised
Premises in accordance with the terms of this Lease shall be promptly paid by
Lessee to Lessor. as an additional charge, if such additional cost is the result
of such failure, omission or delay of Lessee. For the purposes of the preceding
sentence, the expression "additional cost to Lessor" shall mean the cost over
and above such cost as would have been the aggregate cost to Lessor of
completing the Demised Premises in accordance with the terms of this Lease had
there been no such failure, omission or delay and only if such additional cost
is in excess of Lessee's Improvement Allowance.
(f) Lessee shall have the right to enter the Demised Premises on a
scheduled, nonexclusive basis for at least two weeks prior to the Occupancy
Date, without payment of rent, to perform such work or decoration as is to be
performed by, or under the direction or control of, Lessee, including
installation of work stations and telecommunications systems, provided that
Lessee shall not interfere with the completion of Landlord's Work. Such right of
entry shall be deemed a license from Lessor to Lessee, and entry thereunder
shall be at the risk of Lessee. Lessee shall not be charged any additional fee
for access, move-in or Lessor's supervision of the Landlord's Work.
(g) By taking possession of the Demised Premises, Lessee accepts the
improvements in the condition in which they may then be, and waives any right or
claim against Lessor arising out of the condition of the Demised Premises,
including the improvements thereon, the appurtenances thereto, and the equipment
thereof, except for punchlist items specified by Lessee in a written notice to
Lessor prior to taking possession of the Demised Premises and defects in
workmanship and/or materials which are not observable by careful inspection at
that time. Additional incomplete work or non-cosmetic defects or damage may be
added to the punchlist by Lessee in additional notices to Lessor within ten (10)
business days after Lessee commences occupancy of the Demised Premises. Lessee
shall be deemed to have waived any right or claim against Lessor arising out of
any defect in workmanship and/or materials (whether observable or not) on the
date nine (9) months following the date on which the Demised Premises were ready
for Lessee's occupancy if Lessee has not then given written notice of such
defect to Lessor.
(h) The foregoing provisions of Section 7.02 shall apply only to the
original Demised Premises and not to any expansion thereof.
Section 7.03. Throughout the term of this Lease, the Lessee agrees to
maintain all portions of the Demised Premises not required to be maintained by
Lessor in the same condition as they are in on the Occupancy Date or as they may
be put in during the term of this Lease, reasonable wear and tear, damage by
fire or other insured casualty, taking or condemnation by public authority or
Lessor's negligence only excepted, and whenever necessary, to replace bulbs and
ballasts in lighting fixtures and to replace plate glass and other glass
therein. Lessee shall maintain all improvements and alterations made by it in
the Demised Premises.
-16-
<PAGE> 17
Section 7.04. Lessor, or agents of Lessor, at reasonable times and with
reasonable prior notice (which may be by telephone) except in cases of
emergency, shall have the right to enter upon the Demised Premises to examine
the condition thereof, to make repairs, alterations and additions as Lessor may
be permitted to do in accordance with this Lease, and to show the Demised
Premises to prospective lenders or purchasers, and at any time within nine (9)
months before the expiration of the Term to prospective tenants.
Section 7.05. Lessor shall maintain and repair all common areas and all
structural components of the Building, mechanical components of the Building
serving more than one tenant and all components of the common areas at the
Premises, provided the same were not installed by Lessee, at Lessor's sole cost
and expense (subject to reimbursement in accordance with the provisions of
Article 2), provided, however, Lessee shall repair any damage caused by it or
its licensees, invitees, guests, agents or employees.
ARTICLE 8 - ALTERATIONS AND ADDITIONS
Section g.01. The Lessee shall not make any alterations or additions,
structural or non-structural, to the Demised Premises without first obtaining
the written consent of Lessor on each occasion which consent shall not be
unreasonably withheld or delayed; provided, however. that Lessor's consent is
not required for alterations or additions not affecting the Building structure,
HVAC, mechanical or electrical systems with an aggregate cost of less than
$25,000 in any lease year and, furthermore, Lessor's consent is not required
for painting or carpeting of the Demised Premises with an aggregate cost of less
than $50,000 in any lease year. Wherever consent is required, it shall include
approval of plans and contractors. All such allowed alterations, including
reasonable costs of review in seeking Lessor's approval, shall be made at
Lessee's expense, in compliance with all laws, and shall be in quality at least
equal to the present construction. Except as set forth below, any alterations or
additions ma de by the Lessee which are permanently affixed to the Demised
Premises or affixed in a manner so that they cannot be removed without defacing
or damaging the Demised Premises shall, if Lessor so elects at the time that
Lessee requests Lessor's consent, become property of the Lessor at the
termination of occupancy as provided herein. If Lessor elects not to retain such
alterations or additions, upon termination of this Lease, they shall be removed
by Lessee, at its expense, with minimal disturbance to the Demised Premises.
Alterations or additions not affixed and which may be removed with minimal
disturbance or repairable damage may be removed by Lessee provided such
disturbance or damage is restored and repaired so that the Demised Premises are
left in at least as good a condition as they were in at the commencement of the
term, reasonable wear, tear and damage by fire, if insured, or other insured
casualty or taking or condemnation by public authority excepted. All other
alterations and additions made by Lessee and not to be retained by Lessor shall
be removed by Lessee, at its expense, at the end of the term and the Demised
Premises shall be left in the same condition as at the commencement of the term,
reasonable wear, tear and damage by fire, if insured, or other insured casualty
or taking or condemnation by public authority excepted.
-17-
<PAGE> 18
ARTICLE 9 - DISCHARGE OF LIENS
Section 9.01. Lessee will not create or permit to be created or to remain,
and will (within ten (10) days after learning of the lien, encumbrance or
charge), discharge, or, where such lien shall be discharged by operation of law,
bond over, at its sole cost and expense any lien, encumbrance or charge (on
account of any mechanic's, laborer's, materialmen's or vendor's lien, or any
mortgage, or otherwise) made or suffered by Lessee which is or might be or
become a lien, encumbrance or charge upon the Demised Premises or any part
thereof, or upon Lessee's leasehold interest therein, having any priority or
preference over or ranking on a parity with the estate, rights and interest of
Lessor in the Demised Premises or any part thereof, or the rents, issues, income
or profits accruing to Lessor therefrom, and Lessee will not suffer any other
matter or thing within its control whereby the estate, rights and interest of
Lessor in the Demised Premises or any part thereof might be materially impaired.
ARTICLE 10 - SUBORDINATION
Section 10.01.
(a) If any holder of a mortgage or holder of a ground lease of property
which includes the Demised Premises and executed and recorded
subsequent to the date of this Lease, shall so elect, the interest of
the Lessee hereunder shall be subordinate to the rights of such
holder, provided that such holder agrees to recognize in writing the
right of the Lessee to use and occupy the Premises upon the payment of
rent and other charges payable by the Lessee under this Lease, and the
performance by the Lessee of the Les see's obligations hereunder in
the form attached as Exhibit C or in a form otherwise reasonably
acceptable to such holder and Lessee (but without any assumption by
such holder of the Lessor's obligations under this Lease existing
prior to the date that such holder succeeds to the interest of
Lessor); or
(b) If any holder of a mortgage or holder of a ground lease of property
which includes the Demised Premises shall so elect, this Lease, and
the rights of the Lessee hereunder, shall be superior in right to the
rights of such holder, with the same force and effect as if this Lease
had been executed and delivered, and recorded, or a statutory notice
hereof recorded, prior to the execution, delivery and recording of any
such mortgage.
The election of any such holder as to Subsection (a) above shall be
exercised by notice to the Lessee, in the same fashion as notices
under this Lease are given by the Lessor to the Lessee, and, if such
notice is given, such subordination shall be effective with reference
to advances then or thereafter made by such holder under such mortgage
or in connection with such ground lease financing. Any election as to
Subsection (b) above shall become effective upon either notice from
such holder to the Lessee in the same fashion as notices from the
Lessor to the Lessee are to be given hereunder or by the recording in
the appropriate registry or
-18-
<PAGE> 19
recorder's office of an instrument, in which such holder subordinates
its rights under such mortgage or ground lease to this Lease.
In the event any holder shall succeed to the interest of Lessor, the
Lessee shall, and does hereby agree to attorn to such holder and to
recognize such holder as its Lessor and Lessee shall promptly execute
and deliver any instrument that such holder may reasonably request to
evidence such attornment provided such document contains satisfactory
non-disturbance provisions in the form attached hereto as Exhibit C or
otherwise in a form reasonably acceptable to such holder and Lessee to
allow Lessee to remain in occupancy pursuant to the terms of this
Lease. Upon such attornment, the holder shall not be: (i) liable in
any way to the Lessee for any act or omission, neglect or default on
the part of Lessor under this Lease arising prior to the date such
holder succeeds to the interests of Lessor; (ii) responsible for any
monies owing by or on deposit with Lessor to the credit of Lessee
unless received by the holder, except to the extent of any prepayment
of rent within 30 days of the date that such holder succeeds to the
interests of Lessor; (iii) subject to any counterclaim or setoff which
theretofore accrued to Lessee against Lessor; (iv) bound by any
modification of this Lease so as to reduce the rent, change the term,
or otherwise materially change the rights of the Lessor under this
Lease, or to relieve the Lessee of any obligations or liability under
this Lease subsequent to such mortgage or by any previous prepayment
of regularly scheduled monthly installments of fixed rent for more
than (1) month, which w as not approved in writing by the holder; (v)
liable to the Lessee beyond the holder's interest in the Premises and
the rents, income, receipts, revenues, issues and profits issuing from
such Property; or (vi) responsible for the performance of any work to
be done by the Lessor under this Lease to render the Demised Premises
ready for occupancy by the Lessee, subject to the Lessee's right to a
day-for-day rent abatement pursuant to Section 7.02(a) of this Lease;
or (vii) liable for any portion of a security deposit not actually
received by the holder.
(c) The covenant and agreement contained in this Lease with respect to the
rights, powers and benefits of any such holder constitute a continuing
offer to any person, corporation or other entity, which by accepting
or requiring an assignment of this Lease or by entry of foreclosure
assumes the obligations herein set forth with respect to such holder;
every such holder is hereby constituted a party to this Lease and an
obligee hereunder to the same extent as though its name was written
hereon as such; and such holder shall at its written election be
entitled to enforce such provisions in its own name.
(d) No assignment of this Lease requiring the consent of Lessor, unless
such consent has been granted pursuant to Section 13.01 (a), and no
agreement to make or accept any surrender, termination or cancellation
of this Lease and no agreement to modify so as to reduce the rent,
change the term, or otherwise materially change the rights of the
Lessor under this Lease, or to relieve the Lessee of any obligations
or liability under this Lease, shall be valid unless consented to in
-19-
<PAGE> 20
writing by the Lessor's mortgagees or ground lessors of record, if
any.
(e) The Lessee agrees on request of the Lessor to execute and deliver from
time to time any agreement, in recordable form, which may reasonably
be deemed necessary to implement the provisions of this Section 10.01,
including, without limitation, the Subordination, Non-Disturbance and
Attornment Agreement attached hereto as Exhibit C.
(f) On or before the date of Lease execution, Lessor shall provide Lessee,
and Lessee shall execute, a Subordination, Non-Disturbance and
Attornment Agreement from Lessor's current mortgage holder
substantially in the form and substance attached hereto as Exhibit C.
Section 10.02. Lessee and Lessor agree to furnish to each other, within ten
(10) days after request therefor from time to time, a written statement setting
forth the following information in the form attached as Exhibit D or another
form reasonably requested by such party:
(i) The then remaining term of this Lease;
(ii) The applicable rent then being paid, including all additional rent
based upon the additional rent most recently established:
(iii) That the Lease is current and not in default or specifying any
default;
(iv) That, to the knowledge of such party, the party providing such
certificate has no current claims for offsets against the other party,
or specifically listing any such claims;
(v) The date through which rent has then been paid;
(vi) Such other information relevant to the Lease as the party may
reasonably request; and
(vii) A statement that any prospective mortgage lender, assignee, subtenant
and/or purchaser may rely on all such information.
Section 10.03. After receiving notice from any person, firm or other entity
that it holds a mortgage which includes the Demised Premises as part of the
mortgaged premises, or that it is the ground lessor under a lease with the
Lessor, as ground lessee, which includes the Demised Premises as a part of the
leased premises, no notice from the Lessee to the Lessor shall be effective
unless and until a copy of the same is given in the same manner as required for
notice in this Lease to such holder or ground lessor, and the curing of any of
the Lessor's defaults by such holder or ground lessor shall be treated as
performance by the Lessor. Accordingly, no act or failure to act on the part of
the Lessor which would entitle the Lessee under the terms of this
-20-
<PAGE> 21
Lease, or by law, to be relieved of the Lessee's obligations hereunder, to
exercise any right of self-help or to terminate this Lease, shall result in a
release or termination of such obligations or a termination of this Lease unless
(i) the Lessee shall have first given written notice of the Lessor's act or
failure to act on the part of the Lessor which could or would give basis for the
Lessee's rights; and (ii) such holder or ground lessor, after receipt of such
notice, has failed or refused to correct or cure the condition complained of
within the cure period allowed the Lessor or within such reasonable time that
provides Mortgagee time to take possession and to cure the default (or if such
holder or ground lessor notifies Lessee in writing that it intends to cure the
default within such time period and diligently pursues cure efforts, within such
additional time as is reasonably required to cure the default including
reasonably sufficient time to obtain possession of the Premises).
Section 10.04. With reference to any assignment by the Lessor of the
Lessor's interest in this Lease, or the rents payable hereunder, conditional in
nature or otherwise, which assignment is made to the holder of a mortgage or a
ground lessor on property which includes the Demised Premises, the Lessee
agrees:
(a) That the execution thereof by the Lessor, and the acceptance thereof
by the holder of such mortgage or ground lessor, shall never be
treated as an assumption by such holder or ground lessor of any of the
obligations of the Lessor hereunder, unless such holder or ground
lessor shall, by notice sent to the Lessee, specifically make such
election; and
(b) That, except as aforesaid, such holder or ground lessor shall be
treated as having assumed the Lessor's obligations hereunder only upon
foreclosure of such holder's mortgagee and the taking of possession of
the Premises, or, in the case of a ground lessor, the assumption of
the Lessor's position hereunder by such ground lessor.
ARTICLE 11 - FIRE, CASUALTY AND EMINENT DOMAIN
Section 11.01. Should a substantial portion of the Demised Premises or the
Premises be damaged by fire or other casualty, or be taken by eminent domain,
the Lessor, at its sole option, may elect to terminate this Lease so long as
Lessor terminates the leases of all other tenants of the Building similarly
affected. When fire or other unavoidable casualty or taking renders the Demised
Premises substantially unsuitable for its intended use, a just and proportionate
abatement of rent shall be made, and the Lessee may elect to terminate this
Lease if:
(a) Lessor fails to give written notice within sixty (60) days after such
casualty that sufficient insurance proceeds or other funds are
available and Lessor intends to restore the Premises or Demised
Premises or provide alternate access (if access has been prevented) by
a specified date (the "Restoration Date") or if such notice states
that the restoration is expected to require more than 180 days to
complete; or
-21-
<PAGE> 22
(b) If Lessor gives notice of its intention to restore and Lessor fails to
restore the Premises or Demised Premises to a condition substantially
suitable for their intended use or fails to provide alternate access
within one hundred eighty (180) days of such fire or other unavoidable
casualty, or taking (or such longer period specified as is in Lessor's
notice of intention to restore).
The Lessor reserves, and the Lessee grants to the Lessor, all rights which
the Lessee may have for damages or injury to the Demised Premises for any taking
by eminent domain, except for damages specifically awarded on account of the
Lessee's fixtures, property or equipment, which may be removed at the end of the
term. For purposes of this Section, a taking or dam,age shall be substantial if
it shall affect more than twenty-five (25%) percent of the Demised Premises or
the property of which they are a part.
ARTICLE 12 - INDEMNIFICATION
Section 12.01. Except to the extent due to Lessor's negligence or willful
misconduct, Lessee shall protect, indemnify and save harmless Lessor, its
managing agent and any mortgagee or ground lessor from and against all
liabilities, obligations, damages, penalties, claims, causes of action, costs,
charges and expenses, including all reasonable attorneys' fees and expenses of
employees, which may be imposed upon or incurred by or asserted against them by
reason of any of the following occurring during the term of this Lease:
(a) any work or thing done in or on the Demised Premises;
(b) any use, non-use, possession, occupation, condition, operation,
maintenance or management of the Demised Premises or any part thereof,
including, without limiting the generality of the foregoing, the use
or escape of water or the bursting of pipes, or any nuisance made or
suffered on the Demised Premises;
(c) any act or omission (with respect to the Demised Premises, or the use
or management thereof, or this Lease) on the part of Lessee or any of
its agents, contractors, customers, servants, employees, licensees,
invitees, mortgagees, assignees, sub- tenants or occupants;
(d) any accident, injury or damage to any person or property occurring in
or on the Demised Premises.
Section 12.02 Subject in any and all events to the limitations of Section
20.16, Lessor shall protect, indemnify and save harmless Lessee from and against
all liabilities, obligations, damages, penalties, claims, causes of action,
costs, charges and expenses, including all reasonable attorneys' fees and
expenses of employees, which may be imposed upon or incurred by or asserted
against Lessee during the term of this Lease as a result of any negligent act or
omission or willful misconduct on the par t of Lessor or any of its agents,
contractors, customers, servants, or employees.
-22-
<PAGE> 23
Section 12.03. In case any action or proceeding is brought against either
party by reason of any such occurrence, the party required to provide
indemnification, upon written notice from the party entitled to indemnification,
will, at the sole cost and expense of the party required to provide
indemnification, resist and defend such action or proceeding or cause the same
to be resisted and defended, by counsel designated by the party required to
provide indemnification and approved in writing by the party to be defended,
which approval shall not be unreasonably withheld.
ARTICLE 13 - MORTGAGES, ASSIGNMENTS AND SUBLEASES BY LESSEE
Section 13.01. (a) Lessee's interest in this Lease may not be mortgaged,
encumbered, assigned or otherwise transferred, or made the subject of any
license or other privilege, by Lessee or by operation of law or otherwise, and
the Demised Premises may not be sublet, as a whole or in part, (any of the
foregoing events, a "Transfer") without in each case the prior written consent
of Lessor and the execution and delivery to Lessor by the assignee or transferee
(in either case, a "Transferee") of a good and sufficient instrument whereby
such Transferee assumes all obligations of Lessee under this Lease for the space
and time period covered by the Transfer (except that a subtenant shall assume
rent obligations only to the extent of its rent obligations under the sublease).
In connection with any request by Lessee for such consent to Transfer, Lessee
shall provide Lessor with all relevant information requested by Lessor
concerning the terms of the proposed Transfer, the proposed Transferee's
financial responsibility, credit worthiness and business experience to enable
Lessor to make an informed decision. Lessee shall reimburse Lessor promptly for
all reasonable out-of-pocket expenses incurred by Lessor including reasonable
attorneys' fees in connection with the review of Lessee's request for approval
of any Transfer. Notwithstanding the foregoing, (i) the Lessor shall not
unreasonably withhold its consent to a Transfer to an affiliate controlled by,
controlling, or under common control with Lessee, or an entity resulting from a
merger or consolidation with Lessee, so long as Lessee provides Lessor (at least
10 days prior to the effective date of the assignment or sublease) with
certified financial statements establishing that such affiliate has (or will
have at the effective date of the assignment or sublease) a net worth at least
equal to Lessee's net worth as of the date of this Lease and (ii) no assignment
shall be deemed to occur as a matter of law, or otherwise, as a result of (x)
the transfer of all or any portion of the capital shares of the Lessee or (y) a
transfer of all the assets of Lessee; provided however that Lessee provides
Lessor with evidence satisfactory to Lessor of such transferee's Available Cash
at least 30 days prior to the effective date of such transfer and, if necessary,
the Security Deposit shall be increased pursuant to the provisions of Section
2.04 (but in no event shall the Security Deposit be decreased at the time of
such transfer).
(b) Upon receipt from Lessee of such request and information where
Lessor's consent is required, Lessor shall have the right, but not the
obligation, to be exercised in writing within ten (10) calendar days after its
receipt from Lessee of such request and information, (i) if the request is to
assign the Lease, or sublet all of the Demised Premises, through the end of the
then current term, to terminate this Lease, or (ii) if the request is to sublet
a portion of the Demised Premises, to release Lessee from its obligations under
this Lease with respect to the portion of the Demised Premises subject to the
proposed sublet for the term of the proposed sublease; in
-23-
<PAGE> 24
each case as of the date set forth in Lessor's notice of exercise of such
option, which date (the "Recapture Date") shall not be less than thirty (30)
days nor more than ninety (90) days following the giving of such notice. In the
event of an assignment or a sublet of the Demised Premises where Lessor
exercised its option to terminate this Lease, Lessee shall surrender possession
of the entire Demised Premises on the Recapture Date or such other date as may
be mutually agreed upon, in accordance with the provisions of this Lease
relating to surrender of the Demised Premises at the expiration of the term, and
thereafter neither Lessor nor Lessee shall have any liability under this Lease
with respect to the portion of the Demised Premises so terminated or recaptured
(except to the extent that such liability expressly survives the termination of
this Lease). In the event of a sublet of the Demised Premises where Lessor does
not terminate this Lease but releases Lessee from its obligations under this
Lease with respect to the portion of the Demised Premises subject to the sublet,
Lessee shall surrender the portion of the Demised Premises subject to the
sublease on the date set forth in such notice in accordance with the provisions
of this Lease relating to surrender of the Demised Premises at the expiration of
the term. If this Lease shall be canceled as to a portion of the Demised
Premises only, annual Base Rent, Lessee' pro-rata share of Operating Expenses
and Taxes and Lessee's parking allocation shall be readjusted proportionately
according to the ratio that the number of square feet and the portion of the
space surrendered compares to the floor area of Lessee's Demised Premises during
the term of the proposed sublet.
(c) Lessee shall not offer to make, or enter into negotiations with
respect to any Transfer to: (i) any entity owned by, or under the common control
of, whether directly or indirectly, a tenant in the Premises or Unicorn Office
Park or (ii) any party with whom, to the knowledge of Lessee after due inquiry
of Lessor, Lessor (or its affiliate) is then negotiating with respect to other
space in the Premises. It shall not be unreasonable for Lessor to disapprove any
proposed Transfer to any of the foregoing entities.
(d) Any purported Transfer under this Article 13 without Lessor's prior
written consent shall be void and of no effect. From and after any such
Transfer, the obligations of each such Transferee and of the original Lessee
named as such in this Lease to fulfill all of the obligations of Lessee under
this Lease shall be joint and several. No acceptance of rent by Lessor from or
recognition in any way of the occupancy of the Demised Premises by a Transferee
shall be deemed a consent to such Transfer , or a release of Lessee from direct
and primary liability for the further performance of Lessee's covenants
hereunder. The consent by Lessor to a particular Transfer shall not relieve
Lessee from the requirement of obtaining the consent of Lessor to any further
Transfer
(e) In the event Lessee Transfers the Demised Premises or any part thereof
for consideration in excess of the obligations of Lessee to Lessor hereunder,
Lessee shall from time to time within fifteen (15) days of receipt pay over to
Lessor an amount equal to 50% of the excess, if any, of(l) any rents received by
Lessee from such Transferee, over (2) the sum of (x) the rents and other
expenses payable by Lessee to Lessor hereunder, and (y) the actual thirdparty
costs for legal fees, brokerage and advertising costs, leasehold improvements
(including construction of a multi-tenant corridor), and out-of-pocket
concession payments incurred by Lessee in procuring the Transfer.
-24-
<PAGE> 25
Section 13.02. No Transfer of any interest in this Lease, the Demised
Premises or any part thereof and no execution and delivery of any instrument of
assumption pursuant to Section 13.01 hereof shall in any way affect or reduce
any of the obligations of Lessee under this Lease, but this Lease and all of the
obligations of Lessee under this Lease shall continue in full force and effect
as the obligations of a principal (and not as the obligations of a guarantor or
surety). Each violation of any of the covenants, agreements, terms or
conditions of this Lease, whether by act or omission, by any of Lessee's
permitted Transferees, shall constitute a violation thereof by Lessee.
ARTICLE 14 - DEFAULT
Section 14.01. (a) In the event that:
(i) the Lessee shall default in the due and punctual payment of any
installment of rent, or any part thereof, when and as the same shall
become due and payable and such default shall continue for more than
five (5) days after notice; provided, however, that Lessor shall not
be required to give such notice for the second default (or any
subsequent default) in any twelve (12) month period.
(ii) the Lessee shall default in the payment of any additional rent payable
under this Lease or any part thereof, when and as the same shall
become due and payable, and, such default shall continue for a period
often (10) days after notice; provided, however, that Lessor shall not
be required to give such notice for the second default (or any
subsequent default) in any twelve (12) month period; or
(iii) the Lessee shall default in the observance or performance of any of
the Lessee's covenants, agreements or obligations hereunder, other
than those referred to in the foregoing clauses (i) and (ii), and such
default shall not be corrected within thirty (30) days after written
notice (provided that if correction of any such matter reasonably
requires longer than 30 days and Lessee so notifies Lessor within 10
days after Lessor's notice is given together with an estimate of the
reasonable time required for such cure, Lessee shall be allowed such
longer period, but only if cure is begun within such 10-day period
and such delay does not cause increased risk of damage to person or
property); or
(iv) the Lessee shall file a voluntary petition in bankruptcy or shall be
adjudicated a bankrupt or insolvent, shall file any petition or answer
seeking any reorganization, arrangement, composition, dissolution or
similar relief under any present or future federal, state or other
statute, law or regulation relating to bankruptcy, insolvency or other
relief for debtors, or shall seek, or consent, or acquiesce in the
appointment of any trustee, receiver or liquidator of Lessee or of all
or any substantial part of its properties, or of the Demised Premises,
or shall make any general assignment for the benefit of creditors; or
-25-
<PAGE> 26
(v) any court enters an order, judgment or decree approving a petition
filed against Lessee seeking any reorganization, arrangement,
composition, dissolution or similar relief under any present or future
federal, state or other statute, law or regulation relating to
bankruptcy, insolvency or other relief for debtors, and such order,
judgment or decree shall remain unvacated or unstayed for an aggregate
of sixty (60) days; or
(vi) subject to the provisions of Section 5.05, the Demised Premises shall
be abandoned (unless approved by the Lessor);
then Lessor shall have the right thereafter to re-enter and take complete
possession of the Demised Premises, to declare this Lease terminated and to
remove the Lessee's effects without prejudice to any remedies which might be
otherwise used for arrears of rent or other default. Lessee waives any statutory
notice to quit and equitable rights in the nature of further cure or redemption,
and Lessee agrees that upon Lessor's termination of this Lease Lessor shall be
entitled to re-entry and possession in accordance with the terms hereof. Lessee
agrees that a notice by Lessor alleging any default shall, at Lessor's option
(the exercise of such option shall be indicated by the inclusion of the words
"notice to quit" in such notice), constitute a statutory notice to quit. If
Lessor exercises its option to designate a notice of default hereunder as a
statutory notice to quit, any grace periods provided for herein shall run
concurrently with any statutory notice periods. Lessee further agrees that it
shall not interpose any non-mandatory counterclaim or set-off in any summary
proceeding or in any action based in whole or in part on non-payment of rent.
(b) The Lessee shall indemnify the Lessor against all loss of rent and
other payments which the Lessor may incur by reason of such termination during
the residue of the term pursuant to the terms set forth in Section 14.01 (c),
below. Without limiting the generality of the foregoing, Lessee shall reimburse
Lessor for all expenses arising out of such termination, including without
limitation, all costs incurred in collecting amounts due from Lessee under this
Lease (including reasonable attorneys ' fees, costs of litigation and the like);
all expenses reasonably incurred by Lessor in attempting to relet the Demised
Premises or parts thereof (including advertisements, brokerage commissions,
tenant allowances, costs of preparing space. and the like); all of Lessor's then
unamortized costs of special inducements provided to Lessee (including without
limitation rent holidays, rent waivers, above building standard leasehold
improvements, and the like) and all Lessor's other reasonable expenditures
necessitated by the termination. The reimbursement from Lessee shall be due and
payable immediately from time to time upon notice from Lessor that an expense
has been incurred, without regard to whether the expense was incurred before or
after the termination.
(c) Lessor may elect by written notice to Lessee at any time following
such termination to be indemnified for loss of rent by a lump sum payment
representing the then present value of the amount of rent and additional charges
which would have been paid in accordance with this Lease for the remainder of
the Term minus the then present value of the aggregate fair market rent and
additional charges payable for the Premises for the remainder of the Term (if
less than the rent and additional charges payable hereunder), estimated as of
the date
-26-
<PAGE> 27
of the termination, and taking into account reasonable projections of vacancy
and time required to re-lease the Premises. (For the purposes of calculating the
rent which would have been paid hereunder for the lump sum payment calculation
described herein, the last full year's additional charges under Section 2.02 is
to be deemed constant for each year thereafter. The yield to maturity on
non-callable U.S. Treasury obligations having a maturity date closest to the
scheduled expiration of the Term (as reported in the Wall Street Journal or
comparable source of financial information reasonably selected by Lessor) shall
be used in calculating present values.) Should the parties be unable to agree on
a fair market rent, the matter shall be submitted, upon the demand of either
party, to the Boston, Massachusetts office of the American Arbitration
Association, with a request for arbitration in accordance with the rules of the
Association by a single arbitrator who shall be an MAI appraiser with at least
ten years experience as an appraiser of major office buildings in the Greater
Boston area. The parties agree that a decision of the arbitrator shall be
conclusive and binding upon them. Should Lessor fail to make the election
provided for in this Section 14.01(c), Lessee, upon Lessor's giving notice of
such amount, shall indemnify Lessor for the loss of rent by a payment at the end
of each month which would have been included in the term, representing the
difference between the rent which would have been paid in accordance with this
Lease and the rent actually derived from the Demised Premises by Lessor for such
month (the amount of rent deemed derived shall be the actual amount less any
portion thereof attributable to Lessor's reletting expenses described above
which have not been reimbursed by Lessee thereunder).
(d) Any obligation imposed by law upon Lessor to relet the Demised
Premises shall be subject to the reasonable requirements of Lessor to lease
other available space prior to reletting the Demised Premises and to lease to
high quality tenants in a harmonious manner with an appropriate mix of uses,
tenants, floor areas and terms of tenancies, and the like.
(e) Nothing herein shall limit or prejudice the right of Lessor to prove
and obtain in a proceeding for bankruptcy, insolvency, arrangement or
reorganization, by reason of the termination, an amount equal to the maximum
allowed by a statute or law in effect at the time when, and governing the
proceedings in which, the damages are to be proved, whether or not the amount is
greater to, equal to, or less than the amount of the loss or damage which Lessor
has suffered.
Section 14.02. If the Lessee shall default in the observance or performance
of any condition or covenants on Lessee's part to be observed or performed under
or by virtue of any of the provisions and any Article of this Lease, the Lessor,
after any applicable notice to Lessee and opportunity to cure provided elsewhere
in this Lease, without being under any obligations to do so and without thereby
waiving such default, may remedy such default for the account and at the expense
of the Lessee. If the Lessor makes any expenditures or incurs any obligations
for the payment of money in connection therewith, including but not limited to
reasonable attorneys' fees in instituting, prosecuting or defending any action
or proceeding, such sums paid or obligations incurred, and costs, shall be paid
upon demand to the Lessor by the Lessee as additional rent and if not paid
within ten (10) days of demand with interest at the rate of eighteen (18%)
percent per annum from the date such payments were due.
-27-
<PAGE> 28
Section 14.03. No failure by either party to this Lease to insist upon
strict performance of any covenant, agreement, term or condition of this Lease,
or to exercise any right or remedy consequent upon breach thereof, and no
acceptance of full or partial rent during the continuance of any breach, shall
constitute a waiver of any such or of any covenant, agreement, term or
condition. The covenant, agreement, term or condition of this Lease to be
performed or complied with by a party to this Lease, and no breach thereof,
shall be waived, altered or modified except by written instrument executed by
the other party. No waiver of any breach shall affect or alter this Lease, but
each and every covenant, agreement, term and condition of this Lease shall
continue in full force and effect with respect to any other then existing or
subsequent breach thereof.
Section 14.04. In the event (i) any payment of rent (or additional rent) is
not paid within five (5) business days of the due date, or (ii) a check received
by Lessor from Lessee shall be dishonored, then because actual damages for a
late payment or for a dishonored check are extremely difficult to fix or
ascertain, but recognizing that damage and injury result therefrom, Lessee
agrees to pay as an administrative fee and not as a penalty: (I) the greater of
(a) 5% of the amount due in (i) above or (b) $150.00 as liquidated damages for
each late payment and (II) the greater of 2.5% of the amount due in (ii) or
$45.00 as liquidated damages for each time a check is dishonored. (The grace
period herein provided is strictly related to the fee for a late payment and
shall in no way modify or stay Lessee's obligation to pay rent when it is due,
nor shall the same preclude Lessor from pursuing its remedies under this Section
14, or as otherwise allowed by law.) In the event that two (2) or more Lessee's
checks are dishonored, Lessor shall have the right, in addition to all other
rights under this lease, to demand all future payments by certified check or
money order. Furthermore, if any payment of rent (annual or additional) or any
other payment payable hereunder by Lessee to Lessor shall not be paid within the
applicable grace period, the same shall bear interest, from the date when the
same was due until the date paid, at the rate of eighteen percent (18%) per
annum. Such interest shall constitute additional rent payable hereunder.
Section 14.05. Each right and remedy of Lessor provided for in this Lease
shall be cumulative and concurrent and shall be in addition to every other right
or remedy provided for in this Lease now or hereafter existing at law or in
equity or by statute or otherwise, and the exercise or beginning of the exercise
by Lessor of any one or more of the rights or remedies provided for in this
Lease now or hereafter existing at law or in equity or by statute or otherwise
shall not preclude the simultaneous exercise by Lessor of any or all other
rights or remedies provided for in this Lease or now or hereafter existing at
law or in equity or by statute or otherwise.
Section 14.06. Whenever, under any provision of this Lease, Lessee shall be
entitled to receive any payment from Lessor or to exercise any privilege or
right under Article 13 of this Lease, Lessor shall not be obligated to make any
such payment and Lessee shall not be entitled to exercise any such rights so
long as Lessee shall be in default under any of the provisions of this Lease,
and until after such default shall have been cured, if cured prior to the
expiration or termination of this Lease pursuant to the provisions of Section
14.01 hereof. Lessee shall not be entitled to offset against rent or any other
charges payable under this Lease any payments due
-28-
<PAGE> 29
from Lessor to Lessee or any Mortgagee.
ARTICLE 15 - SURRENDER
Section 15.01. Lessee shall, upon any expiration or earlier termination of
this Lease, remove all of Lessee's goods and effects from the Demised Premises.
Lessee shall peaceably vacate and surrender to the Lessor the Demised Premises
and deliver all keys, locks thereto, and other fixtures connected thereto,
unless Lessor requests removal of the same, and all alterations and additions
made to or upon the Demised Premises, in the same condition as they were at the
commencement of the term, or as they were put in during the term hereof,
reasonable wear and tear and damage by insured fire or other unavoidable
casualty or taking or condemnation by public authority or as a result of
Lessor's negligence only excepted. In the event of the Lessee's failure to
remove any of Lessee's property from the Demised Premises, Lessor is hereby
authorized, without liability to Lessee for loss or damage, and at the sole risk
of Lessee, to remove and store any of the property at Lessee's expense, or to
retain same under Lessor's control or to sell at public or private sale, after
thirty (30) days' prior notice to Lessee at its address last known to Lessor,
any or all of the property not so removed and to apply the net proceeds of such
sale to the payment of any sum due hereunder, or to destroy such property.
ARTICLE 16 - QUIET ENJOYMENT
Section 16.01. Without limiting any other rights of Lessor stated elsewhere
herein. Lessee, upon paying the rent and other charges herein provided for and
performing and complying with all covenants, agreements, terms and conditions of
this Lease on its part to be performed or complied with, shall lawfully and
quietly hold, occupy and enjoy the Demised Premises during the term of this
Lease.
ARTICLE 17 - ACCEPTANCE OF SURRENDER
Section 17.0 I. No surrender to Lessor of this Lease or of the Demised
Premises or any part thereof or of any interest therein by Lessee shall be valid
or effective unless required by the provisions of this Lease or unless agreed to
and accepted in writing by Lessor. No act on the part of any representative or
agent of Lessor, and no act on the part of Lessor other than such a written
agreement and acceptance by Lessor, shall constitute or be deemed an acceptance
of any such surrender.
ARTICLE 18 - NOTICES - SERVICE OF PROCESS
Section 18.01. All notices, demands, requests and other instruments which
may or are required to be given by either party to the other under this Lease
shall be in writing. All notices, demands, requests and other instruments from
Lessor to Lessee shall be deemed to have been properly given if sent by United
States certified mail, return receipt requested, postage prepaid, or if sent by
prepaid Federal Express or other similar overnight delivery service which
provides a receipt, addressed to Lessee at the Demised Premises, or at such
other address or addresses as the Lessee from time to time may have designated
by written notice to Lessor and shall be deemed
-29-
<PAGE> 30
given on the earlier of actual receipt or refusal of service. Notwithstanding
the foregoing, prior to the Occupancy Date Lessee's notice address shall be 400
Unicorn Park Drive, Woburn, Massachusetts 01801 or such other address or
addresses as the Lessee may have designated by written notice to Lessor. All
notices, demands, requests and other instruments from Lessee to Lessor shall be
deemed to have been properly given if sent by United States certified mail,
return receipt requested, postage prepaid or if sent by prepaid Federal Express
or other similar overnight delivery service which provides a receipt, addressed
to Lessor at One Appleton Street. Boston, MA 02116 and to The Prudential
Insurance Company of America, c/o Prudential Real Estate Investors, 8 Campus
Drive, Parsippany, New Jersey 07054, or at such other address as Lessor from
time to time may have designated by written notice to Lessee. Any notice shall
be deemed to be effective upon receipt by, or attempted delivery to, the
intended recipient.
ARTICLE 19 - SEPARABILITY OF PROVISIONS
Section 19.01. If any term or provision of this Lease or the application
thereof to any person or circumstance shall, to any extent, be invalid or
contrary to applicable law or unenforceable, the remainder of this Lease, and
the application of such term or provision to persons or circumstances other than
those as to which it is held invalid or contrary to applicable law or
unenforceable, as the case may be, shall not be affected thereby, and each term
and provision of this Lease shall be legally valid and enforced to the fullest
extent permitted by law.
ARTICLE 20 - MISCELLANEOUS
Section 20.01. This Lease may not be modified or amended except by written
agreement duly executed by the parties hereto.
Section 20.02. This Lease shall be governed by and construed and enforced
in accordance with the laws of the Commonwealth of Massachusetts.
Section 20.03. This Lease may be executed in several counterparts, each of
which shall be an original but all of which shall constitute but one and the
same instrument.
Section 20.04. The covenants and agreements herein contained shall, subject
to the provisions of this Lease, bind and inure to the benefit of Lessor, his
successors and assigns, and Lessee, and Lessee's permitted successors and
assigns, and no extension, modification or change in the terms of this Lease
effected with any successor, assignee or transferee shall cancel or affect the
obligations of the original Lessee hereunder unless agreed to in writing by
Lessor. The term "Lessor" as used herein an d throughout the Lease shall mean
only the owner or owners at the time in question of Lessor's interest in this
Lease. Upon any transfer of such interest, from and after the date of such
transfer, Lessor herein named (and in case of any subsequent transfers the then
transferor), shall be relieved of all liability for the performance or
observance of any agreements, conditions or obligations on the part of the
Lessor contained in this Lease except for defaults by Lessor prior to such
transfer or monies owed by Lessor to Lessee and which were not assigned to and
repayment thereof assumed by such transferee, provided that if any monies are in
the hands of Lessor or the then transferor at the time of such transfer, and in
which Lessee has an
-30-
<PAGE> 31
interest, shall be delivered to the transferee, then Lessee shall look only to
such transferee for the return thereof.
Section 20.05. This instrument contains the entire and only agreement
between the parties, and no oral statements or representations or prior written
matter not contained in this instrument shall have any force or effect.
Section 20.06. In the event this Lease or a copy thereof shall be recorded
by Lessee, then such recording shall constitute a default by Lessee under
Article 14 hereof entitling Lessor to immediately terminate this Lease. Upon
request by Lessee, Lessor and Lessee shall execute a document in recordable form
containing only such information as is necessary to constitute a Notice of
Lease, including the first sentence of Section 10.01 hereof. All costs of
preparation and recording such notice shall be borne by Lessee.
Section 20.07. The submission of this Lease for review or comment shall not
constitute an agreement between Lessor and Lessee until both have signed and
delivered copies thereof.
Section 20.08. Whenever Lessee is required to obtain Lessor's approval
hereunder, Lessee agrees to reimburse Lessor all out-of-pocket expenses incurred
by Lessor, including reasonable attorney fees in order to review documentation
or otherwise determine whether to give its consent.
Section 20.09. Lessee shall furnish to Lessor on the execution of this
Lease and within one hundred twenty (120) days after each calendar year of each
year during the Term an accurate, up-to-date, audited if available, financial
statement(s) of the original Lessee, any assignee, and any subtenant of more
than 5,000 square feet showing the financial condition of Lessee, the assignee
or subtenant (as applicable) for the twelve (12) month period ending the
immediately preceding December 31.
Section 20.10. PARKING AND SHUTTLE BUS.
(a) Lessor agrees that during the Term of this Lease, Lessee shall have
the right (at no additional charge) to use three and one-half (3.5) parking
spaces on the Premises per 1,000 square feet of rentable area contained in the
Demised Premises to accommodate officers, employees, guests, invitees and
clients, in connection with the operation of its business. Lessee shall have the
exclusive right at no additional charge to use 20 parking spaces in the covered
parking area underneath the Building, and the balance of Lessee's parking spaces
shall be available on a non-exclusive basis within the outdoor parking areas
serving the Premises. Use of the covered parking area underneath the Building
will be controlled by a sticker system or comparable controls
(b) Lessor shall provide shuttle bus service (with a bus having at least a
25 person capacity) from the Building to at least one major public
transportation station for at least three hours during each weekday morning
commuting period and three hours during each weekday
-31-
<PAGE> 32
afternoon commuting period, so long as bus ridership is maintained at a level of
at least 30% capacity. The cost of the shuttle bus service shall be an Operating
Expense.
Section 20.11. Lessee warrants and represents that it is not a tax-exempt
or foreign entity and that it will not assign, sublet or otherwise permit such
an entity to occupy the Demised Premises without the prior written consent of
the Lessor, which shall not be unreasonably withheld, conditioned or delayed in
the case of a domestic tax-exempt entity after taking into account Lessor's
ownership and financing.
Section 20.12. Intentionally Omitted.
Section 20.13. Lessor and Lessee each represent and warrant that they have
not directly or indirectly dealt with any broker with respect to the leasing of
the Demised Premises other than CB Richard Ellis and Fallon Hines & O'Connor.
Each party agrees to exonerate and save harmless and indemnify the other against
any claims for a commission by any broker, person or firm other than CB Richard
Ellis and Fallon Hines & O'Connor with whom such party has dealt in connection
with the execution and delivery of this Lease or out of negotiations between
Lessor and Lessee with respect to the leasing of the space in the Premises.
Section 20.14. The obligations of the Lessee hereunder shall be joint and
several obligations of Lessee and any guarantors and any and all of their heirs,
legal representatives, successors and assigns. The Lessor may proceed against
any or all of Lessee, any guarantors and any and all of their heirs, legal
representatives, successors and assigns in the event of a default hereunder.
Section 20.l5. Intentionally Omitted.
Section 20.16. Limitation of Liability. None of the provisions of this
Lease shall cause either party to this Lease to be liable to the other, or
anyone claiming through or on behalf of the other, for any special, indirect or
consequential damages, including, without limitation, lost profits or revenues.
In no event shall any individual partner, officer, shareholder, trustee,
beneficiary, director, manager, member or similar party, including, without
limitation, Lessor's managing agent, be liable to either party to this Lease, or
anyone claiming by through or under such party for the performance of or by a
party to this Lease under this Lease or any amendment, modification or agreement
with respect to this Lease. Lessee agrees to look solely to Lessor's interest in
the Premises in connection with the enforcement of Lessor's obligations in this
Lease or for recovery of any judgment from Lessor, it being agreed that Lessor
shall never be personally liable for any judgment, or incidental or
consequential damages sustained by Lessee from whatever cause.
Section 20.17. Emergency Action. In the event of an emergency, as
reasonably determined by Lessor or Lessee, as applicable, in order and to the
extent necessary to protect life or property, the party making that
determination, where it is not practical to notify the other party, may take
action and incur reasonable out-of-pocket cost to third parties for matters
otherwise the obligation of the other party hereunder and, to the extent the
party taking action
-32-
<PAGE> 33
incurs such expense in so acting, which expense, but for such emergency would
have been the expense of the other, then the party on behalf of whom such action
was taken and expense incurred will, within thirty (30) days after receipt of
documentation of such expenses, reimburse the party which incurred such expense.
Section 20.18. In the event either party to this Lease shall be delayed or
hindered in or prevented from the performance of any act required under this
Lease to be performed by such party by reason of strikes, lockouts, labor
troubles, inability to procure materials, failure of power, restricted
governmental law or regulations, riots, insurrection, war or other reason of a
like nature not within the reasonable control of such party, then performance of
such act shall be excused for the period of the delay, and the period for the
performance of any such act shall be extended for a period equivalent to the
period of such delay. In case Lessor is prevented or delayed from diligent
construction of improvements, making any repairs, alterations or improvements,
or furnishing any services or performing any other covenant or duty to be
performed on Lessor's part, by reason of any cause reasonably beyond Lessor's
control, Lessor shall not be liable to Lessee therefor, nor, except as otherwise
provided in Section 11.01 and Section 3.03, shall Lessee be entitled to any
abatement or reduction of rent by reason thereof, nor shall the same give rise
to a claim in Lessee's favor that such failure constitutes actual or
constructive, total or partial, eviction from the Demised Premises. In no event
shall either party be liable for indirect or consequential damages arising out
of any default by the other party.
20.19. If Lessee (or anyone claiming by, through, or under Lessee) shall
remain in possession of the Demised Premises or any part thereof after the
expiration of earlier termination of this Lease with respect thereto without any
agreement in writing executed with Lessor, Lessee shall be deemed a tenant at
sufferance. After the expiration or earlier termination of the Term, Lessee
shall pay Base Rent at 200% of the rent rate in effect immediately preceding
such expiration or termination, and with all additional rent payable and
covenants of Lessee in force as otherwise herein provided, and Lessee shall be
liable to Lessor for all damages arising from such failure to surrender and
vacate the Demised Premises, including damages arising from the loss of a
replacement lease transaction.
20.20. Lessee shall have the appurtenant right during the term of this
Lease to maintain, repair, replace, and operate, at its sole cost and expense,
the standby kilowatt diesel powered generator ("Lessee's Equipment") shown on
the Plans and installed as Landlord's Work, and to enjoy 24-hour access thereto,
all in accordance with the terms, provisions, conditions and agreements
contained in this Lease (including, without limitations provisions regarding
Landlord's Work, Lessee's insurance, indemnification, overloading and nuisance,
and Lessee's yield up). For all purposes under this Lease, including Article 12,
Lessee's Equipment and the area where it is located shall be deemed to be
located in and a part of the Demised Premises. In the event that the Lessee's
Equipment shall be located in any parking areas of the Building, Lessee's
parking allocation under Section 20.10 of this Lease shall be reduced to reflect
any loss of parking spaces resulting from the location of Lessee's Equipment.
Lessee shall, at its own expense, procure and thereafter maintain in full force
and effect at all times any and all governmental licenses or permits required
for the installation and the operation of Lessee's Equipment and Lessor shall
cooperate with Lessee in such efforts at Lessee's sole cost and
-33-
<PAGE> 34
expense. Lessee shall furnish Lessor with (i) copies of all such permits
required as a condition to installation and (ii) a certificate of insurance
evidencing insurance coverage as required by this Lease and any other insurance
reasonably required by Lessor for the installation and operation of Lessee's
Equipment prior to the installation of Lessee's Equipment. Lessee shall furnish
Lessor and the applicable governmental authorities with all required data and
information with respect to Lessee's Equipment. Lessor, at Lessee's sole cost
and expense, shall cooperate with Lessee if necessary m connection with any
required filings.
Lessee covenants that the installation and operation of Lessee's Equipment
shall not (i) cause interference with any mechanical or other system either
located in or servicing the Building (whether belonging to or utilized by Lessor
or any other tenant or occupant of the Building); (ii) constitute a violation of
any applicable laws, ordinances, rules, order, or regulations of any Federal,
State, or local authority having jurisdiction over Lessee's Equipment: or (iii)
constitute a nuisance or interfere with the use and enjoyment of the premises
of any other tenant in the Building. All Lessee obligations under this Section
20.20 shall survive the Term of this Lease.
ARTICLE 21 - OPTION
Section 21.01. Provided the obligations of Lessee under this Lease shall
then be current and not in default beyond all applicable notice and grace
periods and shall be occupying substantially all of the Demised Premises, Lessee
shall have the right, at its election, to extend the original term of this Lease
for one additional period of five (5) years (the "Option Term"), commencing upon
the expiration of the original term, provided that Lessee shall give Lessor
written notice in the manner provided in Section 18.01 of the exercise of its
election to so extend at least nine (9) months (but no more than twelve (12)
months) prior to the expiration of the original term. The expression "the
original term" means the period of years referred to in Section 1.02. Prior to
the exercise by Lessee of said election to extend the original term, the
expression "the term of this Lease" or any equivalent expression shall mean the
original term; after the exercise by Lessee of the aforesaid election, the
expression "the term of this Lease" or any equivalent expression shall mean the
original term as extended. Except as expressly otherwise provided in this Lease,
all the agreements and conditions contained in this Lease shall apply to the
additional period to which the original term shall be extended as aforesaid. If
Lessee shall give written notice as provided in Section 18.01 of the exercise of
the election in the manner and within the time provided aforesaid, the term
shall be extended upon the giving of the notice without the requirement of any
action on the part of the Lessor or written confirmation of receipt by Lessor.
Section 21.02. The annual Base Rent payable for each year during the Option
Term shall be 95 percent of the market rent as determined in the manner set
forth in Section 21.03 below.
Section 21.03. If Lessee gives Lessor timely notice of its intention to
extend the original term of this Lease, then within sixty (60) days thereafter,
Lessor shall give Lessee written notice of the then applicable market rent for
Lessee's space, based on similar space on that floor in the Premises and rent
for similar space in similar buildings in the same geographic area (the "Market
-34-
<PAGE> 35
Rent"). Rent for each year of the Option Term shall be established as 95 percent
of the Market Rent, but in no event shall 95 percent of Market Rent be lower
than the yearly rent most recently paid hereunder. Rent shall never be decreased
below that paid in the prior lease year.
Section 21.04. In the event that Lessee disputes the Market Rent set by
Lessor, Lessee may, within fifteen (15) days of its receipt of notice from
Lessor establishing such Market Rent, give notice to Lessor of such dispute and
thereupon the matter shall be submitted to arbitration in accordance with the
terms set forth in Section 21.05 below. If Lessee does not so dispute Lessor's
Market Rent within the fifteen (15) day period, Lessee shall be deemed to have
accepted Lessor's Market Rent.
Notwithstanding the submission of the issue of "Market Rent" to
arbitration, rent for the next ensuing year of the term of this Lease shall be
paid at 95 percent of the Lessor's "Market Rent" until the arbitration is
completed. If, upon completion of the arbitration, it is determined that Market
Rent is less or more than that set by Lessor, then an adjustment based upon such
lower or greater rent shall be made based on the number of months therefore paid
by Lessee but in no event shall rent be lower than that paid for the prior
lease year. In no event shall the extension of the term of this Lease be
affected by the determination of the rent, such exercise of extension being
fixed at the time at which notice is given.
Section 21.05. In the event Lessor and Lessee shall be unable to agree on
the then Market Rent for the purposes of determining the minimum annual rent
during the term of this Lease after the original term, then Market Rent shall be
established in the following manner of arbitration:
(a) Each of Lessee and Lessor shall choose an arbitrator knowledgeable in
the field of establishing fair rental values in this area;
(b) The arbitrators selected in accordance with "(a)" above shall select a
third arbitrator who is an MAI certified appraiser with at least ten
(10) years' experience in the appraisal of suburban Boston office
buildings;
(c) The selections shall be completed no later than twenty-one (21 ) days
after Lessee's notice disputing Lessor's Market Rent. If any selection
is not made within the 21-day time period, either party may petition
the Boston office of the American Arbitration Association to make the
selection;
(d) Within thirty (30) days after their appointment, the arbitrators shall
determine the fair market rent for the Demised Premises for the next
lease year, and shall notify Lessee and Lessor of such determination
within seven (7) days, which determination shall be final and binding
upon Lessee and Lessor. If the arbitrators are unable to agree upon
the fair market rent, the fair market rent will be deemed to be the
average of the fair market rents proposed by the arbitrators, except
that (i) if the lowest proposed fair market rent is less than 90% of
the second to lowest proposed fair market rent, the lowest proposed
fair market rent will automatically
-35-
<PAGE> 36
be deemed to be 90% of the second to lowest proposed fair market rent
and (ii) if the highest proposed fair market rent is greater than 110%
of the second to highest proposed fair market rent, the highest
proposed flair market rent will automatically be deemed to be 110% of
the second to highest proposed fair market rent.
(e) The foregoing arbitration shall be conducted in accordance with the
rules of the American Arbitration Association or its successors:
(f) Lessor and Lessee shall each pay one-half (%) of the cost of the
arbitration proceedings.
For the purpose of determining Market Rent the parties shall use as a
guideline the average rental rates for comparable office space in the Building
over the past year or if no comparable office lease transactions have taken
place during the past year. then the guideline shall be the then market rent for
similar available space in similar buildings in the same geographic area.
ARTICLE 22 - RIGHT OF FIRST OFFER
Section 22.01. Prior to offering to lease any space on the first floor of
the Building to a third party other than a party leasing or licensing space for
the purpose of operating a building amenity available to tenants generally, such
as a cafe or fitness center, Lessor shall offer (the "Offer") to lease such
space ("RFO Space") to Lessee on the same terms and conditions as Lessor intends
to offer the RFO Space on the market, provided, however, that Lessee shall lease
the RFO Space for the RFO Term as defined below. Lessee's rights under this
Article 22 shall not be exercisable within one year of when the Lease is then
scheduled to expire.
Notwithstanding the foregoing, Lessee's rights under this Article 22 shall
not apply to leases entered into by Lessor prior to the date (the "Article 22
Date") that is the earlier of(i) two years after the date of this Lease or (ii)
the date upon which at least 95% of the Building has been leased to tenants.
Any offer by Lessor under this Section 22.01 may be accepted by Lessee by
notice given within seven (7) business days of receipt of Lessor's offer. In the
event that Lessee accepts any offer by Lessor under this Section 22.01, the
leasing of the RFO Space shall be documented by an Amendment to this Lease. If
Lessee does not exercise its rights to lease the RFO Space under this Section
22.01, Lessor shall be free to lease the RFO Space to any third party on terms
that are not materially more favorable to the tenant than the terms offered to
Lessee. A reduction in net rent of up to 5% shall not be considered material for
purposes of this Section 22.01. Lessee's rights under this Section 22.01 shall
be rendered void, at Lessor's election, if(a) Lessee is in default (after
expiration of any applicable notice and cure period) at the time Lessor offers
the RFO Space to Lessee or at the time Lessee's lease of the RFO Space would
otherwise commence or (b) Lessee or an Affiliate approved by Lessor pursuant to
Article 13 does not occupy substantially all of the Demised Premises at the
time Lessor offers the RFO Space to Lessee or at the time Lessee's lease of the
RFO Space would commence or (c) at the time Lessor offers the
-36-
<PAGE> 37
RFO Space to Lessee or at the time Lessee's lease of the RFO Space would
commence Lessee's net worth is less than the net worth stated in Lessee's
financial statements delivered to Lessor prior to the date of execution of this
Lease.
The RFO Term shall commence on the date Lessor delivers the RFO Space to
Lessee free of tenants or occupants and shall expire on the later of (i) the
date specified with respect to the RFO Space in the Offer or (ii) the date that
this Lease is scheduled to expire for the originally Demised Premises. Lessor's
failure to deliver, or delay in delivering, all or any part of the space for any
reason beyond Lessor's control (including continued occupancy of any such space
by occupant thereof) shall not give rise to any liability of Lessor, shall not
alter Lessee's obligation to accept such space when delivered, shall not
constitute a default of Lessor, and shall not affect the validity of the Lease.
This Section 22.01 shall not be construed to grant to Lessee any rights or
interest in any space in the Building and any claims by Lessee alleging a
failure of Lessor to comply herewith shall be limited to claims for monetary
damages and Lessee may not assert any rights in any space nor file any lis
pendens or similar notice with respect thereto.
ARTICLE 23 - LIMITED RIGHT OF FIRST REFUSAL
Section 23.01. Prior to the Article 22 Date (as defined above), on or
before the execution of any bona-fide letter of intent or term sheet to lease
any space on the first floor of the Building to a third party, Lessor shall
deliver such letter of intent or term sheet ("LOI") to lease such space ("RFR
Space") to Lessee and Lessee shall have the right to lease the RFR Space on the
same terms and conditions as set forth in the LOI. Lessee may exercise its right
to lease the RFR Space under this Section 23.01 by notice given within seven
(7) business days of receipt of the LOI. If Lessee does not exercise its rights
to lease any RFR Space offered to Lessee under this Section 23.01, Lessee's
rights under this Article shall expire, Lessee shall have no further rights of
first refusal hereunder, and Lessor shall be free to lease all space on the
first floor of the building to any third party. In the event that Lessee
exercises its rights to lease the RFR Space under this Section 23.01, the
leasing of the RFR Space shall be documented by an Amendment to this Lease.
Lessee's rights under this Section 23.01 shall be rendered void, at Lessor's
election, if (a) Lessee is in default (after expiration of any applicable notice
and cure period) at the time Lessor offers the RFR Space to Lessee or at the
time Lessee's lease of the RFR Space would otherwise commence or (b) if the
Occupancy Date has occurred and Lessee or an Affiliate approved by Lessor
pursuant to Article 13 does not occupy substantially all of the Demised
Premises at the time Lessor offers the RFR Space to Lessee or at the time
Lessee's lease of the RFR Space would commence or (c) at the time Lessor offers
the RFR Space to Lessee or at the time Lessee's lease of the RFR Space would
commence Lessee's net worth is less than the net worth stated in Lessee's
financial statements delivered to Lessor prior to the date of execution of this
Lease.
Lessor's failure to deliver, or delay in delivering, all or any part of the
space for any reason beyond Lessor's control (including continued occupancy of
any such space by occupant
-37-
<PAGE> 38
thereof) shall not give rise to any liability of Lessor, shall not alter
Lessee's obligation to accept such space when delivered, shall not constitute a
default of Lessor, and shall not affect the validity of the Lease.
This Section 23.01 shall not be construed to grant to Lessee any rights or
interest in ally space in the Building and any claims by Lessee alleging a
failure of Lessor to comply herewith shall be limited to claims for monetary
damages and Lessee may not assert any rights in any space nor file any lis
pendens or similar notice with respect thereto.
ARTICLE 24 - REPRESENTATIONS AND WARRANTIES
Section 24.01. (a) Lessor represents and warrants that, to its knowledge
after due inquiry, on and after the Occupancy Date, the Building's elevators,
equipment, life safety systems, invoice billing and any other devices or
software that are necessary for the operation and maintenance of the Building in
accordance with the provisions of the Lease will be capable of accurately
processing date and/or time data relating to the year 2000. Lessor has and will
continue to use commercially reasonable efforts to (i) investigate, with its
management and vendors, the ability of the computer time clocks and software,
that operate and/or control the Premises equipment and Lessee billings, to
continue to operate without unreasonable interruption or disruption after
January 1, 2000 (the "Millennium"), and (ii) undertake commercially reasonable
measures to address any potential problems identified by Lessor's investigation
(the "Y2K Assessment") so as to avoid, to the extent reasonably possible,
unreasonable interruption and/or disruption to the Building's equipment and
Lessee billings. The Y2K Assessment shall include an assessment of the
Building's elevators, equipment, life safety systems, invoice billing and any
other device or software that are necessary for the operation and maintenance of
the Building in accordance with the provisions of the Lease.
(b) Lessor represents and warrants to Lessee that, to the best of its
knowledge after due inquiry, on the Occupancy Date the common areas of the
Building, including all bathrooms, will comply with the Americans with
Disabilities Act of 1990 (42 U.S.C. {}12101 et seq.) and regulations and
guidelines promulgated thereunder (collectively referred to here as the "ADA").
-38-
<PAGE> 39
It is intended that this instrument will take effect as a sealed
instrument.
IN WITNESS WHEREOF, the Lessor and Lessee have signed the same as of this
9TH day of NOVEMBER, 1999.
LESSOR: DIV UNICORN, LLC
By: /s/ Jonathan Daus
---------------------------
Name: Jonathan Daus
Title: Manager
LESSEE: FAIRMARKET, INC.
By: /s/ John M. Belchers
---------------------------
Its: Chief Financial Officer
-39-
<PAGE> 1
EXHIBIT 10.5
================================================================================
SUBLEASE
================================================================================
Sublandlord: Insignia Solutions, Inc., Premises: First Floor
a Delaware corporation 400 Unicorn Park Drive
Woburn, MA 01801
Subtenant: Fair Market Inc., a Delaware corporation
1. Parties.
This Sublease is made and entered into as of January 22, 1998 by and
between Insignia Solutions, Inc., a Delaware corporation ("Sublandlord"), and
("Subtenant"), under the Master Lease dated July 9, 1996, between Met Life
International Real Estate Partners Limited Partnership, as "Lessor" (following a
change of ownership of the Premises, Acquiport Unicorn, Inc., a Delaware
corporation, is now the Master Lessor) and Sublandlord under this Sublease as
"Lessee." A copy of the Master Lease is attached hereto as Exhibit "A" and
incorporated herein by this reference.
2. Provisions Constituting Sublease.
2.1 This Sublease is subject to all of the terms and conditions of the
Master Lease. Subtenant hereby assumes and agrees to perform all of the
obligations of "Lessee" under the Master Lease to the extent said obligations
apply to the Subleased Premises and Subtenant's use of the Common Areas, except
as specifically set forth herein. Sublandlord hereby agrees to cause Lessor
under the Master Lease to perform all of the obligations of Lessor thereunder to
the extent said obligations apply to the Subleased Premises and Subtenant's use
of the Common Areas. Subtenant shall not commit or permit to be committed on the
Subleased Premises or any other portion of the Project any act or omission which
violates any term or condition of the Master Lease. Except to the extent waived
or consented to in writing by the other party or parties hereto who are affected
thereby, neither of the parties hereto will, by renegotiation of the Master
Lease, assignment, subletting, default or any other voluntary action, avoid or
seek to avoid the observance or performance of the terms to be observed or
performed hereunder by such party, but will at all times in good faith assist in
carrying out all the terms of this Sublease and in taking all such action as
may be necessary or appropriate to protect the rights of the other party or
parties hereto who are affected thereby against impairment.
2.2 All of the terms and conditions contained in the Master Lease are
incorporated herein, except as specifically provided below, and the terms and
conditions specifically set forth in this Sublease, shall constitute the
complete terms and conditions of this Sublease, except the following paragraphs
of the Master Lease which shall solely be the obligation of Sublandlord: #3.1,
3.2, 3.3, 3.4, 3.5, 3.6, 4.1, 17.6, 17.10 and 18.1.
3. Subleased Premises and Rent.
3.1 Subleased Premises. Sublandlord leases to Subtenant and Subtenant
leases from Sublandlord the Subleased Premises upon all of the terms, covenants
and
<PAGE> 2
conditions contained in this Sublease. The Subleased Premises consist of
approximately (plus or minus) 3,908 square feet, located at 400 Unicorn Park
Drive, Woburn, MA 01801, First Floor.
3.2 Rent. Subtenant shall pay to Sublandlord as Rent for the Subleased
Premises the sum Six Thousand Six Hundred Seventy-Six Dollars and Seventeen
Cents ($6,676.17) per month, without deductions, offset, prior notice or
demand. Rent shall be payable by Subtenant to Sublandlord in consecutive monthly
installments on or before the first day of each calendar month during the
Sublease Term; provided, however, the Rent for the period from the Sublease
commencement date through March 14, 1998 of the Sublease Term shall be zero. The
rent for the period beginning March 15, 1998 through March 31, 1998 shall be
prorated and the prorated Rent shall be payable on March 15, 1998. If the
termination date of the Sublease occurs on a date other than the last day of a
calendar month, then the Rent for such partial month shall be prorated and the
prorated Rent shall be payable on the first day of the calendar month in which
the Sublease termination date occurs, respectively.
3.3 Security Deposit. In addition to the Rent specified above, as security
for the full and faithful performance by Subtenant of all of the terms and
conditions of this Sublease during the term hereof, Subtenant shall pay to
Sublandlord an equivalent of three month's rent ($20,028.50) as a Security
Deposit, which Security Deposit shall be kept by Sublandlord in an interest
bearing account bearing six percent (6%) per annum. In the event Subtenant fails
to perform any of the terms and conditions of this Sublease during the term
hereof, Sublandlord shall be entitled to use any or all of the Security Deposit
to cure any default created by Subtenant's failure to perform. If the
Sublandlord so uses any or all of the Security Deposit, Subtenant shall within
five business days of written notice to Subtenant pay to Sublandlord an amount
equal to the amount so used by Sublandlord to restore the full amount of the
Security Deposit. In the event Subtenant has performed all of the terms and
conditions of this Sublease during the term hereof, Sublandlord shall return to
Subtenant, within ten days after Subtenant has vacated the Subleased Premises,
the Security Deposit plus interest accrued on such Security Deposit less any
sums due and owing to Sublandlord.
3.4 Additional Rent. Subtenant shall be obligated to reimburse Sublandlord
for Sublandlord's share of Operating Costs as defined in Article 10 of the
Master Lease. Subtenant's reimbursement to Sublandlord for Sublandlord's share
of Operating Costs shall be made in the same manner in which payment is made by
Lessee to Lessor in the Master Lease. Any increases in Sublandlord's share of
Operating Costs during the term of this Sublease shall be borne by the
Subtenant.
3.5 Time and Place of Payment. With the exception of the first month's
rent which shall be delivered by Subtenant to Sublandlord upon Subtenant's
execution of this Sublease, all payments of Rent and Additional Rent shall be
made, in advance, without notice, on the first day of each month during the term
of this Sublease, payable to the order of Insignia Solutions, Inc., 1740
Technology Drive, Suite 180, San Jose, CA 95110, Attn: Tim Peart, or other such
person or at such other place as Sublandlord may from time to time designate in
writing.
2
<PAGE> 3
3.6 Condition of Premises. Sublandlord shall deliver premises in "as is"
condition.
4. Sublease Term.
4.1 Sublease Term. The Sublease Term shall be for the period commencing on
January 22, 1998, and continuing through August 15, 2001. In no event, however,
shall the Sublease Term extend beyond the Term of the Master Lease.
Notwithstanding anything to the contrary stated herein, the commencement date of
the Sublease Term is subject to the Master Lessor's consent to this Sublease.
In the event Sublandlord is unable to obtain the Master Lessor's consent to
this Sublease. Sublandlord shall not be liable for any damage caused thereby.
4.2 Assignment of Sublease. This Sublease may not be assigned or
transferred by Subtenant except in accordance with Article 6 of the Master Lease
and upon the consent of the Master Lessor and the Sublandlord to any proposed
assignment or transfer. Sublandlord's consent to any proposed assignment or
transfer shall not be unreasonably withheld.
5. Notices.
All notices, demands, consents and approvals which may or are required to
be given by either party to the other hereunder shall be given in the manner
provided in the Master Lease, at the addresses shown on the signature page
hereof. Sublandlord shall notify Subtenant of any Event of Default under the
Master Lease, or of any other event of which Sublandlord has actual knowledge
which will impair Subtenant's ability to conduct its normal business at the
Subleased Premises, as soon as reasonably practicable following Subtenant's
receipt of notice from the Landlord of an Event of Default or actual knowledge
of such impairment. If Sublandlord elects to terminate the Master Lease,
Sublandlord shall so notify Subtenant by giving at least 30 days notice prior to
the effective date of such termination.
6. Broker Fee.
Upon execution of the Sublease, Sublandlord shall pay CB
Commercial/Whittier Partners and The Thomas Group, Inc., fees set forth in a
separate agreement between Sublandlord and such brokers.
7. Compliance With Americans With Disabilities Act.
Subtenant shall be responsible for the installation and cost of any and all
improvements, alterations or other work required on or to the Subleased
Premises, required or reasonably necessary because of: (1) Subtenant's use of
the Subleased Premises or any portion thereof; (2) the use by a subtenant by
reason of assignment or sublease; or (3) both, including any improvements,
alterations or other work required under the Americans With Disabilities Act of
1990. Compliance with the provisions of this Section 8 shall be a condition of
Sublandlord granting its consent to any assignment
3
<PAGE> 4
or Sublease of all or a portion of this Sublease and the Subleased Premises
described in this Sublease.
8. Compliance With Nondiscrimination Regulations.
It is understood that it is illegal for Sublandlord to refuse to display
or sublease the Subleased Premises, or to assign, surrender or sell the Master
Lease, to any person because of race, color, religion, national origin, sex,
sexual orientation, marital status or disability.
9. Rent Abatement and Damages to Personal Property.
In the event Sublandlord, pursuant to the terms of the Master Lease, is
entitled to and receives rent abatement, then to the extent such rent abatement
affects the subleased premises, Subtenant shall be entitled to rent abatement in
an amount that the net rentable area of the subleased premises bears to the
total net rentable area of the Master Lease, and only to the extent any such
abatement applies to the sublease term. In addition, any amounts paid or
credited to Sublandlord under the terms of the Master Lease for damage to
personal property shall be credited to Subtenant, subject to the same
limitations set forth above.
Sublandlord:
By: [illegible signature] Date: 1/28/98
-------------------------------- ------------------------------
Subtenant:
By: /s/ Scott Randall Date: 1/27/98
-------------------------------- ------------------------------
Exhibit "A" Master Lease
4
<PAGE> 1
EXHIBIT 10.6
SUBLEASE
This SUBLEASE AGREEMENT is made as of April 5th 1999 between INDIGO
AMERICA, INC., with a principal place of business at 400 Unicorn Park Drive,
Woburn, Massachusetts ("Sublandlord") and FAIRMARKET INCORPORATED, a Delaware
corporation with a principal place of business at 400 Unicorn Park Drive,
Woburn, Massachusetts 01801 ("Sub-Tenant").
W I T N E S S E T H:
WHEREAS, Sublandlord is the tenant of certain office premises located
at 400 Unicorn Park Drive, Woburn, Massachusetts (the "Prime Premises") under a
Lease Agreement dated October 6, 1993, as amended November 3, 1993, as further
amended by a Second Lease Amendment dated December 1994, and as further amended
by a Third Lease Amendment dated July 23, 1996 (the "Prime Lease") between MET
LIFE INTERNATIONAL REAL ESTATE PARTNERS LIMITED PARTNERSHIP (the "Prime
Landlord") and Sublandlord; and
WHEREAS, Sub-Tenant desires to sublet a portion of the Prime Premises
and Sublandlord is willing to sublet the same on the conditions and terms set
forth below.
NOW, THEREFORE, the parties, for valuable consideration received, agree
as follows:
1. LEASE OF PREMISES.
1.1. PREMISES. Sublandlord hereby demises and sublets to
Sub-Tenant, and Sub-Tenant hires from Sublandlord, that
portion of the Prime Premises consisting of approximately
7,829 square feet on the second floor shown on Exhibit A
attached hereto and incorporated herein by reference (the
"Premises").
2. TERM.
2.1. INITIAL TERM. The term of this Sublease shall commence on
April 19, 1999 and shall end on or about January 31, 2004, or
at the termination of the Prime Lease. Each Lease Year shall
be for twelve (12) calendar months ending on December 31st of
each year.
2.2. SUBJECT TO PRIME LEASE. Notwithstanding anything to the
contrary herein, this Sublease shall terminate, and be of no
further force and effect, upon termination of the Prime Lease
for any reason, without liability to Sublandlord whatsoever.
In addition, under no circumstances shall Sublandlord be
liable for failure to perform any obligation hereunder if said
obligation is an obligation of Prime Landlord under the Prime
Lease and Sublandlord is using reasonable efforts to enforce
its rights under the Prime Lease.
3. RENT.
3.1. BASE RENT. Commencing on June 15, 1999, Sub-Tenant covenants
and agrees
-1-
<PAGE> 2
with Sublandlord to pay base rent during the term of this
Lease in the amount of $156,580.00 per year ($13,048.33 per
month)
Equal monthly installments of base rent shall be payable in
advance on or before the first day of each calendar month of
the term of this Lease, prorated with respect to any
fractional calendar month.
3.2. ADDITIONAL RENT. Sub-Tenant agrees to pay as additional rent
the following:
(a) All electricity used or consumed on the Premises to be
paid within fifteen (15) days after a submission of an invoice
therefor;
(b) Sub-Tenant's pro rata share of Real Estate Taxes and
Operating Costs assessed by the Prime Landlord against the
Sublandlord pursuant to the Prime Lease.
(c) Sub-Tenant's pro rata share of any Additional Rent, as
same is defined in the Prime Lease, assessed by the Prime
Landlord against the Sublandlord pursuant to the Prime Lease.
3.3. LATE PAYMENT. Sub-Tenant agrees to pay Sublandlord a late
charge of Two Hundred Fifty, Dollars ($250.00) for each
payment of rent that is not paid within ten (10) days after it
is due.
3.4. SECURITY DEPOSIT. Sub-Tenant shall pay to Sublandlord upon
execution of this Lease a security deposit of Thirteen
Thousand Forty Eight and 33/100 ($13,048.33) Dollars. Such
deposit shall be held by Sublandlord (without any obligation
to segregate or to pay interest) as security for the prompt
and complete performance of all of Sub-Tenant's obligations
hereunder. At the termination of the Sublease, Sublandlord
shall return the deposit to Sub-Tenant, less any amounts owing
to Sublandlord for obligations under this Sublease.
4. PREPARATION OF PREMISES.
4.1. CONDITION &PREMISES. Sub-Tenant agrees that it is leasing the
Premises "AS IS", without representation or warranty of any
kind.
5. PERMITTED USE OF PREMISES.
5.1. PERMITTED USE. Sub-Tenant shall use the Premises for general
office purposes and for no other purposes.
5.2. INCREASED RISK. Sub-Tenant will not do anything in or upon the
Premises which may be prohibited by any insurance policy in
force carried by Sublandlord covering the Premises or any
portion thereof. In the event Sub-Tenant's occupancy or
conduct of business on or upon the Premises results in any
increase in premiums for the insurance carried from time to
time by Sublandlord with respect to the Prime Premises,
Sub-Tenant shall pay one hundred percent (100%) of any
increase
-2-
<PAGE> 3
upon demand therefor from Sublandlord. In determining whether
increased premiums are a result of Sub-Tenant's occupancy of
the Premises, the written determination of the insurer shall
be conclusive. Sub-Tenant shall promptly comply with all
reasonable requirements of the insurance authority or of any
insurer now or hereafter in effect relating to the Premises.
6. MAINTENANCE AND OPERATIONS.
6.1. SUBLANDLORD OBLIGATIONS. Subject to the provisions of the
Prime Lease, Sublandlord agrees to cause the Prime Landlord
to:
(i) furnish the Premises with heat and air conditioning
as reasonably required under the Prime Lease, and
(ii) maintain the structural aspects of the Premises and
the building of which it is a part.
6.2. SUB-TENANT'S OBLIGATIONS. Sub-Tenant agrees to:
(a) maintain the interior of the Premises, the fixtures and
appurtenances therein, and the exterior glass and doorways and
any special facades (such as special logos, designs or paint
schemes) of the Premises, including maintaining the same in a
manner appropriate for a first-class business operation;
(b) not overload or deface the Premises or permit any use of
the Premises that would increase the insurance rate or make
voidable any insurance policy on the Prime Premises, or create
any fire hazard, or be unlawful, noisy, offensive or create a
nuisance, or violate any governmental law or regulation or
applicable insurance rating association requirement, or commit
waste or other injurious acts upon person or property;
(c) quit and surrender the Premises clean and in the same
order and condition as the Premises are in on the commencement
of the term, or may be put in term with the consent of
Sublandlord, ordinary wear and tear and damage by fire or
casualty excepted;
(d) obey any rules and regulations that may be applicable to
Premises, comply with all requirements applicable to the
Sublandlord and/or Sub-Tenant under the Prime Lease, and not
otherwise permit any act or omission in connection with the
Premises that would constitute a violation or default under
the Prime Lease;
(e) install and maintain separate metering of electricity,
phone, computer networking systems and all other utilities not
provided by the Prime Landlord pursuant to the Prime Lease.
For all such utilities, Sub-Tenant shall pay all charges
directly to the applicable utility company before such amounts
are due; and
(f) pay for all other costs of operating Sub-Tenant's business
in the Premise.
-3-
<PAGE> 4
6.3. INTERRUPTIONS; REPAIRS. Sublandlord or agents of Sublandlord
may, at reasonable times enter the Premises to make repairs
and to show the Premises to prospective purchasers or tenants.
Although Sublandlord shall use reasonable efforts to ensure
that such access does not interfere with the operation of
Sub-Tenant's business, Sublandlord shall not be liable to
Sub-Tenant (whether directly or through any set-off of rent or
other charges) by reason of any inconvenience, noise or loss
of business as a result of any interruption of any service or
utility serving the Premises beyond Sublandlord's reasonable
control or for Sublandlord entering the Premises for any
authorized purpose.
7. ALTERATIONS AND ADDITIONS. Sub-Tenant may not make any structural or
non-structural alterations or additions to the Premises without Sublandlord's
written consent, which consent may be withheld in Sublandlord's sole discretion.
Prior to any such alterations or additions, Sub-Tenant shall provide Sublandlord
with detailed plans of the proposed work for Sublandlord's written approval. Any
such approved alterations or additions shall be constructed diligently at
Sub-Tenant's expense in a good and workmanlike manner and in compliance with all
applicable laws and regulations, including any requirements under the Prime
Lease, and shall be at least equal in quality to the present construction.
Sub-Tenant shall be responsible for obtaining, at Sub-Tenant's expense, all
applicable permits and approvals for such work. Sub-Tenant shall not permit any
mechanics' liens or similar liens to remain upon the Premises for labor and
material furnished to Sub-Tenant in connection with work performed at the
direction of Sub-Tenant and shall immediately cause any such lien to be released
of record without cost to Sublandlord. All alterations or additions made by
Sub-Tenant shall remain the exclusive property of Sublandlord, and upon
termination of this Sublease, if requested, by Sublandlord, Sub-Tenant shall
restore the Premises to its condition as of the date hereof, wear and tear and
damage by casualty excepted. Sub-Tenant may remove any such alteration or
addition only if Sub-Tenant has received Sublandlord approval for their removal
prior to their construction; in such case Sub-Tenant shall be responsible for
the cost of repairing any resulting injury to the Premises due to such removal.
8. ASSIGNMENT; SUBLEASING. Sub-Tenant shall not assign or sublet the whole
or any part of the Premises without the prior written consent of both the Prime
Landlord and the Sublandlord. Sublandlord's consent may not be unreasonably
withheld. However, Prime Landlord may withhold its consent in its sole
discretion. For the purposes of this Sublease, any (a) assignment as a matter of
law, whether by merger, consolidation or otherwise, and (b) any sale of the
controlling interest in the equity of Sub-Tenant, shall be deemed to be an
assignment. In the event of any permitted assignment, Sub-Tenant shall remain
liable to Sublandlord for the payment of all rent and for the full performance
of the covenants and conditions of this Lease.
9. INSURANCE; LIABILITY.
9.1. SUB-TENANT'S INSURANCE. Sub-Tenant shall maintain (a)
comprehensive public liability insurance indemnifying
Sublandlord, the Prime Landlord, any mortgagee of which
Sub-Tenant has notice, and Sub-Tenant against all claims and
demands for personal injury or death or property damage which
may be claimed to have occurred upon the Premises, such
insurance to be in reasonable amounts, but in any event not
less than $3,000,000.00 single limit coverage and (b) all-risk
casualty
-4-
<PAGE> 5
insurance with extended coverage on the Premises (naming
Sublandlord, the Prime Landlord, mortgagees of which
Sub-Tenant has notice and Sub-Tenant, as their interests may
appear) in an amount equivalent to the full replacement value
of the improvements, fixtures, equipment and Sub-Tenant's
personal property on the Premises, without allowance for
depreciation. Prior to the commencement of the term, and
thereafter not less than thirty (30) days prior to the
expiration date of each expiring policy, Sub-Tenant shall
deliver to Sublandlord original copies or certificates of the
policies required hereunder. All such policies shall be
written by responsible insurance companies authorized to do
business in the state in which the Premises are located, and
shall provide for at least thirty (30) days written notice to
all named parties prior to cancellation.
9.2. WAIVER OF SUBROGATION. Sub-Tenant will use its best efforts to
cause all policies of casualty insurance to contain the
insurers' waiver of subrogation and consent to pre-loss waiver
of rights by the insured. Effective only when permitted by the
policy or when use of its good faith efforts could have
obtained such a clause at no additional cost or premium,
Sub-Tenant waives all claims and rights to recover against
Sublandlord in event of an insurable loss or damage. If such
provision or waiver is not obtainable without the payment of
an additional premium or at all, Sub-Tenant shall promptly
notify Sublandlord and shall be relieved of its obligation to
obtain or continue such provision or waiver in its policy
unless, in the case in which the same is obtainable upon
payment of an additional premium, Sublandlord pays such
additional premium.
9.3. INDEMNIFICATION AND LIABILITY. Sub-Tenant hereby indemnifies
Sublandlord, Landlord, and all mortgagees against all
liabilities, damages and other expenses, including reasonable
attorneys' fees, which may be imposed upon, incurred by, or
asserted against them by reason of either of the following
occurring during the term of this Lease:
(a) any personal injury or property damage occurring on the
Premises (other than as a result of any negligence or willful
misconduct on the part of such party); or
(b) any personal injury or property damage occurring as a
result of any negligence or willful misconduct on the part of
Sub-Tenant, its agents and invitees; or
(c) any failure on the part of Sub-Tenant to perform or comply
with any covenant required to be performed or complied with by
Sub-Tenant under this Lease.
10. CASUALTY; CONDEMNATION.
10.1. TERMINATION; RESTORATION. If a substantial part of the
Premises shall be taken by right of eminent domain or damaged
by fire or other casualty and if Sublandlord
-5-
<PAGE> 6
does not elect to restore the Premises substantially to its
former use and dimensions, then Sublandlord may elect to
terminate this Lease upon thirty (30) days written notice. If
Sublandlord does not elect to terminate this Lease,
Sublandlord shall proceed with reasonable diligence to put the
Premises or what remains thereof in such proper condition and
to provide normal access thereto and to provide normal
services therefor as is reasonably practical.
10.2. RENT ADJUSTMENT. In case of any taking or damage rendering a
substantial portion of the Premises unfit for its intended
use, a just proportion of the rent, according to the nature
and extent of the injury, shall be abated until the Premises
shall have been restored to as reasonably its former condition
as practical. In the event of a partial taking, provision
shall be made for a permanent abatement to the extent that any
portion of the Premises can no longer be so used.
10.3. RIGHTS TO AWARDS. Sublandlord reserves all rights to insurance
proceeds with respect to casualty to the Premises and its
improvements (but not including contents and trade fixtures)
or condemnation awards by reason of any taking or settlement
in lieu of taking. Sub-Tenant grants to Sublandlord all of
Sub-Tenant's rights to such proceeds or awards and covenants
to execute and deliver such further instruments of assignment
thereof as Sublandlord may from time to time request.
Sub-Tenant may separately pursue compensation for a taking
resulting in lost business or moving expenses.
11. TITLE.
11.1. QUIET ENJOYMENT. Without limiting the provisions of Sections
2.3 and 11.2, as long as Sub-Tenant shall pay the rental and
observe the other obligations and liabilities of Sub-Tenant
set forth herein, Sub-Tenant shall peacefully and quietly
have, hold and enjoy the Premises until the expiration of the
term without any manner of hindrance or molestation by
Sublandlord or anyone else claiming by, through or under
Sublandlord.
11.2. ACCESS TO THE PREMISES. Notwithstanding any provision to the
contrary contained in this Sublease, Sub-Tenant agrees to
provide Sublandlord with access to the electrical room located
adjacent to the Premises (and accessible only through the
Premises), during Sub-Tenant's normal operating hours. In
addition, Sub-Tenant agrees to allow Sublandlord, when
accompanied by a representative of the Prime Landlord, access
to such electrical room outside of Sub-Tenant's normal
operating hours. Such access, whether during or after
Sub-Tenant's operating hours, shall be for the limited purpose
of allowing Sublandlord to access, maintain and/or repair the
electrical equipment maintained in said electrical room.
Sub-Tenant further agrees to maintain the entryway to the
electrical room in such a manner as to allow for access by the
Sublandlord and/or the Prime Landlord at all times.
11.3. SUBORDINATION. This Sublease shall be subject and subordinate
in all respects to (a) the Prime Lease, (b) any extension,
renewal, modification or replacement
-6-
<PAGE> 7
thereof (which will thereafter constitute part of the "Prime
Lease" hereunder), and (c) any and all mortgages now or at any
time hereafter constituting a lien or liens on the property of
which the Premises are a part and Sub-Tenant shall, when
requested, execute and deliver such written instruments as
shall be necessary to show the subordination of this Lease to
said mortgages.
11.3. NOTICE OF LEASE. The parties shall not execute or record a
short-form or notice of lease.
12. DEFAULT. In the event that (a) Sub-Tenant shall fail to make payment of
any installment of rent or other sum herein specified and such failure shall
continue for five (5) days; or (b) Sub-Tenant shall fail to observe or perform
any other of Sub-Tenant's covenants, agreements, or obligations hereunder and
such failure shall not be corrected within fifteen (15) days after written
notice thereof or such longer period as may be reasonably necessary to cure such
failure; then Sub-Tenant shall be deemed in default hereunder and Sublandlord
shall have the right thereafter, while such default continues, to re-enter and
take possession of the Premises, to declare the term of this Sublease ended, and
to remove Sub-Tenant's effects, or to exercise any and all rights and remedies
as is accorded the Prime Landlord for a default of Sublandlord under the Prime
Lease, all in accordance with applicable law. Sub-Tenant shall indemnify
Sublandlord against all loss of rent and other payments which Sublandlord may
incur by reason of such termination during the remainder of the term. If any
default by Sub-Tenant, or other action of Sub-Tenant, causes a default under the
Prime Lease, any grace period allowed hereunder shall in no event be greater
than five (5) days less than that allowed Sublandlord under the Prime Lease.
13. MISCELLANEOUS.
13.1. NOTICE. Any notice hereunder shall be deemed effective when
delivered (by hand, by U.S. Mail Return Receipt Requested, or
by facsimile) to the parties at the following addresses:
Sublandlord: Indigo America, Inc.
400 Unicorn Park Drive
Woburn, MA 01801
Attn: LEGAL/CONTRACTS DEPT.
Sub-Tenant: Fairmarket Incorporated
400 Unicorn Park Drive
Woburn, MA 01801
Attn: Pat Breitmaier, Office Manager
A party may change its notice address by giving proper notice to the
other party as set forth above.
13.2. WAIVER. The failure of either party to seek redress for
violation or to insist upon the strict performance of any
covenant or condition of this Lease, shall not prevent a
subsequent act, which would have originally constituted a
violation, from having
-7-
<PAGE> 8
all the force and effect of an original violation. No
provision of this Lease shall be deemed to have been waived by
either party unless such waiver be in writing and signed by
the party to be bound thereby.
13.3. SELF-HELP. If Sub-Tenant shall default in the performance or
observance of any agreement or condition in the Lease
contained on its part to be performed or observed, and if
Sub-Tenant shall not cure such default within fifteen (15)
days (or such shorter period as is permitted under Section 12)
after notice from Sublandlord (or shall not within said period
commence to cure such default and thereafter prosecute the
curing of such default to completion with due diligence),
Sublandlord may, at its option, without waiving any claim for
damages, at any time thereafter cure such default for the
account of Sub-Tenant, and any reasonable amount paid or any
contractual liability incurred by Sublandlord in so doing
shall be deemed paid or incurred for the account of Sub-Tenant
and Sub-Tenant agrees to pay to Sublandlord as additional rent
reimbursement thereof together with interest at the rate of
eighteen percent (18%) per annum.
13.4. FORCE MAJEURE. In any case where either party is required to
do any act (other than make a payment of money), delay or
impossibility caused by or resulting from Act of God, war,
civil commotion, fire or other casualty, labor strikes,
general shortages of labor, materials or equipment, government
regulations or other causes beyond such party's control (other
than causes related to such party's financial condition) shall
not be actionable and the time when the performance of such
act must be completed, whether such time be designated by a
fixed time, a fixed period of time or "a reasonable time",
shall be accordingly adjusted.
IN WITNESS WHEREOF, the parties have caused this instrument to be
executed by their duly authorized representatives under seal as of the day and
year first above written.
INDIGO AMERICA, INC.
By: /s/ George Krikorian
----------------------------------------
Print Name: George Krikorian
--------------------------------
Title: Treasurer
-------------------------------------
Date: 4/15/99
--------------------------------------
SUB-TENANT:
FAIRMARKET INCORPORATED
By: /s/ Susan Zaney
----------------------------------------
Print Name: Susan Zaney
--------------------------------
Title: VP, Marketing
-------------------------------------
Date: 4/15/99
--------------------------------------
-8-
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated January 13, 1999, except as to the information in Note 6 related to
the issuance of Series C Convertible Preferred Stock for which the date is
February 25, 1999, relating to the financial statements of FairMarket Inc.,
which appear in such Registration Statement. We also consent to the reference to
us under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
December 13, 1999
<TABLE> <S> <C>
<ARTICLE> 5 <LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FAIRMARKET, INC. AND IS QUALIFIED IN ITS ENTIRETY IN
REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE NOTES THERETO.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 18,854,556
<SECURITIES> 0
<RECEIVABLES> 631,689
<ALLOWANCES> 51,890
<INVENTORY> 0
<CURRENT-ASSETS> 19,705,597
<PP&E> 2,595,930
<DEPRECIATION> (255,752)
<TOTAL-ASSETS> 22,045,775
<CURRENT-LIABILITIES> 1,553,524
<BONDS> 0
17,500,000
48,078,182
<COMMON> 5,050
<OTHER-SE> (45,090,981)
<TOTAL-LIABILITY-AND-EQUITY> 22,045,775
<SALES> 0
<TOTAL-REVENUES> 891,422
<CGS> 0
<TOTAL-COSTS> 6,801,327
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 125,000
<INTEREST-EXPENSE> (5,227)
<INCOME-PRETAX> (5,755,846)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,755,846)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,755,846)
<EPS-BASIC> (1.16)
<EPS-DILUTED> (1.16)
</TABLE>
